All work and no play may have made Jack a dull boy, but it's all work in the play business. That's because the domestic video game industry rang up $9.9 billion in sales last year, according to the researching hounds at NPD Group.
The future looks even brighter. New hardware platforms and potential applications will make video game companies prominent power brokers in the leisure and entertainment space.
Think you can handle a piece of that? I'm not suggesting that you and I develop a game together (though I'm sure we could storyboard some pretty amazing concepts). I am suggesting that you take a closer look at the investing potential of the video game sector. There's more promise there than meets the eye.
I explored the concept with Motley Fool co-founder David Gardner (a video game junkie himself). Here's what David had to say:
Video games may have started with Pac-Man and Space Invaders, but by the time the medium of interactive entertainment has fully matured with high technology, it will completely outshine Hollywood, the music industry, and probably a few other peers combined. The companies most likely to own the future of interactive entertainment are operating under the more modest guise of "video game companies" right now. If you don't own any yet ... why the heck not?
Yeah -- why the heck not? David knows all about picking budding stocks in disruptive industries. His real-money Rule Breaker portfolio produced spectacular results throughout the 1990s, and his Motley Fool Rule Breakers newsletter service continues that tradition today. His endorsement comes with pedigree papers.
There are three reasons why any growth investor should consider their investing dollars for the video game industry -- even if you've never picked up a game controller.
1. The platforms are coming
Over the next year, all three of the major video game platforms will be releasing next-generation consoles. The hardware side isn't messing around this time. These machines will come with more processing power than your desktop computer. Die-hard and casual gamers alike are about to re-prioritize their leisure time. More time will be spent playing video games, which means less time will be spent in front of the television set or PC. That's important because ...
2. WiFi, HiFi, oh my
The sleek new platforms will make wireless online connectivity even easier than before. Sure, Microsoft
3. Advertising is coming around with a vengeance
According to a Nielsen Entertainment study, men between the ages of 18 and 34 spent 30 billion hours playing video games in 2003. That was more time than they spent in front of their TV! Two out of every three males in this highly coveted demographic consider themselves at least "casual" video game players. Where has the advertising been? We've yet to see static ads or product placement and, overall, the advertising effort has been pretty weak. Well, at least it was weak. Before the end of this year, privately held Massive Inc. will launch a targeted ad network in 40 different games. Because of the online revolution, Massive has lined up companies such as Coca-Cola
Drive past a theater marquee and it can be updated with the latest Paramount flick. Flip on the radio and the latest Universal hit would come on. Background ads can be targeted geographically, or even by the time of day. Coke can pitch its latest soda flavor on a virtual billboard if it's a hot day. Nestle can pitch its warm beverages on a cool night. Sound good? You bet. Massive has completed three rounds of financing, so an IPO can't be too far away. Watch for it. In the meantime, the company predicts that incorporating its ad network into a new game would add between $1 and $2 of profit for each unit sold for the developer. Think about that. Last year's best-selling game was Take-Two Interactive's
Addition by multiplication
Put the pieces to the puzzle together and you begin to see the profitable possibilities. The gaming population is growing and software delivery is becoming cheaper. Sponsors are diving in. How powerful do you think Electronic Arts
Yes, these seemingly modest companies are the ones that will be manning the puppet strings -- and the purse strings -- of the entertainment industry in the future. Yes, there's a very good chance that it will play itself out exactly the way I described it. David Gardner's Rule Breakers newsletter prides itself on spotting these trends early enough to make its readers a fair deal of money when the vision proves true and the picks pan out. If you're not sure, you have nothing to lose by at least giving it look as part of a free 30-day trial. For a month, you'll have full access to all the Rule Breaking companies we've recommended to date, with no obligation to subscribe. Click here to learn more.
Why the heck not?
Longtime Fool contributor Rick Munarriz is also up for a good game or two. He does not own any stocks mentioned in this story. Activision and Electronic Arts are Motley Fool Stock Advisor recommendations. Coca-Cola is a Motley Fool Inside Value recommendation. The Fool has adisclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.