Booming video game sales are masking a serious concern for game makers: Their economic model is in peril. Game companies are taking in more money but — in many cases — not profits.
The market has expanded greatly, with more women and older gamers playing. People are playing on consoles, computers, cell phones and hand-held gadgets. But a proliferation of free or low-cost games on the Web and for phones limits the amount the major game publishers can raise prices. It also diverts attention from the game consoles, like the PlayStation 3 from Sony and the Xbox 360 from Microsoft.
“The model as it exists is dying,” said Mike McGarvey, former chief executive of Eidos and now an executive with OnLive, which delivers games from the Internet. He said consumers were looking at games for consoles and saying, “This is too expensive, and there are too many choices.”
Industry sales grew 19 percent in 2008 compared with a year earlier, the kind of sales growth that would thrill many industries during a deep recession. And yet, the list of money-losing companies includes top names in gaming: Electronic Arts, Take-Two Interactive and THQ. Dozens of smaller game studios selling games for download and the mom-and-pop companies offering ad-supported “casual games” on the Web are still trying to figure out how to turn their millions of players into profitable customers.
At the Electronic Arts headquarters in Redwood Shores, California, executives and managers were to gather Monday to discuss how the company could adapt more quickly and effectively to the emerging media.
Jeff Brown, a spokesman for Electronic Arts, the biggest game maker, said the company was trying to stay ahead of a curve. It took in $4 billion in revenue last year — nothing to sneeze at, he pointed out — but the company sees potential trouble…