Video games can weather poor economy-Microsoft

Microsoft Corp is not seeing any weakness in its Xbox business from the soft U.S. economy and expects the company and the rest of the video game industry to weather downturns in consumer spending, the head of Microsoft's Xbox business told Reuters.
By Reuters

Microsoft Corp is not seeing any weakness in its Xbox business from the soft U.S. economy and expects the company and the rest of the video game industry to weather downturns in consumer spending, the head of Microsoft's Xbox business told Reuters Wednesday.

Don Mattrick, a senior vice president at Microsoft's entertainment and device division, said video games remain a bright spot for consumer spending at retailers.

In an interview at the E3 video game industry trade show, Mattrick said the video game industry is fortunate that all the main consoles debuted in 2006 and 2007, which means many consumers do not need to go buy the more expensive hardware.

"That would have been a more challenging dynamic if it was a brand new box shipping for the first time this holiday," said Mattrick, who joined Microsoft a year ago after working at game publisher Electronic Arts Inc (EA) for 15 years.

Some analysts are concerned that a decline in discretionary spending, due to higher prices for gasoline and food, could crimp outlays for video games and other entertainment.

The video game industry, forecast to reach $57 billion in revenues this year, according to research firm DFC Intelligence, appeals to a wide audience since it offers a wide range of titles that provide something for everyone, according to Mattrick.

"Consumer spending is still going to exist, and people are going to prioritize," said Mattrick, once considered a contender for the corner office at EA. "I'm bullish about our growth prospects as an industry and as Microsoft."

Mattrick said video games offer many more hours of entertainment than a two-hour movie, making it less expensive over time.

Earlier this week, Mattrick claimed that the Xbox 360 would sell more consoles over its lifetime than Sony Corp's PlayStation 3, a bold statement since the PlayStation 2 has ruled the industry in the latest generation of game machines.

In late April, Microsoft said it sold over 19 million Xbox 360s since it debuted in November 2006, a year ahead of Sony's PS3 and Nintendo Co Ltd's Wii.

At the end of March, Sony had sold 12.85 million PS3 units, while Nintendo had sold 24.45 million Wii machines, according to data from each of the companies.

After losing roughly $5 billion since it entered the video game console business in 2001, Microsoft turned a profit in fiscal 2008 at its entertainment and devices division, comprised mainly of the Xbox business.

The division posted $614 million in operating profit in the first nine months of fiscal 2008 after a $1.9 billion loss a year earlier.

At its E3 news conference Monday, Microsoft said "Gear of War 2," the sequel to its blockbuster science-fiction shooter game, will be released on Nov. 7 in time for the crucial holiday shopping season.

The original game has sold 5 million units worldwide since its launch in November 2006, according to the company.

Mattrick said the sequel could do even better since there are more customers with Xbox 360 consoles now than when the original was released.

"We've established a new hit property, and now the installed base is larger," said Mattrick. "It's going to be a blockbuster."

"Gears of War" is especially lucrative for the company since the game comes from Microsoft Games Studios, which means Microsoft gets all the revenue and profit from game sales instead of a few dollars in royalty for third-party titles