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Analyst: Hardware Sales Will Dictate "Recession-Proof" Industry

Analysts often speak of the "cocooning effect" in regards to the video game industry and how it handles dips in the economy. The logical explanation is that when more people stay home - when it's too expensive to go out - they still want to be entertained, and home entertainment industries withstand recessions.

Video game stocks may be down, but Wedbush Morgan Securities analyst Michael Pachter maintains that when the October NPD results come in, it will be proof of the aforementioned cocooning effect. According to GameDaily, he says that "hardware sales are a leading indicator of consumer demand," but he does not expect these sales to be slowed by the lackluster economy. Pachter cites Nintendo's aim to increase Wii supply, Sony's big marketing plans for LittleBigPlanet (and we'd assume Resistance 2 is in there, too), and Microsoft's "New Xbox Experience" as examples of the industry's staying power this holiday season. In the end, though, Pachter says that if he's right, investors need to look towards the hardware sales and if they're still good, the "industry is resisting the effects of a recession."

As of now, Pachter says their estimate for the impending October numbers shows an 18% year-over-year increase in hardware sales. And he adds:

"In our view, video games are likely to weather a recession quite well. In a 'normal' recession, consumer spending declines by roughly 5% (from a gross domestic product growth rate of 2 – 3% to a decline of 1 – 2%). The widely expected recession has just begun, with tightening credit markets and low levels of consumer sentiment all but guaranteeing that consumer spending will suffer for the next several months. We are neither qualified nor prepared to forecast the extent or duration of a recession, but it appears to us that the stock market has concluded that the consumer will abandon games along with all other expensive consumer discretionary products; we think that this logic is flawed."

11/10/2008 Ben Dutka

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Comments (16 posts)

FLYING_APE
Monday, November 10, 2008 @ 10:49:30 PM
Reply

Michael Pachter is a blatent xbot. Check out gt bonus round for proof. He also states the obvious.

Last edited by FLYING_APE on 11/10/2008 10:50:31 PM

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Buckeyestar
Tuesday, November 11, 2008 @ 12:08:43 AM

I really don't think so. He's been criticized by Xbots a lot for his views that promote PS3. He was widely quoted as being the first notable person who said that Mass Effect HAS to come to the PS3.

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WorldEndsWithMe
Monday, November 10, 2008 @ 11:08:03 PM
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Might have to call Merrill Lynch and have my guy put some dough into my fave industry :)

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King James
Tuesday, November 11, 2008 @ 11:35:17 AM

lol...u mean Bank of America?

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WorldEndsWithMe
Tuesday, November 11, 2008 @ 2:32:18 PM

Hah, yeah i guess so, what did Wamu become? I have a credit card from them I never use.

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King James
Tuesday, November 11, 2008 @ 3:09:28 PM

JPMorgan Chase

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psxjunkhead85
Monday, November 10, 2008 @ 11:08:41 PM
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I want to become a video game developer. Video games will never die.

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Qubex
Tuesday, November 11, 2008 @ 12:30:34 AM

I think eventually the XMB will need an overhaul, it will look tired a few years from now I suspect.

Q!

"i Am HomE"

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Orvisman
Tuesday, November 11, 2008 @ 9:27:03 AM

You're talking about the the new WiiBox Experience... or the WiiIfication of the 360.

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Robochic
Tuesday, November 11, 2008 @ 7:53:59 AM
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I really don't think anything is recession proof except for food. The majority of people already have some form of Entertainment in their homes, so why would someone go out and buy a new console? I do think most people will take longer to pick up that new game/console, or starting really thinking on how to spend their money on things just to keep a float.

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CH1N00K
Tuesday, November 11, 2008 @ 8:17:52 AM

I agree. Nothing is recession proof. There's already been reports of Stores only stocking up on the "sure sell" games and not picking up titles of lesser knowns. The video game industry probably won't be affected to badly, but it will be affected. They're just going to have to figure out how to entice people to buy their product over someone else's. Nintendo has a good one with the a low price and activity based games. WIth the cost of everything else, You'll see parents yanking their kids of of organized sports so this way the kids can stay at home and stay active. Which means you'll probably start to see better games on the Wii. Or a flush of a bunch of cheap ones.

Sony can will probably go the route of not just a game console, but an all in one Multi media center.(more bang for your buck) And Xbox...well, they've got Halo 3 and Gears of War 2, that's enough right? Just kidding, with the amount of units sold so far and more then enough money backing them to get through anything. I wouldn't be suprised that they wait for the recession to break (provided it doesn't last too long) and as soon as people start spending again, Voila! a New Xbox for you to splurge on! If it does last too long Sony's ten year plan sounds pretty smart right now.

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Orvisman
Tuesday, November 11, 2008 @ 9:28:14 AM

But they will buy a game the entire family can enjoy for much longer, and far less, than two hours at the movies.

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King James
Tuesday, November 11, 2008 @ 11:39:19 AM
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I think term "recession-proof" means that although a particular industry will decline like all the rest of them, it will decline at a much slower rate.

Last edited by King James on 11/11/2008 11:39:38 AM

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Zorigo
Tuesday, November 11, 2008 @ 12:21:02 PM
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that makes sense. And if sales go up, it means developers have cash to make better games. and they get optimistic and good feelings make good things.

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Zorigo
Tuesday, November 11, 2008 @ 12:21:03 PM
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that makes sense. And if sales go up, it means developers have cash to make better games. and they get optimistic and good feelings make good things.

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shaydey77
Tuesday, November 11, 2008 @ 12:41:00 PM
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Nothing is Recession proof.The same way as nothing is bulletproof..its Resistant. Anyways I for one have already felt the recession.I now have no more part time job..which also means no more games until christmas..oh well more time for studies as the mother says..more like more time for trophies..thank god for trophies!!!

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