Baird Equity Research Offers Nine Predictions for the Games Industry in 2013

Analyst Colin Sebastian of Baird Equity Research has laid out nine predictions for 2013 in a new research report from the firm (which you can read in full here (PDF)). Sebastian opens by saying that the Electronic Entertainment Expo in Los Angeles this summer will be "the most important game conference since Y2K," given what he calls "the fragile state of the console game market." He predicts that the show will have more significance than it ever has because both Microsoft and Sony will show off their new next-generation consoles. This, he claims will bolster the sector. If Sony or Microsoft decide not to show off their new consoles, he believes it could have a negative impact.

He goes on to say that new console hardware will borrow from high-end PC components and will focus on using a hybrid physical/digital distribution model, enhanced voice controls and motion sensing, and broader multi-media capabilities. Sebastian also says that "console production snags" may hurt console launch unit quantities or timing. They say that there may be "early production issues with Sony’s PS4" which could limit unit shipments or regions at launch. Sony needs a strong PS4 launch to counteract positive Xbox 360 momentum, so this could be a very bad start for Sony's new generation.

"We continue to expect both Sony and Microsoft to host dedicated events before E3 to announce new consoles, with planned launches in October/November, respectively," the report notes.

Sebastian expects the price-point of that new console hardware to retail for $350-$400 in the US. Further, he also expects early details on consoles from Microsoft and Sony to be revealed in late March – prior to the main E3 show in early June.

Sebastian also expects 2013 to be similar to 2012 in terms of the operating environment that has plagued the console game market since the launch of the iPad. They believe that consumer anticipation for next-gen consoles may negatively impact current generation software and hardware sales. While AAA titles will sell well (GTA V, Call of Duty, Battlefield), second-tier and lower titles will struggle to generate sales.

Sebastian says that Activision should benefit from releases of Call of Duty: Modern Warfare 3, the next Skylanders title, and the first Bungie game, Destiny. Overall, they predict console software sales in 2013 to be flat with 2012, but accelerating in 2014.

Sebastian says that the mobile space will put a lot of energy into the "Big Screen" in 2013. Internet-connected TVs will make it easier for Google and Apple to make "significant inroads into the living room, extending apps to the larger screen format." One "near-term possibility" is an upgrade to Apple TV that will allow for big screen gaming using a controller. They'll find some interesting competition from Ouya, Steambox and other new living room gaming platforms, but Sebastian sees them as "appealing largely to niche audiences."

Tablets and LTE provide another boost to Mobile games. Just as smartphones heralded a significant rise in downloads of casual mobile games, there are now a significant number of tablet games in development. With the potential for iOS and Android tablets to become primary gaming platforms, and increasingly control the living room experience on connected TVs, we expect that 2013 will also be remembered as the year that tablet games go mainstream. Additionally, we view increasing consumer access to high-speed LTE networks will allow for faster downloads, improved online game-play, and further monetization of users on smart devices.

Sebastian thinks that digital distribution will continue to grow, but does not count out retail altogether in 2013 and beyond. He cites the release of new consoles for retail's continued importance. He also notes that, because hardware makers continue to rely on GameStop and other retailers, new platforms will continue to permit used game sales.

"The first few years of the new console cycle will likely resemble the current cycle in terms of distribution mix," the report notes.

Sebastian predicts that Nintendo will shift to a "niche category," and that his firm continues to be concerned that Nintendo’s Wii-U console "will lack broad appeal beyond the core Nintendo fan base." In order to avoid that Nintendo will need to do a better job of marketing big first-party titles and hold onto the support of major third-party publishers.

"In a negative scenario, Nintendo will be forced to prematurely lower the Wii-U price, and over the course of this cycle, we expect consideration will be given to extending first party franchises to other platforms," the report notes.

Finally, Sebastian predicts that another high-profile game company will be sold this year, pointing out that the sale of Take Two or Vivendi’s stake in Activision are two possibilities. He also notes that valuations are declining among mobile and browser-based game companies, which will ultimately increase the potential for "further take-outs among private companies."

Tweet about this on TwitterShare on FacebookShare on Google+Share on RedditEmail this to someone