Video game sales are in the home and frankly video games are perhaps one of the cheapest forms of entertainment on a dollar per hour basis there is.  Recession-proof might be a stretch.  Sales will be strong and there will still be money made by the game publishers.  But the holy grail of ‘comparable sales’ is going to be a tough one on the console makers in 2008.  Here are just some of the articles today on the bet that game sales will or won’t hold up:

• Eric Savits of Barron’s wrote "Recession? Not In The Video Game Business"
• GamePro has an article "U.S. video game industry grows 43% over last year" saying that growth won’t be the same as 2007 but will still show growth in 2008.
• Reuters notes "U.S. game sales rise 28 percent in December"
• Silicon Alley Insider notes "December Video Game Sales Up 36%, Sony’s Lead Slips"

In hardware sales saw a 63% gain for the Sony PlayStation 3, a 123% rise in the Nintendo Wii, and up 15% in Xbox 360 sales. Hand-held device sales rose 54% for the Nintendo DS and 11% for the Sony PSP.

The next assured mega-hit title coming out is Take-Two’s (NASDAQ: TTWO) Grand Theft Auto IV.  But at some point (and likely some point soon) these console sales aren’t going show the same gains like in 2007.  This notion that World of Warcraft may potentially be coming to video game consoles might add literally millions of gamers to the MMORPG craze.  All of this would be good for video games.  Electronic Arts (NASDAQ: ERTS) has its waves of upcoming releases in the year and Activision (NASDAQ: ATVI) is looking interesting in the upcoming Activision-Blizzard merger.  Microsoft’s (NASDAQ: MSFT) Bungie Studios may soon be its own public company too. Interestingly enough, we expect another merger in this sector although maybe not in the classic scenario and that has been under review for our Special Situation Investing Newsletter. 

We think that GameStop (NYSE: GME) will actually hold up better thanoverall stores like Best Buy or Circuit City based on game title salesin 2008, but there just aren’t any new major platform launches on thehorizon for maybe another two years.  That varies from person toperson, but some feel we’ll have the same gaming systems until 2011.  Our notion is that video games might actually be somewhat recession-proof.  But with $1.76 as the high part of the guidance out of GameStop, at $50.00 this still leaves its P/E at 28.4.  If the economy gets any worse than we think can then investors might not be wanting to pay that multiple after a 400% stock rise since the start of 2005.  We have been very positive on this on for some time and we don’t think it will go to hell in a hand basket.  But it will take the U.S. not falling into a recession for us to stay very positive on GameStop today and this stock has been peaking since November.  GameStop also a competitor coming on strong as well.

GameStop shares have fallen from $60+ at the start of 2008 before it gave raised guidance that the street panned and shares now sit right at $50.00 (with a $49.72 close).  An 18% slide is significant, even if it is still up 100% from the 52-week lows.

Jon C. Ogg
January 18, 2008

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Separately, Sony (SNE-NYSE/ADR) is feeling some handheld envy and hasannounced $30 price cuts to $170 per unit for its PSP handheld unit.That is still $20 higher than most of the DS units and $40 higher thanthe DS Lite.

Nintendo has sold more than twice the Wii consolesin Japan as in the US, but said it has likely reached its target ofselling 6 million units so far.

Nintendo shares areunfortunately relegated to the pink sheets in the US, but in Japan theyclosed up 2.1%.  With recent Sony price cuts on the PSP and the PS3 andthe new revved-up Xbox360 from Microsoft (MSFT) that was recentlyannounced, the console wars are just getting going.  This could alsotake a different turn in calendar Q4 because of the release of Halo 3and the new Grand Theft Auto titles being released.

So far, it is no wonder that Satoru Iwata, Nintendo’s CEO, made it to Barron’s top 30 CEO’s.

Jon C. Ogg
April 5, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.