Video Games and the toy industry: Can they put the whee back in Wii?

Those of you who read me regularly are aware of my contention that video game sales hurt the toy industry in 2008 more than the recession and that more recent declines in that same video game industry have on the other hand helped the toy industry. 

As a result, the toy industry does well to keep an eye on the future of the video game industry in determining its own future. So, what is that future of video games?

We can get a clue from the recently concluded Game Developers Conference. This is annual convention that brings together game designers, programmers and industry leaders. My friend Rick Ackerman sent me an Associated Press article by Derrik Lang called “Innovation on display at Games Conference.” Two paragraphs in that piece may just give us an insight on where the video game industry is going. 

“Sony shook up the conference with a splashy introduction of the PlayStation Move, a new wand-shaped PlayStation 3 motion controller system that will rival Nintendo’s popular Wii.”

And

“The biggest buzz, however, seemed reserved for social gaming, a form of easy-to-play online multiplayer games. With the success of such social games as the real-time crop-growing simulator ‘FarmVille’ and the gangster role-playing saga "Mafia Wars," several conference sessions this year were devoted solely on how to tap into the gaming world’s Next Big Thing.”

The big mega cycles in the video gaming industry are brought about by major new hardware innovations. The latest mega cycle started in 2000 with the Sony Playstation and accelerated with Microsoft Xbox and Nintendo Game Cube in 2001. Despite the innovative Wii, that cycle finally ended in 2008 and video game sales plummeted as a result. 

So, Sony may have shook up the conference but, let’s face it, making a new hardware device that will compete with a rival’s existing system is no trend setter. It’s an expensive “me too.”

Social gaming is another thing all together. Its business model allows, in most cases, free access. Revenue comes from players making micro purchases for virtual and real products. In a sense, this type of game play is less likely to cannibalize sales from the toy industry because, at least in my estimation, there is no cost involved up front and costs that do occur are either incrementally small (for virtual products) or when large mentally written off as a different category of purchases. Say you purchased a real dress that you saw an avatar wearing. You might, in that case, classify it as a clothing purchase.

So, my guess is that there is no major cycle on the way for video games in the near future and that when one does come it will be blunted by the social gaming industry.   That’s good news for the toy industry.

If you are in the video gaming or social gaming business, please give us your insights. The more we know the stronger we all are.