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Analyst Claims Game Industry Safe from Economic Trouble

| 26 Sep 2008 18:20
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Wedbush Morgan securities analyst Michael Pachter isn't seeing any major financial problems for the game publishers due to the tough worldwide economic times.

With the Dow Jones Industrial Average down around 16 percent, rising unemployment and billions of government dollars going toward bailing out bankrupt banks, its easy to be pessimistic about gaming's financial future.

However, industry-renowned analyst Michael Pachter is hopeful that developers and publishers, big and small, will be minimally affected by the economic crisis.

"All of the [top] publishers [like Take-Two, THQ, EA, Activision, and Nintendo] have sufficient cash to fund their operations," he says.

According to Pachter, the smaller operations are already taking preemptive steps to survive any cash crunches caused by consumers having fewer dollars to spend on games.

He explained, "Atari/Infogrames just completed an innovative deal with Namco Bandai, and Eidos recently received a capital infusion. Midway factored its receivables with its parent company, and Majesco did a private placement [a deal where a business goes into debt with a private firm to survive]. All should have sufficient cash to fund operations for the next year or so."

Tumbling stock prices don't hurt day-to-day operations. "I don't think that share price makes much difference to the publishers' operations over the near term," he said. "None of them are in a position to have to issue new stock in order to get their business done, at least not over the next two years."

The main impact the economy has had on the industry is the slowdown of acquisition and merger deals, a recent industry fad for the past couple of years that gamers might be pleased to see end. "I'm not sure that there's much in the way of continuing consolidation or ongoing merger negotiations after EA dropped its bid for Take-Two," added Pachter.

Since most companies have coffers full of cash reserves and little debt, Pachter concluded, "I don't think that the market meltdown will impact game delivery for a couple of years, if ever."

Source: 1Up

Disclosure(s): Strauss Zelnick, Chief Executive Officer and Chairman of the Board of Directors of Take-Two Interactive Software, Inc., is the head of ZelnickMedia, an investor in both Take-Two and Defy Media, LLC, our parent company. This article was published without approval or consent of ZelnickMedia or Take-Two.
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