3 doom and gloom scenarios for games

Layoffs. Missed earnings. Mergers. Cancelled titles. It's bad now, but it could get worse.

Every transition between one generation of game consoles to the next generation of game consoles tends to temporarily hurt the games industry. Fewer games are sold during transition periods as gamers choose to delay current-gen purchases to hoard cash for expensive new consoles and games. Industry analysts Jason Kraft and Chris Kwak of Susquehanna Financial Group examine three disaster scenarios that could result in even more bad news for the games industry:

1. The PS3 fails to launch on time. Though Sony hasn't budged from their "Spring 2006" mantra, there's plenty of reason to think that the complexity of the Cell processor and Blu-Ray drive could delay the console's release until next year. EA and Activision would take body blows in this scenario.

2. Gamer appetite for Xbox/PS2/GameCube titles might fall even faster than expected. This scenario would nail Take-Two in the tender bits because Take-Two relies on revenues from these consoles the most. EA, Activision and THQ would also be hurt considerably.

3. Publishers might choose to slash current-gen prices even more (see Microsoft's recent announcement that they plan to sell top Xbox titles for $9.99 each.)

4. All of these events happen. A perfect storm could result in all three of these scenarios occuring at once, decimating the stock values of the biggest publishers.

The result? Big drops in the value for public game companies and (presumably) attempts by those companies to staunch the loss of blood through layoffs, mergers, and bake sales.

There's a lot of detail in the report, so send an email to kraftandkwak [at] gmail.com to request a copy.