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The Honolulu Advertiser
Posted on: Sunday, December 2, 2007

Depressed toy sales raise hopes for video games

By Alex Pham
Los Angeles Times

Kathleen Buczko a mother of three, is the toy industry's Grinch this year, with plans to cut back spending on toys by 25 percent.

To the video-game industry, she's more like Santa — because she's boosting her games budget by 600 percent.

One big reason, the Los Angeles resident said, is that she wants to protect her 5-year-old son from another toy crisis. Two of his favorite playthings — a Mattel Inc. die-cast car and a Thomas the Tank Engine train by RC2 Corp. — were recalled this year because of lead contamination.

"It was emotionally difficult to have to take those toys away," Buczko said. "I know there must be thousands of kids who had to go through the same thing."

There were, and that's part of the explanation for what industry analysts expect to be a very good year for video game sales and a flat one, at best, for toy sales.

Game-makers' revenues are forecast to climb 19 percent or more, according to Wedbush Morgan Securities, fueled by lower prices for consoles, a plethora of must-have games such as "Super Mario Galaxy" and the popularity of Nintendo Co.'s Wii and hand-held DS consoles, which appeal to a broad age range.

At the same time, retail toy sales are expected to decline by 2 percent, to $23 billion, said Gerrick Johnson, an analyst with BMO Capital Markets.

"There's definitely money leaving that sector," he said. "It's logical to assume that video games might be viewed by some parents as an alternative."

The recalls are contributing to the growth in games, but only modestly, said Anita Frazier, an analyst at market research company NPD Group.

"Video games really kick in for the 8- or 9-year-old," Frazier said. "The bulk of toy sales is for kids younger than that, so while they do overlap somewhat, they mainly serve different audiences."

More powerful drivers are lower console prices and this season's abundance of blockbuster titles.

Sony Corp. lowered the price for its PlayStation 3 consoles by $200 this fall to $400 for a console with a 40-gigabyte hard drive to $500 for an 80-gigabyte drive. Microsoft Corp. dropped the price of its Xbox 360 by $50 to $280.

"Consoles are now vastly more affordable," said Michael Pachter, an analyst with Wedbush Morgan who expects worldwide game industry revenue to top $40 billion this year, up 19 percent from 2006. "At the same time, there are more triple-A titles being released than ever before."

Fears over a stagnant economy also may be part of the equation.

"People are feeling the pinch from higher gas prices and uncertainty over the mortgage crisis," Pachter said. "When you're not sure about the economy, you tend to pull back.

"What you pull back into is the home and things you can do at home, like renting movies or playing games."

Sales of the Wii in particular are on fire. Nintendo said it sold 350,000 of the $250 consoles during Thanksgiving week, more than in any other seven-day period except for the week it launched the console last November.

Sales of the PlayStation 3 also came in strong, rising nearly threefold since prices were lowered Nov. 2.