Trying to stay ahead of the game

The video game industry is growing fast, and it now generates more revenue than Hollywood. The challenge for gaming companies is making the most of their slice of the pie - with gallery.

Pet Society is made by EA Playfish.

With a title such as Tron Evolution, and forthcoming reboots on classics like Star Trek and Tomb Raider, it is no wonder this industry is projected to grow to more than US$81 billion in five years.

But these are not films destined for blockbuster success. They are actually video game titles, and they are helping to fuel a business that now generates more revenue than Hollywood.

Last year, the worldwide video game industry was worth $51.7bn (Dh189.89bn), and it is expected to rise considerably over the next five years, according to the market research firm Strategy Analytics.

It is also projected to grow in the Middle East, experts say, alongside a rising demand for gaming consoles that can connect to other players online, and smartphones and tablets that are increasingly being used to play app-based games.

Some retailers in the region have also enjoyed a boost in business thanks to the video game industry.

Consoles such as Sony's PlayStation were among the leading product categories sold in the second half of last year at Jumbo Electronics, which now has 31 stores across the Emirates.

In fact, the PlayStation happens to be a personal favourite of Deepak Khetrapal, Jumbo's chief executive.

"Let's not forget, the PlayStation is a multipurpose gadget," Mr Khetrapal says, noting that he has taken advantage of the latest model to also play DVDs and Blu-ray films. "The PlayStation I'm talking about is not just from a gaming perspective."

Sony has been busy dealing with a cyber security and public relations nightmare, after more than 100 million of its customer accounts may have been compromised, including the online PlayStation Network.

Yet there are plenty of other challenges Sony and its peers in the gaming industry face, including relative newcomers to the market who are bubbling up with lower-priced offerings.

In some countries, including the US, sales of video game hardware, software and accessories have recently been on the slide.

At the same time, sales of more affordable social networking games that can be played on a computer through popular sites such as Facebook have been rising.

This corner of the industry may sound small, but it brought in $1.4bn last year. That was more than double its haul from 2009, according to a recent report from IHS's iSuppli market research division.

Yet many of the latest social games were noticeably missing last week at the Electronic Entertainment Expo (E3) in Los Angeles, where traditional players such as Nintendo and Sony hogged the spotlight by showcasing their next generations of consoles.

One CNBC headline even noted: "Social Games MIA at E3 Expo."

Some expect social gaming companies to step up their presence, once traditional players become more inclusive at expos such as E3, and if the demand for smartphones and tablets continues to feed the sector's appetite.

Zynga, a company that owns 39 per cent of the world's social gaming market online, has already benefited from popular titles such as CityVille and FarmVille to rake in $544 million last year.

Close to 80 million people a month play FarmVille, which lets players tend a virtual farm. The majority of these players, surprisingly, are women, with an average age of 48, according to a study commissioned by PopCap, a gaming developer.

This has no doubt left some gaming executives scratching their heads as to how to replicate this kind of success in a largely untapped market.

Still, some chief executives say they have been over-dependent on Facebook's platform, so expect even newer developments in this area.

They say they need to diversify their offerings through new channels.

Another issue that video game makers are encountering is similar to one that has plagued the music and movie industries for years: illegal downloading. At least 73 per cent of actual global revenue from video gaming is lost every year because of piracy, according to the Arabian Anti-Piracy Alliance (AAA).

"In the UAE, in particular, law enforcement actions are being conducted against subjects across the country," says Scott Butler, the chief executive of AAA.

Last year, 165 gaming-related raids were conducted in the region, resulting in 135,531 product seizures.

The silver lining for the gaming industry is that there is clearly still heavy demand for their products. But the key will be how they tap into all markets, from a teen in his bedroom to the 48-year-old mum who likes to log into her Facebook account each day to tend to her virtual farm.