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Analyst: Wii Is 'Fool's Gold' For Game Investors

Cowen Group analyst Doug Creutz tells Gamasutra that despite Wii's massive installed base, its market may be just "fool's gold" to investors, who still find the PS3/Xbox 360 dev combination compelling.
In Gamasutra's new analyst column 'Analyze This', Cowen & Company's Doug Creutz says that despite Wii's massive installed base, its market may be just "fool's gold" to game company investors, who still find the PS3/Xbox 360 dev combination compelling. At a glance, developing Wii games may look like the best investment thanks to its dominant market share. But when asked how he'd rate investing in development for current platforms, game market financial analyst Creutz explains: "The choice here is really between investing for the Xbox 360 and PS3 -- since their capabilities are fairly similar -- or the Wii. I would caution investors and developers that the larger installed base of the Wii is really a bit of a red herring. In the U.S., there is a 19-million unit installed base for the Wii versus 22-million units combined for the 360 and PS3. Assuming some overlap in the 360/PS3 installed bases, they're roughly equivalent. In addition, Nintendo is the dominant publisher on the Wii with over one-third of software market share on its platform. Guitar Hero and Rock Band account for one-sixth of sales. So the addressable market for third-party Wii titles is only about half of what the installed base would imply. The situation on the 360/PS3 is less daunting, with less than a quarter of software dollar share going to first-party publishers and Guitar Hero/Rock Band. The other issue is that the Xbox 360 and PS3 are AAA-oriented platforms, while the Wii is casual-oriented. There is a very clear correlation between game quality and unit sales on the 360/PS3, while there is very little correlation on the Wii, at least for third-party games. Thus, in some sense you have more control over your fate on the 360/PS3 if you can come up with a high-quality game. Whereas on the Wii, it's a bit of a crapshoot for what works and what doesn't. I think the Wii installed base represents, to a certain extent, fool's gold for someone looking to invest in video game development. You're rolling the dice on succeeding in a market which has proved very resistant to generating meaningful hits away from Nintendo titles and the music genre." In thefull Gamasutra article on the subject Ed Barton of Screen Digest and Billy Pidgeon of IDC also weigh in on the questions, also discussing the iPhone as a gaming platform and regional investment possibilities.

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