"Consumer spending might see a slowdown, but video games are generally insulated from that," says Dan Ahrens, portfolio manager for the Ladenburg Thalmann Gaming and Casino Fund. "Video games are designated consumer discretionary spending, but most people are pleasantly surprised to discover that the gamers are a loyal customer base."
Last month alone, industry sales, including hardware, software and accessories, grew 73% to $1.1 billion, compared with $643.3 million a year earlier, according to data from NPD, a research firm. Since the beginning of the year, the video-game industry has raked in $10.5 billion compared with $7 billion in 2006.
Experts say music-based games and such popular titles as Halo 3 and Call of Duty 4 figure to be among the best-sellers during the holiday season, while sports games, some first-person shooter games and PC games such as Crysis might find it tough going among shoppers.
Among game publishers Activision (ATVI - Cramer's Take - Stockpickr), Electronic Arts (ERTS - Cramer's Take - Stockpickr) and possibly Ubisoft are likely to be frontrunners, thanks to their strong game lineup.
Meanwhile it could be blue Christmas for THQ (THQI - Cramer's Take - Stockpickr), Take-Two (TTWO - Cramer's Take - Stockpickr) and Midway Games (MWY - Cramer's Take - Stockpickr).
"This is probably the best fourth quarter in history in terms of quality of games released," says Shane Satterfield, editor-in-chief of GameTrailers.com, a division of Viacom's (VIA - Cramer's Take - Stockpickr) MTV Networks. "I have been buying games since the 1970s and have never seen a lineup as strong as what's coming up this season."
And despite investor worries over a soft fourth-quarter outlook, game retailer GameStop (GME - Cramer's Take - Stockpickr) could see huge profits, say analysts.
In the highly competitive console market, there are some clear winners this season. Demand for Nintendo's (NTDOY - Cramer's Take - Stockpickr) Wii console and Microsoft's (MSFT - Cramer's Take - Stockpickr) Xbox 360 will remain high.
Industry experts are also betting that the season's big winners could include games such as Super Mario Galaxy for the Wii from Nintendo, Activision's Guitar Hero 3 and Call of Duty 4, EA's Rock Band, Ubisoft's Assassin's Creed and Microsoft's Halo 3.
Guitar Hero 3 and Call of Duty 4 are shaping up to be a big success, and EA is putting out some exciting new games there, such as Skate and Rock Band, says Ahrens. "But I haven't gotten on board with Take-Two because there's too much turmoil there, and I am not invested in THQ because I don't like their slate," he adds.
Halo 3 has already enjoyed sales of more than 3.5 million copies of the game since its Sept. 25 release. And there is good reason to believe the trend will continue during the holiday shopping season. "Everyone who picks up an Xbox 360 this season is likely to buy a copy of Halo 3," says Jesse Divnich, an analyst for the online video-games fantasy stock prediction market, The simExchange.
Lost in the shuffle are likely to be THQ's WWE SmackDown! vs. Raw 2008, Midway's BlackSite: Area 51, Take-Two's BioShock which was released in August, EA's The Simpsons game and Crysis, a PC game, Activision's Enemy Territory: Quake Wars, which was released in early October, and the sports game, Tony Hawk's Proving Ground.
"Activision is likely to face cannibalization of its first-person shooter games, with both Enemy Territory and Call of Duty 4 being released within weeks of each other," says Divnich.
And while Rock Band could be a sellout, investors need to temper their expectations for the game, says Satterfield.
"MTV Games and EA are going to have problems getting enough units out there," he says. "And it is also much more expensive than Guitar Hero 3."
Rock Band, which includes a guitar controller, an electronic drum kit, drum sticks, a microphone and a software pack, is listed for $169.99. The Guitar Hero 3 bundle, which includes the controller, retails for $99.99 for the Xbox 360 and Sony's PlayStation 3 console.
The large size of the Rock Band bundle could also make it difficult for retailers such as Best Buy to give up shelf space for the product, Satterfield says.