5 Companies Driving the $81B Video Game Industry of 2016

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video gamesThe video game industry — including sales of machines like Microsoft‘s (NASDAQ:MSFT) Xbox 360, games sold at retail like Call of Duty, and digital games like Rovio’s ubiquitous Angry Birds — pulled in $66 billion in 2010. Market research group DFC Intelligence sees significant growth coming over the next five years, according to a Wednesday report in Venture Beat. By 2016, the game industry will rake in $81 billion in sales.

As the report notes, however, the slow changes that have marked the business between 2008 and today — namely the growing importance of purely digital sales through online storefronts and services — will become standardized by 2016. Physical retail will be the minority and digital distribution will be the norm.

Even now, companies like GameStop (NYSE:GME) are doing everything they can to transform themselves into predominantly digital businesses. The question now is: Which publicly traded companies are well positioned to still be players in the all-digital world of 2016? Here are five.

Apple

Naturally. Apple‘s (NASDAQ:AAPL) iPhone, iPad and iPod Touch, as well as the App Store, didn’t start the digital business revolution. But their role in realigning consumer expectations of game pricing (99 cents instead of $50) and availability (a flick of the button instead of a purchase at the mall) cannot be overstated.

Apple’s devices have created the template for video game retail in 2016, and with analysts projecting even greater sales of the company’s iPad and iPhone over the next few years, there’s a good chance Apple will remain a player in five years.

Electronic Arts

While Electronic Arts (NASDAQ:ERTS) certainly isn’t worth what it was a few years back, its stock is no slouch. As of July, EA was trading at prices not seen since October 2008, and its outlook — thanks to anticipated products like Star Wars: The Old Republic — is promising. Beyond the short term, though, EA has done a great deal to future-proof itself, investing heavily in digital distribution initiatives.

The company has worked hard to bring its potent sports brands, like Madden NFL, to social networks like Facebook. It also has made key acquisitions like mobile and social game superstars PopCap. The company also opened Origin, an iTunes-style digital storefront and online community for its games, earlier this year in an attempt to control the digital distribution of its strongest brands.

Activision Blizzard

Activision Blizzard (NASDAQ:ATVI) has not waited to stake its claim in the digital space. The company has had great success selling downloadable content add-ons — secondary purchases that add content to games purchased at retail — for games like its omnipresent Call of Duty franchise. It will repeat that success this fall with Call of Duty: Modern Warfare 3.

However, ATVI made its impact in the digital space long before that through Blizzard properties like massively multiplayer online role-playing game World of Warcraft, a game that firmly established a monthly subscription pay model for online gaming. The pressure is on ATVI to replicate Warcraft‘s success in the future, but with major new online games in the works, such as Project Titan by Warcraft‘s creators and a new online action game from Halo-creators Bungie, the company is well-positioned to remain strong in five years.

Microsoft

Microsoft was derided left and right when it proposed to enter the video game console business 10 years ago, but now the Xbox 360 game console is enjoying its best streak of success yet. Microsoft was the first game console maker to aggressively promote online business, through its Xbox Live subscription-based gaming network and the sale of downloadable games through it. The popularity of the Kinect motion controller has helped make the Xbox 360 a family brand in the past 12 months.

But while Microsoft likely will release a successor to the Xbox 360 by 2016, the real test of its business will be how it transforms Xbox Live between now and then. With an established base of more than 25 million users online, it has a firm foundation on which to grow.

Zynga

The most promising gaming IPO coming is Zynga, the face of Facebook gaming. Its games like Farmville, Mafia Wars and others have helped give the company a value of an estimated $11.5 billion as of late March, nearly $14 per share. That’s what shares are expected to debut at in November when the company finally goes public.

Zynga’s past and near-future success, however, has been completely dependent on the popularity of Facebook. If there ever was a mass migration away from that social network to a competitor, Zynga would be under serious pressure to maintain its current audience and profits. That said, by 2016, teens that got hooked on playing Farmville in the late-’00s will be just old enough to start turning into a nostalgia market for the company. Expect Zynga to still be strong in 2016.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.


Article printed from InvestorPlace Media, https://investorplace.com/2011/09/video-games-tech-stocks-apple-microsoft/.

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