The Electronics Entertainment Expo next month is where the premiere businesses of the video game industry make their new product announcements, revealing the games and machines that will define the market over the next 18 months. During E3, investors can get a keen sense of what will fuel the industry’s best stocks come the holiday quarter.
Of course, it’s the trends fueled by those companies that really alter the consumer landscape more than their specific products. Microsoft’s (NASDAQ:MSFT) Kinect and Activision’s (NASDAQ:ATVI) Call of Duty: Black Ops were more than multi-million sellers at the end of 2010 –they were products that have shaped the market in the months since. What will be the gaming trends that shape the second half of 2011 and which companies will take advantage of them? Here are three themes for investors to be aware of.
Television
The role that video game consoles have played in the unstoppable growth of Netflix’s (NASDAQ:NFLX) streaming -video subscriptions over the past three years can’t be understated. Microsoft’s Xbox 360 was one of the first home electronics to offer the service and Microsoft itself has been more than aware of consumer interest in the service.
Rumors began swirling in November that it would move to offer its own cable-style network through the Xbox, and it’s very likely it will make its debut at E3. The Xbox 360 version of the Disney (NYSE:DIS)-owned ESPN 3 sports network premiered at E3 2010, and that channel has been a test bed for the new service. Nintendo (PINK:NTDOY) and Sony (NYSE:SNE), both of whom are announcing new gaming machines at the conference, also will likely announce television services. It will be Microsoft, though, that reaps the greatest benefits thanks to the TV service likely being tied to its media and gaming network Xbox Live, which 25 million Xbox owners pay $60 a year to use.
Apple (NASDAQ:AAPL)
It might seem strange to say that a company not even appearing at the E3 conference will define trends in other companies products, but, hey, this is Apple — the normal rules don’t apply. Video games are the best-selling downloadable products on both the iPhone and iPad. Game publishers like Activision Blizzard, Take-Two (NASDAQ: TTWO), Disney Interactive, Time Warner’s (NYSE:TWX) Warner Brothers Interactive, THQ (NASDAQ:THQI) and others have taken notice and this will be the E3 where those companies throw significant weight behind Apple’s machines. Electronic Arts (NASDAQ:ERTS) has already invested heavily in iPad and iPhone development, and it’s been paying off. EA’s digital segment turned in revenue $811 million last quarter, 7.5% above expectations. Investors can be guaranteed that other stocks will have many an iPad and iPhone game to show at the conference.
Alternate Reality Gaming
While companies like Sony and Nintendo have bet big on 3-D technology, they and others are starting to explore more alternate reality games. These are games that use camera-equipped devices like the Kinect or iPhone to create games involving real space; you hold up your phone, the room your in appears on the screen, and you interact with digital objects on the device projected over the room. With the proliferation of Microsoft’s Kinect devices (more than 10 million have sold since November) and Apple’s handhelds, game makers now have an audience for these types of products. It wouldn’t be surprising to see Microsoft or Activision debut these sorts of games for the Kinect based on multimillion-selling franchises like Call of Duty or Halo.
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.
