Video games let you escape into an alternative reality -- something gaming firms know about at first hand. For as other technology firms face stagnant or shrinking markets, the video-games industry seems to inhabit a parallel universe. It has had a bumper year, maybe the best it ever will. Global sales of games software and hardware will exceed $31 billion this year. This summer, UBS Warburg invested 17% of its model technology portfolio in two games publishers, Electronic Arts and Activision. Gaming, it seems, is recession-proof.
The industry is booming because it has its own cycle, as one generation of hardware succeeds another every few years. (8) Games consoles are flying off the shelves. The current line-up is of Sony’s PlayStation2, the market leader by far, plus Microsoft’s Xbox and Nintendo’s GameCube, which are fighting for a distant second place.
Each gaming boom is bigger than the last. Children who have grown up with games keep on playing, which expands the market. It also increases the players’ average age: the average American gamer is 28. (9) This shift is reflected in the rise of "mature"-rated games, which now account for 13% of the American market, up from 6% in 2001.
(10) Many observers are optimistic about the prospects for games sales next year, particularly in America. But the figures suggest that 2002 was the peak of the cycle, and that the market will shrink next year. Other observers expect console sales to grow only slightly next year.
Things will then cool off until the next generation of consoles appears in 2005. The next peak is not expected until 2007. (11) Both are dwarfed by console gaming at the moment, but are the focus of much activity, and could provide recurring revenues to help smooth out the industry’s cyclical nature.
Online gaming has got off to a small but promising start in recent weeks with the release of adaptors that link consoles over the Internet. In America, Microsoft sold 150,000 starter kits for its "Xbox Live" service within a week of its launch last month. Sony says it has signed up 175,000 subscribers to its rival online service, launched in August. Both services will launch in Europe next year.
Gaming on mobile phones is also taking small but crucial steps forward. Today’s phones mostly have one or two simple games built in. The latest handsets have colour screens and can download software remotely. (12) Games take roughly a minute to download, but adding one to a handset is almost as easy as downloading a new ringing tone or screen logo. It is predicted that mobile-gaming revenues will reach $3.5 billion in the next five years; other estimates are higher.
A Older players tend to have more disposable income to spend on games than do teenagers.
B Their processing power matches that of the arcade-game machines of the 1980s, so classic games run well.
C But how much longer will the good times last
D That cycle, unrelated to the broader economic cycle, is now at or near its peak.
E But the industry has two new tricks up its sleeve, in the form of online and mobile gaming.
F They are so wisely designed that they can be connected to any game machines.
G It has had a bumper year, maybe the best it ever will.

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