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Many questions have been raised about the wisdom of the state Economic Development Commission's decision to guarantee $75 million in loans to 38 Studios, former Red Sox pitcher Curt Schilling's video game company. In an interview aired Aug. 7 on WJAR-TV, EDC Executive Director Keith Stokes was asked whether the loan guarantee is a good investment for the state.
"In the case of 38 Studios, we looked at this company very carefully," Stokes said. "One of the challenges we've had is that this industry, video gaming, is a fairly new industry but it's a very fast growth trajectory industry. We hired a series of national analysts to come in to look at -- not only 38 Studios as a company and their particular business model and their particular product that they were offering to the marketplace -- but we also looked at the industry in total. One of the things we found very clearly and consistently is that it is a growth industry."
With most people hurting in the recession, we wondered whether the growth was clear and consistent.
Melissa Chambers, senior communications manager for the EDC, sent us a PowerPoint presentation made by Wells Fargo Securities, dated June 14, 2010, showing the growth in the interactive game software industry.
It said that worldwide software sales increased from $25.4 billion in 2006 to $46.6 billion in 2008, and predicted a whopping 28-percent jump in 2009. In North America alone, 2009 sales would go up by 23 percent, to $24.4 billion.
But then we found some other sales numbers -- including actual numbers for 2009 -- that made us wonder about Stokes' statement.
Less than a week after Stokes' TV interview, the Entertainment Software Association, an industry group for developers of video and computer games for consoles, personal computers and the Internet, released a sales report showing that the amount spent on games in the United States dropped by about $1.2 billion in 2009, going from $11.7 billion to $10.5 billion. That's a decline of 10.3 percent.
Then we found a previous Software Association report on U.S. sales showing a dip in 2005, when consumer spending on games dropped by about $400 million, to $7 billion. The dip wasn't reflected in the Wells Fargo report, which begins with 2006.
Because the United States makes up the bulk of the North American market, we wanted to find out why Wells Fargo's 2009 positive sales projections seemed so far from the actual sales numbers reported by the ESA.
We asked the EDC for all the reports it has received that might be relevant to the issue, hoping to find out whether the U.S. numbers reflected a worldwide trend. The corporation sent us another PowerPoint presentation, this one from Strategy Analytics, based in Newton, Mass. It didn't contain any numbers that seemed relevant, so we contacted the firm directly.
Jia Wu, a digital media analyst for Strategy, confirmed that U.S. and North American sales for video and online games declined by more than 2 percent in 2009. Worldwide sales, he said, rose by just two thirds of 1 percent, going from $46.2 billion to $46.5 billion. That's a far cry from the 28 percent worldwide jump Wells Fargo predicted for 2009.
Then we heard from Lewis Ward, research manager of gaming at International Data Corporation, which also tracks worldwide software game sales, who said that his figures showed a 5-percent decline in in 2009.
We also found two reports from February -- four months before Wells Fargo presented its rosy 2009 projections to the EDC -- showing that 2009 was a rough year for the industry. One was from three video game sales tracking companies reporting that overall software sales in the United States, United Kingdom and Japanese markets dropped by 8 percent. The other was a Feb. 19, 2010, press release from Strategy Analytics stating that "2009 was a tough year for video game publishers." In addition, the Strategy Analytics PowerPoint the EDC gave us notes, under the category of "Mitigating risk factors," that "Game industry does have cycles."
While the numbers differ from analyst to analyst, the overall theme is contrary to the assertion Stokes made on Channel 10.
We asked the EDC to put us in touch with its Wells Fargo representative. They said they weren't able to provide an analyst to speak with us and, instead, sent us to Fred Hashway, the EDC's director of government affairs and policy.
He said it really doesn't matter if sales declined in 2009 because "the individual year is irrelevant" to what EDC considers to be more important -- the long-term trend. Wells Fargo's "forecasting ability is still excellent. You don't look at it at one year. You look at it over a period of time." Wells Fargo is predicting good things for the industry, he said.
Hashway also said any 2005 U.S. sales dip is "a distinction without a difference" for the same reason -- broader trends are more important. "I think we went back as far as we needed to."
By all accounts, the video gaming industry has grown substantially since the 1990s, topping more than $46 billion worldwide. But the sharp drop in U.S. sales in 2005 and 2009, combined with last year's minimal increase in global sales -- or decline, depending on who's giving you the numbers -- show that, at least for those years, the growth in the industry has not been consistent. Strategy Analytics, in its report to the EDC projecting double-digit growth over the next five years for the type of game 38 Studios plans to develop, noted as much.
Stokes could have said that the overall trend in the video gaming business has been strongly upward despite a downturn or two. But he didn't. He said growth in the industry was clear and consistent. So we rate his comment as Barely True.
Editor's note: This statement was rated Barely True when it was published. On July 27, 2011, we changed the name for the rating to Mostly False.
WJAR-TV, "Special Assignment: Aug. 7, 2010, Keith Stokes," turnto10.com
PowerPoint presentation, "38 Studios: Rhode Island Economic Development Corp ("RIEDC") Discussion Materials," Wells Fargo Securities, dated June 14, 2010
Report, "Video Games in the 21st Century: The 2010 Report," Entertainment Software Association, accessed Aug. 13, 2010
Report, "Essential Facts About the Computer and Video Game Industry," Entertainment Software Association, accessed Aug. 13, 2010
Report, "Evaluating a Video Game Cluster in Rhode Island," Strategy Analytics, dated June 14, 2010, received Aug. 20, 2010
Interview, Jia Wu, analyst, Digital Media Strategies, Strategy Analytics, Aug. 23, 2010
Interview, Lewis Ward, research manager of gaming, International Data Corporation, Aug. 24, 2010
Press release, "2009 Video Game Softward Sales Across Top Global Markets Experience Declines for Console and Portable Platforms: Overall Sales in United States, United Kingdom and Japanese Markets Experience Annual Decline of 8 Percent," dated Feb. 3, 2010, accessed Aug. 23, 2010
Press release, "Online Game Revenue Fuels Global Video Game Software Market," Strategy Analytics, dated Feb. 19, 2010, accessed Aug. 20, 2010
Interview, Fred Hashway, director of government affairs and policy, Rhode Island Economic Development Commission, Aug. 19, 2010
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