At CES 2009, the length of the cab lines--often a barometer of the show's population--were shorter than usual. Here, dozens of cabs pull into the Las Vegas Convention Center, despite a lack of the crowds that have meant hour-long waits in the past.
(Credit: Daniel Terdiman/CNET News)LAS VEGAS--There are probably a lot of different ways to measure how the deepening recession has impacted the Consumer Electronics Show, but in Sin City, it stands to reason that one of the best is how much business the local strip clubs are getting.
In an entirely unscientific survey, then, my conclusion is that CES was hit hard by the downturn, at least if the experience of one local taxi driver is any indication.
"We taxi drivers, we've got a thing with the strip clubs, where we get a kickback...so it's big money if we can get the guys to go to the strip clubs," said Darryl, a 54-year-old cab driver who asked that his last name not be used. "I went to the clubs (during CES), thinking maybe I could get some guys to take them back to their hotels, but I didn't have any luck. And a friend, he was hoping to get some strip club rides, since they pay us $50 a head, and he didn't have any luck...They weren't going out of their way to spend money like they normally would, for that extra type of entertainment."
Actually, it's been very hard to judge the effect of the recession on this show, which in the past has been one of the largest in the world. Ask five different CES veterans what they thought, and you get five very different answers.
But over the course of the four days I've been in town, some patterns have emerged, and in the end, I'd say that while CES was still packed with attendees and exhibitors spread over the full breadth of the mammoth Las Vegas Convention Center and the Sands Expo and Convention Center, there were noticeably far fewer people here than in past years.
"There's way less than in 2007," said Don Sherstobitoff, the owner of Okanagan Home Theaters, and a four-year CES veteran. "I was walking around (Las Vegas) and it feels pretty much like a ghost town."
Getting around town
I've never enjoyed being at CES, and one reason is that during the show, it is impossible to get around Las Vegas. In the past, the lines for taxis, either at the major hotels or the convention centers, have been horrendous--easily an hour long--and once you finally got in one, you'd be trapped in bumper-to-bumper traffic for easily as long, even for a short ride.
As this photo shows, there were large crowds to be found on the CES floor, despite the difficult economic environment.
(Credit: Kent German/CNET Networks)This year, however, the general consensus is that getting around has been, while not exactly fluid, then at least easier, and quicker.
"It's been (just) a half-hour wait for a taxi anywhere," said Sherstobitoff.
As I was writing this story, in fact, I walked to the taxi line by the convention center's south hall, to head to the airport to go home, and literally hopped in a cab with zero waiting--just an hour before the show closed down for the day on Saturday.
Clearly, the taxi economy has been a buyer's market this year. At the convention center, cabs are backed up nearly as far as the eye can see, even as the lines seem demonstrably shorter than in years past.
And that may be, several taxi drivers told me, because of what now seems to have been a rather large miscalculation as to how many cabs Vegas would need on the streets during CES.
"The idiots at the taxi commission put enough cabs on the street for 147,000 people," one 50-something white-haired cabbie told me, "when they knew there's only half that many. It's not even worth it to come to work."
And another cabbie suggested that after the taxi companies struck major deals for advertising on the signage on top of the cars, they decided not to pull many of the vehicles off the street even when it became clear CES attendance would be down.
So how many people actually showed up?
During the show, Tara Dunion, the senior director of communications for the Consumer Electronics Association, which puts on CES, said that 130,000 people were anticipated, just 11,000 less than the 141,000 who came last year.
But in a press release issued late Sunday night titled, "2009 International CES electrifies and elicits optimism for global economy," the CEA said its preliminary results showed that just 110,000 people showed up. That is 31,000 less than last year, a hefty 21.9 percent drop.
Yet in its release, the CEA professed to being pleased with how things went.
"At its meeting on the third day of CES," the release stated, "the 45 members of the CEA Board of Industry Leaders, which includes top executives from large and small manufacturers and retailers, reported to CEA staff that the 2009 International CES succeeded beyond all expectations and that CEA should strive to restrict future attendance to 2009 attendance levels."
Some cab drivers said that the Las Vegas taxi commission had put too many vehicles on the streets for CES, but that the taxi companies had struck deals for advertising on the car-top signage and were loathe to cut back, despite a smaller population than originally was expected for CES.
(Credit: Daniel Terdiman/CNET News)Perhaps the CEA's happy face comes from its assessment of the number of companies that showed up exhibit. In the release, it touted the "more than 2,700 global companies, including 300 new exhibitors, (who) unveiled an estimated 20,000 new technology products across 1.7 million net square feet of exhibit space this week...(and helped) lead the way to economic recovery."
Still, the CEA's admission that attendance was down more than 21 percent--which was buried in the eighth paragraph of the press release, validates much of the on-the-ground assessment of what it was like by people who were at the show.
"It's a little less cloggy, in terms of trying to get through the halls," said Stephen Cass, a senior editor for Discover magazine. "You don't feel people pressing in on you so much...Literally, you feel a little less pressure from the crowd."
Cass, who's been to CES four of the last five years, said that all the big companies were here--the Panasonics, Sonys, and Toshibas of the world--but that for many smaller outfits, the emphasis this year might well have been more on value proposition than on new glitzy features.
"It's the other side of Moore's Law," Cass said. "This year, people are maybe looking at the 50 cents side, the economy side, of Moore's Law, rather than the performance side."
Others agree that the emphasis during the coming year in the consumer electronics business might well be on getting the most bang for buyers' bucks rather than on the feature-laden products that have been so prevalent at CES in past years.
"Honestly, I think (consumer spending on electronics) is going to be on inexpensive things," said Jed Putterman, vice president of products at Cloud Engines, "things people can get value out of."
Not everyone, though, felt that CES 2009 was all that noticeably different than the event has been in the past.
To Jeremy Toeman--a consultant who was shepherding four different companies in CES' Innovations Showcase at the Sands--the people who needed to be at CES, like retailers and media, were there in force.
"I don't feel that the show is really 'hit' even though people say it is," said Toeman. "Our foot traffic has been phenomenal."
Indeed, in the Innovations Showcase--a special section of CES focusing on notable engineering and design--the crowds were thick. And in fact, throughout CES, there were large numbers of people. Many tens of thousands of people add up, no matter how large a convention center they're spread out over, and no matter if the total population is less than in the past.
But even Toeman said that he thinks that where some companies visiting CES might have sent 20 people in previous years, they may have sent just 12 or so this year.
Was this fairly empty sidewalk at the Las Vegas Convention Center a sign of the impact of the recession on CES 2009 or just an anomaly? While most people agreed that attendance was down, there were still many tens of thousands of people on hand, and it could be months before the final attendance numbers are known. The Consumer Electronics Association said it had been expecting 130,000 people, down just 11,000 from the 141,000 that came for CES 2008. But by Sunday, it was reporting initial estimates of attendance of 110,000, down nearly 22 percent from 2008.
(Credit: Daniel Terdiman/CNET News)The real impact of the recession could well be felt next year, however, he said. That's because companies planning on exhibiting at CES 2010 had to make their decisions about booth space by this year's event.
"The big boys will be spending less money" for next year's CES, Toeman said. "I may be wrong, but if I had to make a wager, that's the wager I'd take."
Still, the gossip throughout town during CES was that the convention was markedly smaller this year. Whether it was bartenders talking to patrons, cabbies talking to passengers or reporters talking to each other, there seemed to be unanimity that the numbers, while still large by the standards of other trade shows, were way down for CES.
But the impact on the people who depend on CES for their livelihood is hard to measure.
For Darryl, the taxi driver, the show couldn't have come at a better time. He'd had such a dismal November and December due to a broad general drop in visitors to Las Vegas that he'd had his cable shut off the week before CES.
He said, however, that business had been up at least 50 percent during the show, and that he hoped that at the very least, he'd be able to get his cable turned back on.
"I'm hopeful that this is a sign of the next few months," Darryl said, "that the big conventions are back, and that the business people are going to be coming here. If it's not a big convention, there's still a lot of people coming here for business meetings. Even if it's not normal, it'll still be better than it's been the last few month, and that'll help me get back on my feet."
Nintendo is hoping that strong sales of its Wii console are evidence that it, at least, is immune to the economic downturn. Others agree that the video game industry as a whole will suffer less than other technology sectors.
(Credit: GameSpot)
It would be tempting for those in the video game business to take some recent news--for instance, that October sales were through the roof, or that the latest World of Warcraft expansion broke the all-time record for single-day PC game sales--as proof that their industry may be immune from the deep despair confronting the global economy.
And indeed, that seems to be exactly what many people in the industry are choosing to believe: that in rough times, people always spend money on entertainment, and that as entertainment goes, video game software and hardware offer much higher value than other options. In other words, the theory goes, the video game industry is recession-proof.
But people holding to that notion may yet want to consider getting their resumes ready or holding off on buying that Porsche, since all optimism aside, the future may not be so bright. It's true that sales may be up in the short term, and look good for the holidays, but Wall Street doesn't appear to be impressed.
Still, many in the industry contacted for this article say they think the sector could in fact turn out to be one of the few winners as general economic conditions get darker and darker.
Activision Blizzard's 'Wrath of the Lich King,' the second expansion to 'World of Warcraft,' set a single-day record for PC game sales. Some see that as evidence that the game industry can withstand the recession.
(Credit: Daniel Terdiman/CNET News)"Nobody's got a crystal ball, but we remain cautiously optimistic" about the future, said David Dennis, Microsoft's corporate Xbox 360 Group PR manager. "All the signs we see point to continued strength for the industry and for the Xbox."
For example, Dennis explained, a recent survey conducted by the National Research Center indicated that 46 percent of consumers expect to purchase a video game system of some kind on Black Friday, the day after Thanksgiving. At the same time, he said that NPD Group, a leading retail analyst firm, reported that video games came in at the bottom of a list of what kinds of products they expect to cut back on in the coming months.
NPD has other data as well showing signs of strength in the business. In its report for October, the firm revealed that for the video game industry as a whole, sales were up 18 percent for the month, to $1.31 billion from $1.12 billion a year earlier. Software was up 35 percent in October, from $514.5 million in 2007 to $696.8 million in 2008, while hardware had a more modest 5 percent rise in the same period, from $470.5 million to $494.8 million.
And on November 13, its first day on the market, Blizzard Entertainment's Wrath of the Lich King, the second expansion to the mega-hit, World of Warcraft, broke the all-time record for one-day sales for a PC game, moving 2.8 million units of the $40 upgrade and surpassing the record of 2.4 million units set in 2007 by The Burning Crusade, the first WoW expansion.
The rationale for projected growth, even in the face of a looming and deep recession, is simple.
"There are a couple of reasons," said Ron Meiners, director of community for the Hollywood Interactive Group. "One is the traditional value of entertainment during tough economic times. Like the great fantastic musicals in the 30s. Movies did great, because they took people's mind off of the troubles they were facing. (And) video games have great value as entertainment. The number of hours of solid entertainment that comes from a video game purchase is much greater than a movie, for example, for very comparable cost."
At the same time, Meiners added, video games today offer consumers a much higher degree of interactivity and engagement.
"They're not just passive," he said. "It's a much more involving activity, which helps make them more valuable."
The industry is also blessed with a steady flow of blockbuster game franchises that seem primed to deliver huge paydays: Fable, Guitar Hero, Rock Band, Grand Theft Auto and many others.
Trouble on Wall Street
But the publishers of those games, and even a leading retailer, have seen their stock prices hammered in recent weeks, beyond even what has happened in the general market crash.
While the Dow's value dropped 28.16 percent from September 2 through November 17, and Nasdaq dropped 36.91 percent in the same time frame, six game industry companies (Electronic Arts, Activision Blizzard, Take Two, THQ, Gamestop and Nintendo) saw their share prices fall an average of 52.53 percent.
And EA, the world's largest publisher of video games, was not on the better-performing side of that group. Its stock fell 60.1 percent, from $48.97 to $19.30 in that time period.
EA did not respond to a request for comment for this story, but in its most recent quarterly earnings release, in which it reported a net loss of $310 million--compared with a net loss of $195 million during the same quarter a year earlier--CEO John Riccitiello did his best to sound optimistic.
"Considering the slowdown at retail we've seen in October, we are cautious in the short term," Riccitiello said. Longer term, we are very bullish on the game sector overall and on EA in particular. The industry is growing double-digits on the strength of three new game consoles and increases in the number of homes with broadband Internet connections."
For its part, Nintendo, which saw its stock drop 36.77 percent between September 2 and November 17--almost exactly the same drop as the Nasdaq--also is making the point of putting on a brave face even as the phrase "the worse economic crisis since the Great Depression" becomes a cliche.
"We do believe that the continued popularity of our products, even during these tough economic times," said Denise Kaigler, the vice president of corporate affairs for Nintendo America, "are evidence that consumers are judging us as a good value and a great way to engage in social interaction."
In October, according to NPD, Nintendo sold 803,000 Wiis, up from 617,000 in September and 453,000 in August, and the company has said it plans to increase supply of the console by 50 percent over last year in order to ensure that consumers have an easier time getting a hold of one.
This would suggest, of course, that Nintendo isn't being disingenuous when it says that it has a strong value proposition that is likely to attract consumers this holiday season and perhaps beyond.
Microsoft, too, looks like it has some evidence to back up its reasoning for, as Dennis put it, being "cautiously optimistic."
In October, Microsoft sold 371,000 Xbox 360s, up from 347,000 in September and 195,000 in August.
But these sales numbers all come from before the economic crisis really kicked in. Now, job losses are mounting daily, the stock market is plunging--though it has risen considerably since Friday--and the government is faced with a more difficult job of pulling us back from collapse.
The pricing game
And for those who think that the video game industry can keep up record sales numbers even in the face of such a bleak atmosphere, some have sobering news.
"Video gaming is not immune," said Gartner analyst Van Baker. "It's certainly been robust over the last couple of years, and it's gotten much more popular, and a much broader install base of users, but they're certainly not immune, especially if it's a deep recession."
Baker acknowledged that video game hardware and software is likely to perform better than, say, plasma TVs, but still, he said, in an environment where jobs are scarce and people are losing their homes, "$50 (for a game) is $50."
And while Baker suggested that Nintendo and Microsoft may be able to continue moving the Wii and the Xbox, respectively due to those consoles' low prices ($249 for the Wii and $199 for the lowest-priced Xbox), he said Sony might have a harder time.
"Sony is the one that stands to get hurt the most," Baker said, "because they've got the most expensive" console. The lowest-priced PlayStation 3 costs $399.
The front lines of the video game wars, of course, are at retail, and that is one place to look for clues as to what lies ahead.
According to Colin Sebastian, an analyst with Lazard Capital Markets, leading retailer Gamestop could represent a sign that, indeed, the video game industry can weather the coming economic storm, despite its stock dropping 49.87 percent between September 2 and November 17.
In an alert Sebastian sent out last week by email, he recommended buying Gamestop's stock, citing not only strong October sales, but also sales growth of 20.5 percent during the first two weeks of November compared to last year.
Driving that growth, Sebastian wrote, was quick sales of games like Wrath of the Lich King, Gears of War 2, from Epic Games and the latest edition of Call of Duty, from Activision.
'Gears of War 2', Epic Games' new release, is expected to bolster the Xbox 360 platform, as well as game retailers.
(Credit: Epic Games)But Sebastian's optimism about bellweathers like Gamestop aside, there are those who see deep structural flaws in the mainstream video game industry's business model, flaws that could wreak havoc down the line, even if things stay solid in the short term.
To Corey Bridges, a co-founder of the virtual world platform developer The Multiverse Network, the problems facing the industry have more to do with how its biggest publishers design and distribute their games.
"I do think that the video game industry is going to do reasonably well in this time of recession because video games are a pretty damned efficient use of time," said Bridges. "That said, the...industry has some other problems that it has been ignoring for awhile and that are creeping up on it."
Essentially, Bridges explained, he thinks that the dominance of giant publishers like EA and their general reliance on physical, in-the-box, units, can't hold up. Instead, he said, new tools, ubiquitous broadband and hungry independent developers are going to all combine to eat away at the continued supremacy of the $60 big-name title. And that could spell big trouble for the industry.
Still, he said, that kind of shake-out could take a few more years.
"I think the global macroeconomic climate will adjust itself before the video game industry hits the upcoming chaos," Bridges said.
In the short term, then, there is ample evidence that the video game business may well prove to be stronger than most others. No one is going to do better than companies producing cheap liquor, of course, but in the technology world, it may be tough to identify a sector that could better persevere than video games.
Even Baker, who said it's unlikely the industry will avoid getting hit by the recession, thinks there's room for optimism.
"We'll have to wait and see how consumers respond," Bake said, "but I don't think it's unreasonable to see some growth (though) it's certainly not going to be double-digit."
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