Personal finance: PC games are a serious business

Internet investor

You have this beige, maybe battleship grey, box sitting in a corner of the room. Probably in the bedroom, maybe the dining room. Perhaps it was bought for the kids on the grounds that a PC was a serious machine and, therefore, of more educational value than a games console.

Be honest, what does it get used for? Does anybody seriously archive their recipes? Maybe the home accounts and some homework but mostly it's games, isn't it? And why not?

The games industry, as it stands today, consists of two major sectors: the video games market and the computer games market.

The video games market is dominated by proprietary standards. The average PC now has much more power than the average games console and the quality of the games available is, at last, starting to reflect this fact.

The computer games software market will continue to grow in line with growth in PC penetration into the home. The UK installed base of games- capable PCs in the home is now probably about 2 million but that number is expected to double over the next two years.

"Invest in what you know" is, I think, one of US arch-investment pundit Warren Buffett's dictums.

So, put the prospective growth of PC gaming as a marketplace alongside the fact that there are now several companies listed on the London Stock Exchange or the Alternative Investment Market that derive some or all of their revenue from activities in the games market.

The conclusion is that no longer need you feel guilty about sneaking away to the computer to indulge in politically unsound digital mass mayhem. It is merely research into a potential investment opportunity.

So, while ducking, diving, blowing away and problem-solving, which games companies should you be taking a second look at?

Among developers, the companies that actually design and create games, those publicly quoted in the UK are Rage Software, Inner Workings and Digital Animations.

There are also three specialist software publishers, responsible for the overall management of a game's development, which are listed: Eidos, Gremlin and SCi. Distribution tends to be the province of specialist distributors or the publishers themselves.

The sole listed UK distributor is Prism Leisure while, at the retail end of the chain, the sole listed UK games retail chain is Electronics Boutique.

Durlacher Research, sister company to investment firm Durlacher Ltd, broker to Rage Software, has set up a new free-access website aimed at existing and potential investors in UK games companies.

The company has already produced two reports on the games industry and publishes a regular review of business developments on the Internet, the Durlacher Quarterly Internet Report.

Nick Gibson, Durlacher's games analyst, says: "It is clear that many technology companies and the industries they operate in are poorly understood.

"This is true of the games sector where the terms CD-ROM and multimedia tend to conjure up images of failed start-ups and plummeting share prices. Yet this image is frequently applied to the games industry, a proven and currently booming sector."

The website aims to clear away some of the confusion surrounding the games industry and the companies that work within it.

The site is divided into four main areas: a historical overview of the games industry with comments on the major trends of the past four years; the making of a games title and how companies make their money; analysis of the most important publicly quoted games development and publishing companies; and a glossary of terms used on the site.

What the website does not do is offer in-depth financial analyses of the companies but it does feature the latest consensus earnings estimates where possible. It also attempts analysis of the product and brand positioning, highlighting the key strengths and weaknesses of the companies concerned.

By the way, who did decide that you could have a PC in any colour you like as long as it was beige or grey?

Games Investor:

www.durlacher.com/games

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