Video Games: The Sky's the Limit

All you need to transform yourself into Harry Potter, a professional football player, or a bionic soldier fighting aliens on a mysterious planet is a TV and a video-game console. The two consoles that reached the market in late 2001--Microsoft's Xbox (MSFT ) and Nintendo's GameCube (NTDOY )--flew off store shelves faster than Harry flies his powerful broomstick, setting up what could be the strongest year ever for video-game hardware and software.

Despite the faltering economy, most of the estimated 1.3 million GameCubes and 1.4 million Xboxes shipped by manufacturers in North America before Christmas sold quickly. Sony's PlayStation 2 (SNE ) also did well, with an estimated 1.4 million boxes sold in the fourth quarter. Total U.S. video-game hardware sales climbed to $6.4 billion by the end of November, up from $4.7 billion in the same period the previous year, according to NPD Funworld. And worldwide sales of consoles could jump 27.6%, to $9.7 billion, in 2002, predicts SoundView Technology analyst Shawn Milne.

Those ringing cash registers bring smiles to game publishers as well. Software purchases, led by publishers such as Electronic Arts (ERTS ), should grow 16.1%, to $20 billion, worldwide, Milne says. Electronic Arts, which is responsible for such best-sellers as Madden NFL 2002 and Harry Potter and the Sorcerer's Stone--should see revenues increase 35%, analysts say, to $2.2 billion. After September 11, some worried that a collective aversion to violence would slam game sales, but that fear was short-lived. The industry has shelved or altered little of its material since the terrorist attacks. That's because the most violent games, rated "M" for mature, account for only 7% of the industry's annual revenue. "We haven't shipped an M-rated game in over a year," says Peter Moore, chief operating officer of Sega of America. "They just don't sell." Otherwise, the year is off to a rollicking start for video games--and for the wizards, soldiers, and sports stars who populate the players' fantasies.

By Arlene Weintraub in Los Angeles

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