Video game trade show seen returning to glitz

By Franklin Paul

NEW YORK (Reuters) - The interactive video game industry's biggest convention meets next week in Los Angeles promising a return to its glitzy past, but on the heels of weak sales and the slumping economy, the future of this fun and games business is no laughing matter.

A wave of fitness games, an expanded lineup for Nintendo Co Ltd's popular Wii console and, possibly, hardware price cuts, are all expected to be major themes at the Electronic Entertainment Expo, or E3, which starts on June 2 in Los Angeles.

To be sure, the industry is doing well, even as the economy shrinks and unemployment in the United States swells. Hudson Square Research analyst Daniel Ernst pegged video game sales for the fiscal year ending in March at $28.7 billion, up 13 percent, and bigger than the $27 billion movie business.

The challenge is to keep growing as consumers think twice about discretionary spending, particularly on game consoles that cost up to $500 and top games priced at about $60.

April U.S. sales of video games fell 17 percent, after sliding 23 percent in March, according to research group NPD. The decline is somewhat skewed by a tough comparison, since two of the biggest games of 2008 were launched at the same time one year ago.

Still, the economy is impossible to ignore. One analyst suggests that a long rumoured price cut for Sony Corp's PlayStation 3 console, currently selling for more than $400, could fuel a new wave of demand.

"The thing that would really boost the industry in this traditionally slow period would be a Sony price cut. That would really help right now," said Billy Pidgeon, an independent analyst at Game Changer Research.

But don't cry for the industry, whose global sales -- including hardware -- could top $98 billion this year and $110 billion in 2010.