The Video Game Industry Is Facing a Mobile Zombie Apocalypse

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Conventional wisdom tells us that, in the event of a zombie apocalypse, we have two options: Collect as many weapons as possible -- the explosive kind, preferably -- and stage a futile, dramatic last stand, or, alternatively, make a run for it -- a desperate (and inevitably fruitless) search for someplace safe.

This topic is frequently explored in video games. Last year's The Walking Dead won numerous game-of-the-year awards, while Capcom's (TYO:9697) Resident Evil remains an icon of the genre, having spawned nearly two dozen game titles and four Hollywood productions, with a fifth on the way.

But while zombie business may be booming, game companies are facing an apocalypse of their own, as the cloud, social media, and mobile computing combine to wreck what used to be a pleasant suburban industry.

The first victim was game developer THQ (OTCMKTS:THQIQ). It filed for bankruptcy late last year, and Atari ( ATA ) followed suit several months later. Square Enix (TYO:9684), best known for its Final Fantasy series, landed deep in the red for fiscal 2012, as it restructured itself toward smartphones and tablets. Nintendo (TYO:7974) reported its first annual loss in 30 years, and EA ( EA ) recently announced that it was laying off 10% of its workforce , citing "priorities in new technologies and mobile."

The gaming industry has always been cyclical -- Atari and Nintendo have weathered any number of cycles -- but things have gotten worse for the old guard, as console systems like Nintendo's Wii fall out of favor. Console sales fell 21% last year , and while there's no hard proof that the rise of mobile and social gaming is responsible, it's clearly the elephant in the room.

True to script, console manufacturers are preparing for a showdown, and arming themselves to the teeth. Nintendo kicked off a new generation of gaming consoles -- the eighth, if anyone's counting -- when it released the Wii U last November. Microsoft's ( MSFT ) new Xbox is rumored for a summer release, and Sony's ( SNE ) PlayStation 4 should be available by Christmas.

These consoles will bristle with technology. They'll be socially connected, and built around online connectivity. Controllers will be wireless -- this is the mobile era, and that means batteries, baby -- or in the Wii U's case, a controller/tablet hybrid, complete with touchscreen. They'll run PC hardware and surf the Web; and if that's something you'd rather not do with thumb buttons, the Xbox will feature motion detection, so perhaps you can pantomime your next Twitter post.

Game developers are taking the other tack, and running for safety, but rarely finding it. EA brought some of its more popular games to social networks, only to ditch them earlier this year. Zynga ( ZNGA ) has dominated social gaming for years, and even with top hits like FarmVille , the company has never made real money at it. The rapidly-growing mobile market is no safe haven either, given how stingy mobile users are with their wallets. Rovio's Angry Birds is, by far, the most successful game on mobile platforms, having reached a billion customers, but the franchise only earned $70 million last year, half of which came from merchandising. The company also claims it produced 50 failures before landing its big hit - a success rate that would sink most larger developers, whose success has always depended upon large budgets and lavish marketing campaigns.

PC gaming remains healthy and continues to be a growth market , but it, too, is wrestling with the following question: What will happen to this premium industry when the world is overrun by cheap, throwaway mobile apps? Computer games have traditionally offered a more substantial and user-differentiated experience, but this is changing as developers move toward subscription models and "always-online" -- ie, the cloud -- not because it's better for consumers, but because it keeps their wallets open and cuts down on piracy.

Blizzard's (ATVI) Diablo 3 and EA's SimCity each require a network connection. Both games suffered major debacles at launch due to the demand placed on company servers, but the larger issue may be that, whereas earlier generations of these games still run today -- and remain quite popular -- the current crop will die out when they are no longer supported, or become defunct when users no longer pay for them. They're no less ephemeral or disposable than something that costs $.99 on Apple's (AAPL) app store.

Remarkably, the two most popular paid games on mobile are Tetris and Pac-Man . After 30 years of upselling customers on new technology, more buttons and better graphics, the video game industry is under siege from products that died last century.

It's a good plot, but from the looks of things, the ending won't be pretty.

Also see:

The Top 5 Spookiest Technologies

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Nintendo Stakes Its Claim on YouTube

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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