Analyzing game industry analysts

Kotaku has an interesting feature article looking at game industry analysts: what they do, and how well they do it. Although they measure prediction outcomes, the article is deeper than just ‘this dude was only right 30% of the time’:

One of the best analysts overall turned out to be Colin Sebastian. While he only got 4 out of 10 predictions right, he made strong predictions with figures, many of which were quite close. He predicted that Activision’s Q3 sales figures would double, and was very close (going from $142.8 million in 2006 to $272.2 million in 2007). He predicted that there would be a shortage of Xbox 360s over the holidays, but it turned out the effect of that shortage didn’t turn up until January-February of this year. He predicted that Halo 3 would generate $200 million very quickly, and while it didn’t reach that number on the first day, it did hit $300 million by the end of the week. If being close is the name of the game, then Sebastian is certainly one of the top analysts to watch.

And the article gives a good reason for caring about what analysts say: they influence the flow of money.

Beyond having a passing interest, there is one major reason why gamers should be interested in these results.

“You don’t need analysts, but investors do,” Pachter said. “The companies that make the games [Kotaku] readers enjoy need capital in order to develop those games. Investors provide that capital. Without analysts, there would be lower demand for video game stocks, share prices would be lower, and compensation would be lower for the developers. That means lower quality games, and [Kotaku] readers would be unhappy. So in a perverse way, equity research analysts make it possible for publishers to make great games.”