Apple Inc. (AAPL) TV and the Coming Death of Video Game Consoles

Electronic Arts Inc. (NASDAQ:EA) has spent over $1 billion in prepartion for the video game shift

Activison’s largest competitor, EA, is also concerned about the shift in the industry. But rather than just make off-the-cuff comments on an earnings call, EA has spent big bucks.

EA acquired PopCap Games in the summer of 2011 for about $750 million — a figure that could swell to over $1 billion if the company hits certain milestones. PopCap isn’t a direct competitor to social game giant Zynga Inc (NASDAQ:ZNGA) per-se, since the majority of its games are not given away for free. Yet most of PopCap’s games, including its mega-hits Bejeweled and Plants vs Zombies, are availble for Apple’s iOS. Thus, should an Apple TV pressure the video game industry, EA will have a major subsidy devoted to producing games for that platform.

Prior its acquistion of PopCap, EA did acquire a Zynga competitor in the form of U.K.-based Playfish for $400 million in the fall of 2009. Playfish is known for its free-to-play games The Sims Social and SimCity Social, both of which are played directly through Facebook Inc (NASDAQ:FB).

The bottom line

As an avid video gamer, I don’t think an Apple TV is a direct threat to the video game market as it currently stands — at least, not anytime soon. Cheap games like Angry Birds may be fun to pass the time, but they simply don’t stack up to the full entertainment experience delivered by the major AAA titles — titles that can only be found on the most advanced video game consoles and most powerful personal computers.

But the continued evolution of the TV — particularly when Apple finally unveils the real Apple TV — will present a remarkable challenge to the video game industry’s established players.

Should the practice of playing games on smart TVs actually emerge as a solid consumer trend, investors will have to consider how the changing medium will affect individual video game stocks. Games distributed and played on smart TVs — as Kotick noted — will challenge the classic video game industry’s pricing model.

Some companies (like EA) appear to expect the shift, and have made significant investments to deal with an evolving industry. Others, like Activision, seem to be aware of the coming threat, but have made little substantive adjustments. Of course, it isn’t all doom and gloom: A smart TV could give younger companies (like Zynga) a chance to grow.

Ultimately, video game investors seem poised to focus on the industry’s new generation of consoles in 2013. Yet this could be a mistake. The biggest challenge to the industry might just be an Apple TV.

The article Apple TV and the Coming Death of Video Game Consoles originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

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