In the software area, executives predict the big video game franchises will continue to lead game sales. Electronic Arts is expected to be the big winner, with its sports franchises, but sequels of other licensed titles will be popular with hard core gamers: Doom III, Halo 2, Half-Life 2, Metal Gear Solid 3, The Matrix Online and Grand Theft Auto: San Andreas.

IDG Entertainment, a game industry powerhouse that includes GamePro magazine, which works closely with retail analyst firm NPD Data Group and industry analyst firm IDC, interviewed more than 50 publishers, developers, retailers, market analysts and investment bankers for the company's 2004 Industry White Paper on the current state and future outlook for video games.

Game industry executives interviewed repeatedly commented that lower pricing for consumers on either or both of the two popular platforms, held firm in 2003, would do much to stimulate the market, jump starting sales of hardware, accessories and software for the year.

"The console segment is at mid cycle, awaiting details on next generation systems expected in 2005," said Wes Nihei, editor-in-chief and vice president, IDG Entertainment. "Everyone is hoping for price cuts on hardware - and say the health of the industry is tied to both Microsoft and Sony giving in this year."

Other predictions from the report include:

• In the handheld area, only Sony's PSP has a chance of stimulating competition with Nintendo. How much PSP will cost and how much content it will have are the key questions
• Next Generation consoles will hit in 2006 and be focused less on the importance of graphical capability and more on functionality and other features of each console
• Interest in direct distribution of games to the casual gamer is hot. Comcast and Yahoo are offering game services, powered by Exent, and Infinium is expected to offer a streaming service to a receiver in the living room stack in November
• The window for full price $49 releases is shrinking. Used game sales is one of the reasons
• With gaming more global than ever before, the industry will continue to focus efforts on developing overseas markets. China, with its gigantic population and PC-based culture, is regarded as having huge opportunity for growth

Industry executives expressed concern over the lack of new Intellectual Property (IP) or original games as a critical factor in the long-term health of the industry.

"Independent developers are getting squeezed out of the market by the rising cost of development, distribution and marketing," said Nihei. "The shrinking retail hole has made profit difficult for all but the biggest hits. This has reduced the number of independent development studios and caused many developers to increasingly seek buyouts or relationships with more established publishers."

Skyrocketing costs have affected even the big publishers, causing some to pare down the number of titles being put out, industry executives said. IDG's Annual White Paper is geared to helping its customers get a handle on major trends.