It is a widely held belief that the video game industry will prosper during the recession. Much as the film industry prospered during the great depression. And there is much evidence to support that view with industry turnover well up on last year and the console platforms selling in record numbers. It all looks rosy. And I believe that the industry will do better than most over the coming months, however there are some massive caveats.

For a starter, just now people are enjoying their last Christmas blow out before facing the inevitable. And unemployment is going to rise very sharply in the new year. So things will probably drop back a little from the current high, even allowing for seasonal factors.

Secondly, retail will not do as well as the industry as a whole. This is because gaming is going online. Which includes content delivery, subscriptions, micropayments, advertising and other business models. All of which do not involve high street retail. So retail must, inevitably, fall away sharply from the peak that this Christmas will be.

Thirdly, whilst two of the platform holders are running with good profits, there is one, Sony (SNE), that is in deep trouble. They have gone from being the leading brand in the last generation to being third and last in this generation. And they are falling further behind with each passing day. Their stock price is in free fall and they are making 16,000 redundancies. This is not good for the industry because Sony bring a lot to it.

Fourthly, there will be a different profile as to what sells well. Hyped up hits, often with licensed IP will not do so well. People will be more discerning with their spend, buying solid, quality titles with many hours worth of play. We are already seeing this effect and the game sales charts are looking a lot different to what people were expecting.

Fifth, with less money around people are more likely to steal games. There will be a far higher incentive for piracy. So industry revenues could be severely hit, even though their products would be reaching more people.

Sixth, the Wii bubble could very well burst, for a number of reasons that have already been explained on here. The occasional, very casual “toy” user will be more careful with their money. It is the regular, consistent gamer who will keep going most through the bad times.

Seventh, we are at the beginning of a netbook explosion. These things are going to sell in many tens and eventually hundreds of millions. People will move away from spending time with consoles to spending time with netbooks. So online PC is going to grow massively at the expense of the three big console platform holders. Home and mobile gaming consoles will be hit. This is where I would invest money in gaming right now.

So we are looking at interesting times over the next two years, but then this industry is never boring.

For two years now analysts have been predicting the imminent demise of the Wii. They have become a bit quiet recently as it chalks up ever more amazing sales success. Yet there are a few reasons why what we are seeing now is the end of the boom.

* Any bubble bursts just as it reaches its biggest size. And the Wii is now selling in massively unsustainable numbers. It just cannot go on.
* The penetration of HDTVs has increased massively over the last two years. Thus cruelly exposing the Wii’s last generation graphics to far more people.
* The Xbox 360 is cheaper.
* The Xbox 360 is a huge amount better than the Wii. It has far more games and vastly more good games. And it has Live, by far the best online gaming portal. Gradually the public will come round to understanding these realities.
* The Wii has a very weak game library. The first party games, a few good third party games. Then lots of dross shovelware. And game consoles are for playing games.
* Nintendo have now rolled out all their great and famous properties on the Wii. So they have very few places left to go for the stream of AAA titles needed to sustain a platform.
* The Wii is not making much money for many publishers so they are voting with their feet and allocating their resources to platforms that will make them money.
* Most of the Wii customer base is the very casual “toy” market. They will be very fickle as they move onto the next “must have” trend. The Wii will become tired.
* Money is getting a lot tighter as the world tips into recession. Casual frippery, like most Wii purchases, will be an early casualty.
* Most people likely to buy a Wii already have. In terms of market penetration Nintendo are now going to suffer from the law of diminishing returns.

So there we have it. Plenty of reasons why the Wii must eventually face the inevitable. And because the boom has been so massive the collapse of sales will be equally dramatic. And when will this be? Let’s put it this way, we are experiencing the last big Christmas for the Wii.