The Big Play: VARs See Dollars In Gaming

Rich Green has simple advice for fellow digital integrators: Get into the game or get out of the market.

As president of Rich Green Ink., a Palo Alto, Calif., home theater installer and longtime CEDIA member, Green for years has evangelized to fellow dealers and vendors that an increasingly large portion of their business will soon revolve around PC and console gaming. His statements have fallen mostly on deaf ears. But as he and others start to see gaming-related sales encompass more than half of their business, the rest of the market is waking up.

Sales of console and portable video game hardware, software and accessories in the United States rose 21 percent during the first half of 2005 to more than $4.1 billion, according to The NPD Group. Historically, the vast majority of gaming sales has flowed through retail stores. But as the technology improves and demand increases for more immersive gaming systems, consumers are turning to integrators for help. Integrators face plenty of challenges to successfully serve this market, but for companies with savvy integration experience and business creativity the field is wide open. "There's a lot of activity now moving to connectedness, interconnectivity," Green says. "As new game consoles launch over the next few months, we'll see a huge influx in gaming technology in the home. We're preparing our clients for gaming as a huge opportunity."

Green serves mostly wealthy company executives and a few years ago began offering gaming consoles to customers as part of their $150,000 home theaters. "Customers snapped it up," Green says. Of the 12 installations his company now handles per year, four or five want gaming systems. In a few years, he expects half of his company's total business to come from gaming-related sales.

Lucrative gaming solutions, however, aren't exclusively for wealthy clients. Nathan Baney, co-owner of High Tech Hobbies, a home and small-business integrator in Mifflintown, Pa., is just one of many integrators who installs networked Microsoft Xbox gaming systems in middle-class homes and small-office environments, like doctors' waiting rooms.

Numerous pieces go into a gaming installation—including the console or PC, software titles, accessories and controllers—and integrators increasingly look to distributors for product orders and integration advice. Since launching its gaming division during the middle of last year, D&H Distributing has seen sales of gaming-related products triple.

"[A gaming console] is a great attach product to create a larger sale. Adding gaming into a home entertainment system makes the whole experience much more enjoyable for the customer," says Jeff Davis, vice president of sales at the Harrisburg, Pa.-based distributor. In addition to gaming-specific components, D&H has seen increased interest in networking gear, plasma displays and HDTVs, sound systems, cables and other margin-rich gaming-related peripherals.

Tying these pieces together to create a complete entertainment experience is the key to integrator sales. The process gives integrators the chance to leverage their deep experience in high-revenue work such as lighting and audio design, control system integration, networking and room aesthetics. While integrators make almost no money on the console at the heart of a solution, they can garner 20 percent to 40 percent margins on the complete solutions. "The game console is an enabler, an enabler for us to do a sensational job for a client," Green says. "I don't care that I'm not making 40 points on a game console. It's a hub of activity that allows us to strut our stuff in all areas we're good at."

Green offers two main types of gaming installations. At the most basic level, he adds a console or gaming PC to a home theater rack and ties it into the room's display and audio system. In a more elaborate sale, he sets up a designated arcade room in the house with multiple gaming systems and consoles for competitive play. Green typically connects one large display and four small displays to any of four different PCs or consoles, which causes numerous video and format switching challenges that must be solved. The company must ensure smooth communication between each system and its wired and wireless peripherals. Finally comes lighting and audio, which can involve setting up 2.1 surround sound for the entire room, and a second 5.1 sound system and/or audio headsets for individual players.

Integrators also report strong revenue opportunities from much simpler gaming installations. David Gasaway, owner of Elizabethville, Pa.-based Gasaway's Computers, says 60 percent to 70 percent of his customers want gaming consoles. Gasaway encourages his customers to buy Xbox consoles themselves, then hooks the consoles to a wired or wireless network in the home. Gasaway installs one or two ceiling-mounted wireless access points from On-Q/LeGrand to provide wireless access to the Xbox. Gasaway buys each access point for $400 to $500, and resells it for $800 to $900.

There are also high margins for integrators building or selling custom gaming PC systems. Elite PC, a Tempe, Ariz., system builder, garners 20 percent to 25 percent margin on its gaming systems, compared with 12 percent to 15 percent on its business computers. While the company sells many more business computers than gaming systems, the higher margins on the gaming systems makes them worthwhile. The company also spends a disproportionate amount of its advertising budget on gaming systems, which he finds lends the company more credibility as a system builder.

"People tend to associate you with a higher-end system even if they don't buy the gaming system from you," says Aaron Richy, the company's vice president of sales and marketing. Elite also attends gaming trade shows and sets up high-end systems in its booth. While the kids are busy playing on the PC, Elite's representatives sell their parents gaming PCs and servers for home and business.