Analyst: Happy holidays for gaming industry

While analysts agree that this year's gaming sales figures won't match up to last year's Festivus feeding frenzy (led by Halo 2 and Grand Theft Auto: San Andreas), PBR Research analyst Shawn Milne is spreading a little holiday cheer regardless. In a note to investors today, Milne suggested that the cold winter won't be quite as cold as some think.

"Despite all the noise in the sector and worries over macro-economic conditions, we believe the overall interactive entertainment 'ecosystem' remains stable heading into the holiday," Milne wrote. "Importantly, we believe one of the first bellwether titles, SOCOM 3, is selling very well and driving strong reorders, underscoring the stable PS2 market for key titles and proven franchises."

On the subject of a PlayStation 2 price drop (something other analysts have labeled as "possible" to "unlikely"), Milne doesn't see it happening soon. Sales for the hardware are up 26 percent over last year, while Sony's continued success in the sales charts and focus on a 10-year life cycle for its systems suggest the company isn't in a hurry to drop the price of the hardware again for a while. Possible supply shortages of the Xbox 360 could further reduce the need for a Sony price cut.

Milne also expects a strong showing from Sony's PSP in the next few months, given the holiday lineup of new games, including Grand Theft Auto: Liberty City Stories. Problems with third-party support for the system may also be alleviated in the future. "With lower development costs ($2-$4 million) and $39-$49 software pricing, the PSP platform is delivering high margins and low break-even volume levels for publishers," Milne wrote.

Finally, Milne thinks now might be the right time for long-term investors to scoop up interactive entertainment stock. With the sector trading off about 17 percent recently, stock prices are getting temptingly low for investors willing to tie up their money for a while. Milne names Activision and Electronic Arts as two companies currently preferred by FBR research as long-term investments.