Once considered the exclusive domain of kids, video gaming has expanded its reach well up the demo scale, with most industry players now concentrating their efforts on the teen and adult markets. Last year’s PS2 and Xbox systems, for example, are both geared primarily to young adults, with kids not yet even a target consideration–as evidenced by leading 2001 titles Grand Theft Auto III (PS2) and Halo (Xbox). Both games carry a ‘Mature’ rating and are clearly not intended for kids. Other more established hit franchises–such as Resident Evil, Metal Gear Solid, Tomb Raider and Silent Hill–also hit an older audience.

There’s no doubt that the older demographics are important for rounding out sales, but some game companies seem to be forgetting a very salient fact–the most active segment of the gaming market is still six- to 14-year-olds.

DFC Intelligence conservatively estimates that about 75% of kids in this age range play video games, with other research outfits putting that number up as high as 90%. In addition to these impressive usage numbers, the industry must realize that 10-year-old consumers have no financial obligations of their own, are backed by the spending power of mom and dad, and video games tend to be their largest entertainment expenditure.

What’s more, 10-year-old kids tend to have a pack mentality. If something is hot, nearly every 10-year-old wants it, which fosters the growth of mega-hit franchises such as Pokémon, Mario Bros. and Harry Potter. Yet as kids become young adults, their interests tend to fragment and they begin to divide into separate consumer niches. So while narrowly-targeted game niches can be profitable, if you want a US$100-million game franchise, the six to 14 market is your best bet.

Nintendo, the most consistently profitable company in the gaming industry, markets its products almost exclusively to kids, and according to stats from the NPD Group spanning the last four years, the top 10 titles in terms of revenue were all Nintendo games. The company has made its fortune on a proprietary line of original characters that can be licensed to other media, with Pokémon as the most notable example. Pokémon video games alone have generated sales of over US$1 billion to date, and the characters have been spun off into highly successful movies, TV series and merchandise.

That said, it is still extremely difficult to create and nurture a market for a new character. For every Pokémon or Mario Bros., there are probably 20 expensive flops. Having a success in the kids market can be extremely profitable, but it is easier said than done.

As a result, many companies looking to target the youth market go the safe route and license characters from other media. The right licensed property can do very well as a game, and software publishers significantly lower marketing costs by riding the wave of licensor marketing for the TV series, film or book.

To wit: Software publisher THQ, another company primarily focused on the six to 14 segment, holds the rights to publish games based on several Nickelodeon TV series. On the strength of licensed WWF and Rugrats titles, THQ saw its revenue grow from US$90 million in 1997 to US$379 million in 2001. Electronic Arts has nabbed the gaming rights to both Harry Potter and The Lord of the Rings, as well as signing a co-publishing deal with LEGO. And Sony is releasing licensed Disney titles for the aging PlayStation console, a move designed to build a new generation of loyal Sony consumers.

As far as game play goes, game studios should keep in mind that kids titles need not be mindless run/jump/shoot entertainment. Kids enjoy a reasonably diverse lineup of games, and the recent trend has been to shift away from action and place more focus on strategy and puzzle-solving elements. Nintendo classics like Super Mario 64, The Legend of Zelda series and Pikmin are more puzzle-centric than action-oriented, and the Pokémon series features complex role-playing games with no action elements.

David Cole is president of DFC Intelligence (www.dfcint.com), a San Diego, California-based market research and consulting firm focused on the interactive market.