Video Game Makers Now in the Crosshairs

It's not just Smith & Wesson Holding and Sturm, Ruger drawing greater scrutiny in the wake of the shooting in Newtown, Conn.; now the politicians are turning toward the entertainment industry, including video game makers, because of violent content. Hollywood, which has a symbiotic relationship with the gaming industry and whose regular fare of violent action movies is routinely criticized, may be in the crosshairs too.

A brand-new ball game
After reports indicated that in addition to having access to several high-powered guns, the killer, Adam Lanza, was also a "violent game" fanatic who enjoyed playing first-person shooter games, Congress is looking into clamping down on game makers for their content. Sen. John Rockefeller, the chairman of the Senate Commerce Committee, wants the National Academy of Sciences to conduct a study into the impact of violent games on children and perhaps have the FCC and FTC "expand" their research.

Apparently of the opinion that playing Activision Blizzard's popular Call of Duty video game or Microsoft's Halo is much worse than watching Wile E. Coyote having an anvil dropped on his head, Sen. Rockefeller dismisses the notion that violent game content is no worse than "Saturday morning cartoons."

Yet game companies aren't alone in being singled out. Sony's new release "Zero Dark Thirty," the movie about the hunt for and killing of Osama bin Laden, has been criticized by the Senate's Armed Services Committee for the incorrect suggestion that aggressive interrogation techniques led to information resulting in locating the terrorist. And it was originally believed that an Internet movie trailer was responsible for the riot that led to the death of a U.S. diplomat in Benghazi.

A scary notion
Of course, a movie, however violent, is still just a movie. And as Supreme Court Justice Antonin Scalia wrote in the court's opinion striking down California's violent video game ban, even the classic Grimm's fairy tales are loaded with violence, torture, and death. Hansel and Gretel bake their captor in an oven, killing her. As punishment for poisoning Snow White with an apple, the queen is forced to dance in red-hot iron shoes until she's dead. Cinderella's wicked stepsisters have their eyes pecked out by doves (after they cut off their toes in an attempt to get their feet to fit into the golden slipper).

Investors need to be mindful of the notion that while there's never been a real link established between violent content and the commission of crime, it won't stop those who want to make that leap and ban movies, games, and books that contain such expressive content. While Electronic Arts doesn't take special notice of such possibilities in the risk section of its annual report, Activision does, noting:

In prior years, at least two lawsuits have been filed against numerous video game companies, including against Activision, by the families of victims who were shot and killed by teenage gunmen in attacks perpetrated at schools. These lawsuits alleged that the video game companies manufactured and/or supplied these teenagers with violent video games, teaching them how to use a gun and causing them to act out in a violent manner.

TakeTwo Interactive mentions similar risk factors, and mobile game maker Glu Mobile points out that China "has adopted measures designed to eliminate violent or obscene content in games."

Taking stock
Although we've seen some investors dumping gun stocks from their portfolios, most notably Cerebus Capital Management's public announcement that it was selling its stake in Freedom Group, the maker of Remington and Bushmaster guns, we haven't heard of a similar movement -- yet -- with game stocks.

Over the past week, however, shares of the game makers have fallen, with TakeTwo down 10%, EA off 8.5%, and Activision dropping 6%. But it would seem that with at least one Supreme Court ruling having gone in their favor, game makers don't face the same risk as the gunsmiths. For those investors who are looking for the industry to bounce back from its recent troubles and still grow in the absence of regulatory maneuvers, this setback could very well be a buying opportunity.

While Activision and Microsoft have been taking the headlines when it comes to console gaming, Fools following the gaming sector would do well to also keep tabs on Electronic Arts. We can help. Our new special report breaks down the risks and opportunities facing the company to help you decide if EA is right for your portfolio. Click here to get your copy now and we'll throw in a year of free quarterly updates as news breaks.

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Rich Duprey has no positions in the stocks mentioned above. The Motley Fool owns shares of Activision Blizzard, McDonald's, and Sturm, Ruger & Company and is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Motley Fool newsletter services recommend Activision Blizzard, McDonald's, and Take-Two Interactive . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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