We’ll learn a lot about the state of the video-game industry this week as two of its biggest players — Electronic Arts (ERTS) and Activision (ATVI) — report earnings.
I’m not placing much stock in the value of the actual numbers they’ll report, which were somewhat telegraphed by the monthly NPD numbers, channel checks, and the general buzz around particular titles. There is some concern over the performance of casual and catalog titles, as well as the economy’s ongoing impact on the industry. But by and large, both EA and Activision are expected to deliver solid results.
Guidance remains another issue altogether.
The second half game lineup is stacked, and awfully reminiscent of 2007, an absolutely huge year — far from shocking, since this year’s biggest titles, like Halo 3: ODST and Call of Duty: Modern Warfare 2 have direct lineage to 2007’s monsters.
It’s gamers’ paradise. But is it investors’ paradise as well?
No.
The economy is still tough and it’s difficult to predict how many casual gamers at the edge are going to come in and buy. And when people do buy, will they buy used to save money? Industry observers are also very correctly pointing out that upcoming titles like the EA-distributed The Beatles: Rock Band and Activision’s DJ Hero are very expensive, forcing gamers to pick and choose. What should be blistering second-half growth will actually be driven by only a few titles – the ones that hardcore gamers can’t live without.
As far as actual guidance goes, Activision is more likely to guide up. It has the biggest game of the year in Modern Warfare 2, with preorder activity through the roof, even for the absurdly-priced $149.99 Prestige edition. Its opening weekend will easily top all video-game and movie releases in history, and that may be enough to carry the day. However, my conviction level is not such that I am not adding to my position ahead of Wednesday’s report.
EA, on the other hand, is likely to sandbag on their guidance because of the competitive slate – it just doesn’t have enough core-gamer mega titles to keep up with the Halo’s and Call of Duty’s of the world. It would be far better for the company to set expectations low and beat them rather then set them high and miss.
In terms of conference call discussion, we’ll have the usual blather about a potential Sony (SNE) PS3 price cut and the state of the economy, but what I want to hear about is music games. Finding a copy of Guitar Hero 2 after its late-2006 release date was pretty hard.
To quote a Circuit City manager I spoke to at the time, “Damn, I can’t believe how many people are buying this game. Even black people love it!” Those were his words ladies and gentlemen, not mine.
But since late last year, retailers have been overstocked with music games that take up a lot of valuable floor real estate. Viacom also just reported a significant drop in sales of Rock Band. I’m very much want to hear about how retailers, especially mass-market ones like Target (TGT) and Wal-Mart (WMT), are gearing up for the holidays in this regard.
Disclosure: Long ATVI
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