October 28, 2009 / 7:37 PM / 9 years ago

Crucial holiday season arrives for video game industry

SAN FRANCISCO (Reuters) - The holiday season is crunch time for video game publishers, who are pinning their hopes on a slew of big releases to make up for lackluster sales this year.

Guests play the video game "Madden NFL '09" at the Madden NFL ’09 VIP Premiere party hosted by EA Sports and XBox in Los Angeles, August 7, 2008. REUTERS/Fred Prouser

Price cuts from home console makers Nintendo Co, Microsoft Corp and Sony Corp had been expected to help boost software sales, but the results have been less than heartening so far.

Overall industry sales in the United States — the world’s largest games market — are down 13 percent this year, according to research group NPD. But some of the biggest releases — such as the latest in the Call of Duty shooter franchise — have yet to hit store shelves.

As game publishers led by Activision Blizzard Inc report quarterly results starting next week, Wall Street will be keen to gauge consumer sentiment heading into the industry’s most important selling season.

“There’s a dark cloud hanging over the industry because of the recession, and people wonder if consumers are going to be there this holiday season,” said Jesse Divnich, an analyst with research group EEDAR.

He estimates software holiday sales in the U.S. from October through December will be down 1 percent from last year. The overall, global video game sector is estimated to have $50 billion revenue in 2009.

Analysts say the music and fitness categories — including games such as the wildly popular “Guitar Hero” — have helped fuel growth over the past few years, bringing in millions of casual players to augment the core of hardcore fans.

But music title sales are flagging, and the most anticipated new holiday titles are sequels that appeal more to the industry’s traditional core of shooter and sports aficionados.

“High quality content is selling well, the weakness is in lower quality, casual games,” said Janco Partners analyst Mike Hickey.

The biggest release on the calendar is undoubtedly “Call of Duty: Modern Warfare 2,” published by Activision Blizzard and set for launch November 10.

Hickey said it could be the “biggest video game release of all time” — surpassing even “Grand Theft Auto IV” from last year — and selling 12 million units by the end of the year.

“Grand Theft Auto” racked up more than $500 million in worldwide sales in its first week when it was launched in April of 2008.


Ubisoft’s “Assassins Creed 2” also arrives next month with big expectations, along with “Left 4 Dead 2,” distributed by Electronic Arts, and the newest “Super Mario Brothers” offering from Nintendo for the Wii home console.

“When you look at where companies are placing their bets, yeah there are some new titles coming out but it’s really keeping current franchises alive,” said Patrick Pugh, a partner with PricewaterhouseCoopers.

Other major holiday titles that have already been released include Microsoft’s newest “Halo” offering, and EA’s latest “FIFA” soccer, “Madden” football and “Need for Speed” driving games.

In the music category, the hugely hyped “Beatles: Rock Band” game, distributed by EA, and Activision’s new entry “DJ Hero” are also expected to sell well.

Such so-called “AAA” blockbuster titles cost millions or even tens of millions to develop and market. Although it varies by title, analysts say a game needs to sell roughly 1.5 million units just to break even.

Earnings season for game publishers will kick off next week with reports from THQ Inc and Activision, followed the next week by EA.

Shares of Activision are up around 30 percent this year, while EA’s stock is up around 15 percent. Activision trades at 18 times forward earnings, while EA trades at around 21 times.

The industry as a whole has struggled with steep declines in sales, as consumers dialed back on spending amid a punishing recession.

Expectations were fairly high for September, as analysts expected console price cuts and a number of big-name releases to juice sales.

But overall industry sales in the United States rose a mere 1 percent in September after six months of declines, according to NPD. Software sales climbed a less-than-expected 5 percent.

Editing by Edwin Chan

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