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Video games shares looking for a catalyst
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By Gabriel Madway
SAN FRANCISCO (Reuters) - U.S. video game publishers will provide a snapshot of consumer sentiment as the critical holiday season nears, with investors awaiting that elusive catalyst to shake the industry out of its doldrums.
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Eighteen gamers demonstrate Electronic Arts' Medal of Honor's online multiplayer feature during their press briefing ahead of the Electronic Entertainment Expo (E3) at the Orpheum Theater in Los Angeles, California June 14, 2010.
Credit: Reuters/Gus Ruelas
By Gabriel Madway
SAN FRANCISCO |
Fri Oct 29, 2010 1:12pm EDT
SAN FRANCISCO (Reuters) - U.S. video game publishers will provide a snapshot of consumer sentiment as the critical holiday season nears, with investors awaiting that elusive catalyst to shake the industry out of its doldrums.
Shares of Activision Blizzard Inc , Electronic Arts Inc and THQ Inc -- which report quarterly results starting next week -- have underperformed the market this year, as sales of traditional hardware and software in the $60 billion industry continue to slump.
Consumers have not stopped spending on games, but they have changed how they spend. Sales of music titles such as "Guitar Hero," which boosted industry sales over the past half-decade, have fallen off precipitously.
"If the games are good, they're buying them, so the onus is on the publishers," said MKM Partners analyst Eric Handler.
At the same time, momentum is shifting away from packaged titles played on home consoles. Industry retail sales in the U.S., the biggest market, are down 8 percent this year.
They are flocking to social games like Zynga's "Farmville," game apps on Apple Inc's iPhone, along with online and downloadable content. In the United States, as much as $2.9 billion was spent on such games in the first half of 2010, according to research firm NPD.
Among the U.S. names, many investors like the stability of Activision, the world's largest stand-alone game publisher. It forecasts conservatively, pays a dividend and boasts two cash-cow franchises: "Call of Duty" and "World of Warcraft."
EA is a turnaround story but sports a higher price-to-earnings multiple than Activision. It lacks its rival's tent-pole franchises, but is in improved financial health and is making an aggressive push into social, online and mobile games.
HOME STRETCH FOR THE HOLIDAYS
Activision's quarterly results, helped by the strategy game "StarCraft II," will get less attention than the publisher's expectations for the current holiday period.
Wall Street is looking ahead to November 9, when Activision will release what should be 2010's biggest title, "Call of Duty: Black Ops." But it may have a tough time outselling its predecessor "Call of Duty: Modern Warfare 2," which set a record with first-day sales of 4.7 million copies last year.
Although pre-orders are strong, Wedbush Securities analyst Michael Pachter noted that the newest "Call of Duty" was developed by a different Activision studio, and there is more competition today.
"It will probably sell slightly less than last year," he said.
Activision will also release "World of Warcraft: Cataclysm" in December, the latest update to the multiplayer online game that boasts 12 million subscribers.
EA is also expected to report a solid September quarter relative to expectations, helped by soccer game "FIFA 11." But "Medal of Honor" -- a key holiday quarter release often deemed a "Call of Duty" challenger -- garnered poor reviews.
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