The two biggest U.S. companies in the video game industry are preparing for a gunfight.
This holiday season, Activision Blizzard and Electronic Arts will battle for supremacy in the $5 billion a year market for first-person shooter video games.
Just two weeks apart, the two companies are releasing major sequels of games where players shoot weapons through the perspective of on-screen characters. EA is coming out with Battlefield 3 on October 25; Activision's Call of Duty: Modern Warfare 3 hits store shelves on November 8.
The first-person shooter game genre ranks as the industry's largest segment, according to video game research firm EEDAR. With global video game sales taking a beating in recent years as cheaper online games emerge, the competition between Activision Blizzard and EA is both a much-needed jolt of excitement and a welcome event for investors.
It creates a lot of buzz for the industry. These are two very high quality titles and when there's high quality content, there will be demand that follows it, said Andre Chan, an analyst at Neuberger Berman, a firm that owns Activision Blizzard shares.
Chan said shares of each company will swing on the first batch of sales data for the games, which can be played on computers and on consoles such as Microsoft's Xbox or Sony's PlayStation.
There will definitely be some impact on the share prices, depending on how well the first day numbers or five day sales numbers are, he said.
Sensing an opportunity to goose sales, the CEOs of both companies have been engaging in some playful taunting.
During a television appearance in June, Bobby Kotick, the CEO of Activision Blizzard, said that he had only seen footage of EA's game on a computer, the implication being that it wouldn't play well on consoles. That didn't please EA boss John Riccitiello, who fired back by telling Reuters that, The very fact that (Kotick) is trying to cast doubt on our game is a perfect example of how we got his goat.
Trash talk notwithstanding, from a sales perspective EA is bringing a knife to a gun fight. Modern Warfare 3 is the latest installment in Activision's Call of Duty series, one of the most profitable franchises not just in video games, but in all of entertainment. Last year, Black Ops, the previous edition of Call of Duty, made $360 million in its first day on sale, more than double Harry Potter's record-breaking opening weekend box office take in June.
Activision's head of publishing, Eric Hirshberg, said that pre-orders for the latest edition of the game were significantly ahead of last year's numbers.
We are hopeful that we can pull off the unprecedented feat of delivering the biggest entertainment launch in history for the third year in a row, he said.
To go along with the game, Activision is releasing Call of Duty Elite, a new subscription service that costs $50 annually and offers extra online content, including apps for mobile devices and better ways for online group play. Gamers who buy both the new game and the service together in a package save $10.
To differentiate itself from Call of Duty, EA has been touting the cinematic feel of Battlefield 3, which features a technology called Frostbite 2 that makes action appear more realistic.
They are going to sell a lot of copies of Call of Duty but our focus is to start taking market share away from them, EA's Chief Operating Officer, Peter Moore, said of Activision. Moore noted that EA used the same strategy to make FIFA the No. 1 soccer video game.
Still, most analysts agree that Activision's Modern Warfare 3 will sell at least twice as many copies as EA's Battlefield 3. But EA's aim is to gradually chip away at the lead and gain enough momentum to take the crown back from its rival in the next few years.
EA would be happy to sell half of what Call of Duty sells this year. But it does leave the opportunity for EA in 2014 or 2015 to try to beat Activision at their own game, said EEDAR analyst Jesse Divnich.
Activision Blizzard shares were down 7 cents at $12.85 while EA shares were up 48 cents at $24.31 in midday trading on Nasdaq on Friday.