With the once-resilient video game industry mired in a slump, investors are looking to big-name titles and potential price cuts for game consoles in the second half of the year to help spur a rebound in sales.
Major game publishers Activision Blizzard Inc and Electronic Arts Inc will report quarterly results next week, on the heels of dismal June U.S. video game sales, which registered their biggest drop since 2000.
But the 2009 game release schedule is heavily weighted with big-name titles in the second half of the year, analysts say, in contrast to a strong first half line-up in 2008. That has made year-over-year comparisons particularly ugly.
The remainder of the year will see the latest installments in major franchises such as Left 4 Dead, Assassin's Creed, Call of Duty and Halo, which could give sales a much-needed boost.
There are some big games coming out, said Janco Partners analyst Mike Hickey. But he also noted that console price cuts are important to the industry's fortunes in the near term.
The spark needs to come from price cuts on the hardware side to get the installed base breathing again. Once that happens, software will follow.
Nintendo Co Ltd's Wii costs $250 and is the top-selling home console in the U.S., followed by Microsoft Corp's Xbox 360 and Sony Corp's PlayStation 3. The cheapest version of the Xbox costs $200 and the PS3 sells for $400, putting most pressure on Sony to cut prices.
Console price cuts are always on the mind of game publishers, more so in the midst of a recession that is sapping consumer spending. Lower prices would help increase the installed base and in turn spur sales of software.
People were saying the video game industry is recession-proof, but it was fantasy, said Pacific Crest Securities analyst Evan Wilson.
The correct thing to say is that video games are more tied to the hardware cycle than they are to the economic cycle.
NO MORE DELAYS
Although U.S. sales of game equipment and software are down 12 percent year-to-date, market research firm NPD Group Inc said full-year sales could still match or slightly exceed those of 2008, so long as the releases of some high-profile games are not delayed.
Activision, publisher of the hugely successful Guitar Hero, has fared relatively well in the downturn even as its competitors have struggled and shed jobs. The merger of Activision and Blizzard Entertainment closed last July.
For the June quarter, Wall Street expects Activision to post a profit of 7 cents a share, excluding special items, on revenue of $811 million, according to Reuters Estimates.
Activision's new game Prototype was the top-selling title in the U.S. in June, according to NPD, although analysts say it has a stronger slate in the September and December quarters.
Electronic Arts has had a rougher go of it this year, but analysts are expecting the Madden football publisher to show top-line improvement in the June quarter, led by titles such as Sims 3 and Tiger Woods golf.
Wall Street is forecasting an adjusted loss of 13 cents a share on revenue of $731 million, compared with a loss of 42 cents a share and sales of $609 million a year earlier.
Both companies' shares are up around 30 percent this year. Activision shares trade at 17 times forward earnings, while EA trades at 23 times forward earnings.
Brian Farrell, chief executive of smaller game publisher THQ Inc, said this week that he expected price cuts for the end-year holiday season.
Just look at the hardware numbers and it would seem that a price cut would be in order by at least two of the three manufacturers, he said.
Nintendo on Thursday reported a 66 percent fall in quarterly operating profit, due in part to slowing demand for the Wii.
(Reporting by Gabriel Madway, editing by Tiffany Wu and Gerald E. McCormick)