The news for video games isn't improving, I'm sorry to say. My colleague Mark Fightmaster recently discussed the disappointing industry sales results observed in the month of August. As he pointed out, total revenues for the sector have now dropped six times in a row.
Oh, that doesn't feel nice at all. I own shares of Activision Blizzard (NASDAQ: ATVI), and I have to admit, the trend does send an icy chill down my spine. But I'll bet shareholders of Electronic Arts (NASDAQ: ERTS) feel even worse. August, of course, is a big month for them. The latest version of the Madden football franchise is released during the latter part of summer. Unfortunately, this year's game seems to have been a disappointment in terms of units sold.
According to StreetInsider.com, Madden NFL 10 sold about 1.7 million copies. The previous year's iteration moved 2.1 million discs on the formats, and during the period, under comparison.
I'm not going to say this means the end of EA, because it doesn't. However, it does have implications for the company. It definitely does not set a positive operational tone going into the Christmas season.
Let's remember, though, that both Sony (NYSE: SNE) and Microsoft (NASDAQ: MSFT) recently instituted price reductions for their gaming consoles. As more systems make their way into living rooms, the potential interest in the new Madden software could increase.
I won't gloss over the negative implications. Perhaps people are tired of the franchise. Maybe they didn't like this particular formulation. I don't really know, but here's an even more troubling issue: are price-sensitive buyers waiting for sales? EA may find it necessary to reduce the cost of the Madden game to entice consumers to adopt the title. The economy continues to scare people, and they know that the competitive holiday season is sure to bring out the markdowns.
EA is not a company on my buy list. It could be later on, but for now, I don't like the news, so I'm staying away. Again, EA will be fine, and on pullbacks, it might be appropriate for some portfolios. Since I own Activision Blizzard, and since I think that entity is the strongest publisher of the bunch and has the best prospects at retail in the fourth quarter, I can say EA is not appropriate for my collection of investments.
Disclosure: I own Activision Blizzard; positions can change without notice.
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Reader Comments (Page 1 of 1)
9-15-2009 @ 11:05AM
Mike O said...
This is a recession and video games don't fall into the "need" category. With games at a whopping $60 a pop new, people are waiting for copies to show up used at places like GameStop and on eBay where they can pick them up for 15-20% off only a month or two after their release.
Games like Madden are even worse because each year the game only offers incremental improvements. You only see major changes to sports games every 3 years or so. I think many are tired of shelling out $60 a year for what amounts to a roster update.
Smart people stay a year behind when it comes to sports games. When the new "model year" comes out, the old one is essentially considered worthless. You can get last years sports games for next to nothing and they are almost identical to the current year.