With a new round of gaming systems hitting the market, game developers have a prime opportunity to gain market share and establish new brands. Right now, game makers are working on the must-have game for the PS4 and Xbox One. A large portion of these companies’ 2013 and 2014 revenues will depend on these franchises.
Activision Blizzard, Inc. (NASDAQ:ATVI) has had several great successes recently in console gaming. Chief among them are its Call of Duty franchise and Skylanders franchise.
The last Call of Duty iteration, Black Ops 2, is the fastest selling video game of all-time, grossing $1 billion in 15 days. In total, the Call of Duty franchise has grossed $8 billion for Activision Blizzard, Inc. (NASDAQ:ATVI). The next installment in the franchise, Ghosts, has had good reviews thus far and is sure to be another blockbuster.
The platform transition could be a challenge in the fourth quarter, as PS3 and Xbox 360 game sales decline and the PS4 and Xbox One markets begin to establish themselves in the latter half of the year. More challenging, however, will be the efforts of Electronic Arts Inc. (NASDAQ:EA) and Take-Two (NASDAQ:TTWO) Interactive to challenge Call of Duty’s success in the first person/third person action/shooter genre. (More on that later)
Management recognized the challenges from its competition in its latest earning call. Activision Blizzard, Inc. (NASDAQ:ATVI) guided lower on Call of Duty sales in 2013 compared to last year, and expects to increase its sales and marketing efforts this holiday season.
The company’s Skylanders franchise became a huge success in 2012 after the late 2011 release of Spyro’s Adventure. The franchise, which innovatively combines toy figurines and video games, has grossed over $1 billion in the 20 months of its existence. In 2012, Skylanders outsold both Transformers and Star Wars in the toy category.
But, the empire is striking back.
Disney
is set to release Disney Infinity at the end of the summer, featuring the same “toys to life” gameplay as Skylanders. Unlike Activision Blizzard, Inc. (NASDAQ:ATVI), however, Disney has a slew of extremely popular movie and television characters it’s able to incorporate into its game.
Disney plans to heavily market the game, as it represents a huge initiative for it in both video games and toys. With the amount of marketing power at Disney’s disposal, that could spell bad news for one of Activision’s best-selling franchises.
What’s more, with Nintendo struggling to move units of its new Wii U console, Skylanders is poised for another challenge. The Wii accounts for more than 50% of Skylanders’ revenue. With the more kid-friendly console being left-behind in this next generation, the company will have to find a way to make the game appeal to Xbox and PlayStation owners.
Electronic Arts Inc. (NASDAQ:EA) is taking a simplified approach to publishing video games. It’s consolidating its portfolio to just 11 of its most popular franchises. Comparatively, with the launch of the last generation of consoles, the company had 85 titles.
One of those 11 franchises is Battlefield. The upcoming release of Battlefield 4 is designed with the next generation of consoles in mind. Comparatively, Call of Duty Ghosts saw minor graphics upgrades at the Xbox One unveiling, but nothing compelling for gamers to opt for the title as an addition to their next gen library.
On the other hand, the upgraded design may prevent players from getting the intended experience on older generation consoles. As a result, sales of the game may be weak as the Xbox One and PS4 markets take some time to establish themselves.
But, Electronic Arts Inc. (NASDAQ:EA) has a couple cash cows to rely on in the meantime. Its sports games, FIFA and Madden, continue to sell well year in and year out. The FIFA franchise, in particular, has seen excellent growth as soccer becomes increasingly popular in the U.S. FIFA ‘13 sold 14.5 million units in fiscal 2013, 30% more than the 2012 version. Additionally, the game generated $200 million from digital content downloads, nearly twice as much as the previous year.
Another potential catalyst for Electronic Arts Inc. (NASDAQ:EA) is its agreement with Disney to create games based on the Star Wars franchise. With Disney’s intention to relaunch the franchise in 2015, this presents a massive opportunity for EA to capitalize on the appeal of Star Wars. The company flopped in 2012 with the massively multiplayer game, The Old Republic, but can turn things around with more action packed console games.
Take-Two is preparing to release the next iteration of its Grand Theft Auto series in September. This will be the first GTA release since 2009. GTA V is highly anticipated, and already has over half a million pre-orders for the current generation of game consoles. As of yet, however, the company hasn’t announced plans to release the game for the next generation systems.
GTA V’s predecessors were huge blockbusters, some of the best-selling video games of all-time. GTA San Andreas sold over 27.5 million copies, and GTA IV sold over 25 million. GTA V has the potential to sell just as well, which will likely cut into sales of Activision’s Call of Duty and EA’s Battlefield releases.
The format of the Grand Theft Auto games lend themselves to loads of downloadable content. Strong sales of GTA V could pay dividends throughout calendar year 2014 as players pay to download added features and content.
Similar to Electronic Arts Inc. (NASDAQ:EA), Take-Two has a couple successful sports franchises to rely on for consistent yearly sales as well: its NBA and MLB 2K franchises. NBA 2K has become the de-facto basketball game as EA has cancelled recent installments of its NBA Live series. Meanwhile, its MLB franchise is challenged only by Sony, which produced MLB: The Show exclusively for the PlayStation.
I expect Take-Two to continue to perform well with its sports franchises with the next generation of consoles despite EA’s return to the NBA Live series. The company recently acquired the rights to WWE wrestling, adding another compelling title to its portfolio.
Game on
With the Xbox One and PS4 just around the corner, I like EA’s strategy the most. Its focus on consolidation and cost-cutting ought to drive profits, and Battlefield 4 should be able to further establish the franchise on the next generation of consoles. Additionally, the company has a massive opportunity with the Star Wars franchise.
Take-Two will have an opportunity to capitalize on what should be another huge blockbuster with GTA V. If the company extends the game onto the next-gen platforms, it will sell extremely well. It could even extend the franchise into other formats such as a massively multiplayer game.
I’m pessimistic toward Activision. The company has the most to lose, and is under attack from all angles. Additionally, its stock price has run up in the last six months based on potential buyout rumors, and less on fundamentals. The combination makes it unattractive as an investment.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard, Take-Two Interactive , and Walt Disney. The Motley Fool owns shares of Activision Blizzard and Walt Disney.
The article New Consoles, New Games originally appeared on Fool.com.
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