Analysts leery of EA, Guitar Hero

Colin Sebastian believes poor showing of Mirror's Edge could lead to more layoffs and cancellations; EEDAR's Jesse Divnich thinks Activision's rhythm game has "peaked."

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With November 2008 US sales figures from industry-research firm the NPD Group expected later this week, the top game-industry analysts have released their own estimates for the month. The consensus is that the traditionally frantic holiday season was subdued somewhat by the surging recession, with game sales enjoying only a modest year-over-year increase. Though he believes that all three consoles sold in record numbers, Wedbush Morgan's Michael Pachter thinks that overall, domestic game revenue was $1.4 billion, up just 7 percent from $1.31 billion in 2007.

Although cautiously optimistic about the industry as a whole, analysts gave unusually downbeat assessments of two pillars of the game industry. First, Pachter estimates that Electronic Arts will see a 16 percent year-over-year decline in revenue, thanks to poor showings of the new property Mirror's Edge (300,000 units for the month) and Need for Speed Undercover (350,000 units). Though it enjoyed better reviews, Rock Band 2 also sold a disappointing 350,000 units during the month on two platforms, the Xbox 360 and PlayStation 3. (PlayStation 2 and Wii versions are due out next week.)

Colin Sebastian of Lazard Capital Group, the firm helping Midway stave off bankruptcy, went one step further. He thinks the underperformance of Mirror's Edge, Rock Band 2, and Need for Speed Undercover might lead to more layoffs and Tiberium-esque cancellations. "We believe EA is continuing to review its cost structure and franchise base, and it is possible that management will announce further cuts in headcount and the development pipeline (including existing franchises) over the coming quarters," he summarized.

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Although EA's woes are likely pure schadenfreude to Activision Blizzard executives' ears, this week also saw Pachter predict that the latter company's sales would slip 14 percent year on year. This slide is in large part due to one of the megapublisher's top franchises hitting market saturation.

"Probably the most talked-about issue this month is the lack of sales for Guitar Hero World Tour," declared Jesse Divnich of Electronic Entertainment Design and Research (EEDAR). "Currently, we expect unit sales to decline by more than 50 percent series-over-series for November. This is coming off the October month where series-over-series units declined by more than 60 percent."

Divnich also pointed out that, rather than command a premium like Wii Fit, Guitar Hero World Tour is beginning to sell under its suggested retail price on the eBay auction service. "It is pretty clear that the series has already reached its peak among the mass-market audience," he explained with the following caveat. "Of course, we are not suggesting that the Guitar Hero (or Rock Band) franchise will be disappearing anytime soon."

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