Burnout download revs up analysts
Industry prognosticators assess the likelihood that EA's announcement will cause brick-and-mortar retailers to crash and burn.
Between the monthly NPD sales data and Electronic Arts' signing of two high-profile developers to new distribution agreements, yesterday was chock-full of gaming news. While those bits grabbed the most headlines, another of yesterday's EA announcements could prove to affect the industry even more.
This morning, Pacific Crest Securities' Evan Wilson sent out a note to investors calling out the long-term implications of the news that Burnout Paradise will be sold as a downloadable game on the PlayStation Network beginning this fall. While digital distribution has been around for years and full-size retail games have been made downloadable in the past, Wilson thought the Burnout announcement carried particular weight.
First of all, Wilson pointed to Burnout Paradise as the "first significant third-party PS3 game coming to the PlayStation Network." He also noted that the game is big enough that it should catch the attention of gamers and that it's coming from an equally big publisher.
"Electronic Arts is one of the two largest and most influential video game publishers," Wilson wrote. "It is one of two publishers retailers can't afford not to support. Its support and leadership of digital downloads paves the way for many other games to come to PSN and many other publishers to come to PSN."
Wilson hasn't been bullish on Sony or Electronic Arts much in the past, but this announcement has considerably improved their standing in his view.
"If they can pull this whole thing off, this would be a game-changer for each company," Wilson said, adding, "Over the longer term, we believe GameStop's fundamental business model is at significant risk."
Other analysts acknowledged the potential impact of digital distribution. In a note to investors, Signal Hill's Todd Greenwald called the Burnout announcement "a warning sign for packaged goods retailers." He also pointed out the appeal of downloads for publishers, since they receive a higher margin from digital sales and it keeps the product out of used-game resellers' hands.
Lazard Capital Markets' Colin Sebastian was a little reluctant to ascribe too much importance to the downloadable Burnout news.
"Long-term this is risk to the traditional retail channel, but in the near term we think digital will still represent a smaller slice of the pie," Sebastian told GameSpot. "The hurdles are a lot higher for games than music, for example, due to the larger file sizes. Gamers need larger hard drives and greater patience in terms of download time. That said, we expect to hear about an increasing number of video games launched day and date digitally with the disk versions."
Wedbush Morgan Securities' Michael Pachter told GameSpot that Burnout's status as the first premium third-party game on a downloadable service was certainly significant.
"With that said, it is not a new release, so [the news has] virtually no impact on GameStop," Pachter said. "I would compare this to pay-per-view movies coming out six months after the theatrical release and would say that has very little impact on movie ticket sales."
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