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E3 06: Analysts offer E3 preview

Michael Wallace and Stephen Tam with UBS Securities give investors a heads-up on what they expect from next week's big show.


UBS Securities analysts Michael Wallace and Stephen Tam have released an investor preview for next week's Electronic Entertainment Expo, and the pair is making some interesting calls on the industry's near- and long-term future.

Heading into the next-generation of console wars, Wallace and Tam caution that the coming battle won't be waged like the last one. With the PlayStation 3 and the Xbox 360 priced higher than consoles in years past, the pair expects fewer gamers to own both platforms, while Nintendo's Wii is a unique enough piece of hardware that companies won't be able to blindly port titles to it from other platforms.

"How the software companies fare over the next several years will not be simply a matter of mass-producing games across all platforms," the report states. "They have to make the right choices and support the right platforms, since there is no clear-cut winner in the hardware market like there was in 2000 when Sony launched the [PlayStation 2]. Guessing the installed bases for each platform is harder than it's been in the past."

As for what is expected at the show, they break it down by console. Despite Sony's assertion at the Game Developers Conference 2006 that Warhawk will be playable at the event, they don't expect the PS3 to be playable, and they don't expect Sony to put a price tag on the console yet.

"More importantly, what we will be looking for is what kind of software there is for the PS3 and how far along it is," they write. "There is still a lot of frustration from third parties regarding Sony development kits and their ability to get quality software done in time for the launch."

On the PlayStation Portable front, Wallace and Tam are expecting a hard drive-equipped version of the system to debut. And while they're also projecting a price cut in the works, they say Sony might put it off until closer to Thanksgiving.

Moving to Microsoft, Wallace and Tam are focusing on how it can take the best advantage of its year-long head start in the console wars. The note says the keys for getting people to jump on the 360 instead of waiting for a PS3 are "momentum and more software, pure and simple."

As for countering the PS3 launch this fall, they suggest the software giant might lower the price of the Xbox 360 by somewhere between $50 and $100. They also expect Microsoft to show its HD-DVD add-on at the show, although they don't expect the add-on to have an impact on the format's struggle with Blu-ray for market supremacy.

Turning to Nintendo, the company's redubbing of the Revolution as the "Wii" hasn't gone over too well with Wallace and Tam, though, ultimately, they don't believe it matters. "Seems like a kiddie name to us, but if people like the games, who cares what it is called," they remark.

They project a fall release at a $199 price point for the Wii, with Nintendo's other existing hardware making some news as well. Wallace and Tam peg June as a possible release date for the Nintendo DS Lite, and they expect a GameCube price cut to $79, possibly to take effect during the show itself.

While they don't venture a guess as to the ultimate winners and losers in this round of console wars, Wallace and Tam are positive on the Wii and favor it to gain some market share for Nintendo this time around.

"All the signs are pointing to a Nintendo revival with what they are doing in the console market," they suggest. "The company has a great chance to expand out of its kids-only market and gain a bigger piece of the cross-ownership pie among platforms."

As for specific reasons why, they expect much better third-party support than the GameCube received because of cheaper, simpler development compared to the Xbox 360 and PS3. And given the Wii's unique controller, they expect more Wii-exclusive titles from the third parties. However, they insist Nintendo needs to do a better job supporting the console with its own games than it did for the GameCube launch.

"In order to succeed, we need to see real first-party support early in the system launch window. This means that we need more games like the groundbreaking Mario 64 for the N64. At the show, we will be looking for Mario, Zelda, Metroid, Donkey Kong, and other staples of the Nintendo lineup."

The pair also offers their take on what some publishers will be showing at the expo, and while most of the games they expect are a given to appear (Gears of War, Killzone for PS3), there are some notable exceptions. For one, they expect the next Halo to be featured at the show (not a big stretch, but still not something Microsoft has confirmed). They also mention a Tony Hawk Downhill Jam in Activision's roster, noting that it will be a brand extension intended to target younger consumers.

Despite all the excitement about next-gen systems, the pair still expects the current industry-wide, transition-year slump to continue for 12 more months. They also expect it will be that long before Sony has enough supply to meet demand for the PS3.

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