Data Filter: Industry News and Analysis in Easy-to-Swallow Gelcaps

Electronic Gaming Business, June 18, 2003

News-o-Matic
Whassup?: Columbia House will offer video games to its base of 11 million
DVD and music club members, promising to use its detailed database to target
likely game buyers. CH cites research that there is significant demand for
games among music and DVD buyers. Edison N.J.-based Majesco Games is
consulting on the project and apparently will be the go-between for
publishers looking to sell titles into this channel. About 100 SKUs
across the console platforms will roll out first, including new, discounted
and "classic" lines as well as pre-orders. So What?: We have a
hard time imagining avid gamers waiting weeks for their new Mortal Kombat
to arrive by snail mail let along how $50 titles fit into a club format that
has always thrived on sub-$20 price points. The online channel still
hasn't worked out for console game sales for the same reason, and
PC game clubs failed several years ago. Nevertheless, we could imagine
this channel taking off for the $20 "greatest hits" lines or
(better) compilations and multi-title bundles that publishers make available
exclusively to members. This is one of several forays CH plans to make
into other media, which sounds as if video games represent one of several
market tests that CH will evaluate in a year or so before making a more
substantial commitment.

Whassup?: Blockbuster rolls out a new video game subscription plan at its
chain of 8,600 stores. The Game Freedom Pass gives customers 30 days
of unlimited game rentals for $19.95. Gamers can have only one game
title out at a time, but they have the option of keeping that title
throughout the 30-day run of the subscription or swap for other titles
as often as they like. Unlike a test run of this model last year, Blockbuster
makes the Pass a renewable subscription.
So What?: Blockbuster says the initial test of this subscription model last
year was an "outstanding success," whatever that means.
Timed for the summer vacation season, if the offer is properly pitched
to parents, it could gain traction. The upside for publishers is that it
encourages gamers to try a range of titles that otherwise they might
avoid at $5 a pop. The obvious downside is that allowing gamers to
keep a single title for 30 days (more than long enough to finish most
titles) gives them a cheap alternative to buying the game. For gamers
looking to duck buying titles outright, this could be a sweet deal that
passes little cash onto the game maker. It might move more publishers
into a revenue sharing model with video chains.

Whassup?: Hot on the heels of its own Consumer Conference, which hosted
several game company presentations to analysts (Next Level, see p. 8), Piper
Jaffray analyst Tony Gikas raised stock price targets and Q3 earnings
estimates for EA, THQ, Take-Two (all presenting at the conference) and
stock target for Activision. He predicted 12% software sales growth in
2003 and again in 2004 and further console hardware price cuts by
year's end.
So What?: Lesson to companies: go to these investor meetings. In raising
estimates and targets for the three attendees, Gikas's rationales
often sounded like the pitches given by executives for the respective
companies just days before. As a result of Piper Jaffray's comments,
all of these companies enjoyed a stock bounce the same day, June 16.
Gikas gushed about EA, projecting that it would get higher software
market share than previously estimated. By the end of the current console
hardware cycle, Gikas suggests EA could account for over 28% of the
market, up from 23% currently.

Whassup?: President of Sony Entertainment Europe, Chris Deering told the
ELSPA Games Summit in London last week that plans for launching the
Sony handheld PSP by the end of 2004 are on track. Pricing for the unit
itself has not been set, but games could cost between 20 and 30 Euros
for mid-tier titles and almost double that for top tier titles, Reuters
reports. Deering also says that the PSP may not be competing directly
with the GBA, since it is being pitched as a more general media player
to an older segment.
So What?: Deering seemed to be trying to answer the question few
publishers want to ask publicly, whether they will be able to make
 more money off of the PSP than many have from the GBA, which
game makers have been fleeing of late.
Deering says development time for PSP titles should be about 9 months.
Suggesting that the AAA titles may cost as much as console games seems
to signal publishers that Sony will offer greater pricing latitude and
profitability than Nintendo has

Whassup?: Wedbush Morgan Securities analyst Michael Pachter helped MSNBC
roil the gaming waters last week by arguing in an online article that console
game prices may well go up by year's end. Claiming that publishers,
not gamers, resist escalating prices to $59.99, he says exploding
development costs will have to move the price structure and that consumers
are actually quite pliable about media price inflation. He predicts that
Doom III (Xbox) will come in at $59.99.
So What?: Virtually every other industry figure and analyst shouted Pachter
down on this one, arguing back that increased game sales are compensating
for higher development costs. We think Pachter still has a point that will
become more important as PS3 and Xbox 2 development ramps up. If
publishers want to fund development for these much more technologically
complex platforms, they will need to think about price hikes eventually
and need to ease consumers into that at some point before the next-gen
consoles hit. Our guess is that one of the lush, killer RPGs (aka Final
Fantasy) will break the barrier and come in over $60 and that the
publisher will be smart enough to ease the transition with
deluxe style packaging and value adds.

Whassup?: Sim Celebs are the next big thing in tying Hollywood to Gamesville
as Justin Timberlake reportedly discusses licensing to a game publisher
video game rights to his likeness, according to a USAToday story. Christina
Aguillera, Marilyn Monroe and Andy Warhol already appear in The Sims
Superstar, and Freddie Prinze Jr. and Alex Trebek are discussing digital
rights as well.
So What?: This has "bad idea" written all over it for the industry
because fundamentally celebrity and gaming are bad media fits. Just when
movie licensed games were struggling to overcome their bad rep, we
get a new category of potentially dreadful titles trying to ride the
coattails of fame. Developers have trouble enough translating a film
experience into a compelling game environment, so how well will they
fare when all they have to work with is a personality? Compared to TV
and music, to a lesser degree film, games are not a character-driven
medium. While a Duke Nukem 'tude and voiceover may add a
satisfying layer to title, it is not the center of the experience.