by Tony D’Altorio, Investment U Research
Wednesday, November 17, 2010
Do you hear that? That’s the sound of warfare!
Or maybe it’s the “ching ching” of Call of Duty: Black Ops sales, the new video game from Activision Blizzard (Nasdaq: ATVI).
The seventh installment of the series, it sold 5.6 million units in its first day. And between the UK and North America, it made a record $360 million in that time span.
That tops the previous record of $310 million from 4.7 million units set by Call of Duty: Modern Warfare 2. And it solidifies the video games’ moneymaking ability.
In the entertainment business, blockbuster video games make more than Hollywood films. The 3D film Avatar took in a mere $242 million worldwide in its opening weekend.
Colin Sebastian, an analyst at Lazard Capital markets, expects Call of Duty: Black Ops to generate over $1 billion in retail sales during the holiday period. If so, that would rival both the Titanic and Michael Jackson’s Thriller album.
That should give the industry some good cheer, considering its recent tough times.
The weak economy and a number of mediocre titles have certainly taken their toll. So have cheap games on devices like the iPhone and iPad from Apple (Nasdaq: AAPL).
The Video Game Industry’s Digital Sales Potential
The video game industry’s traditional disc-based business has slid 8% from $10.75 billion to $9.89 billion so far this year, according to the NPD research firm. Retail sales don’t always work out ideally for game publishers.
- For one thing, gamers often trade their copies in for other used games instead of buying new ones.
- And the online multiplayer mode for games has also deterred hard copy sales.
Desperately looking to offset those declines, the industry has turned to online sales. With multiplayer features, gamers can buy additional content through game networks like Xbox Live Arcade and Playstation Network.
Black Ops, for example, is expected to sell about 15 million units this quarter… the start of a campaign to fulfill its total earnings potential. And it has good reason to hope.
Call of Duty: Modern Warfare 2 stayed the top selling game for three quarters after its release last year. Digital sales of add-on “map packs” that extended both the battlefield and the game’s franchise helped it along.
Such sales have become a real moneymaker. In August, Activision reported sales of “map packs” had topped 20 million units… generating about $300 million in revenue.
Unlike hard copies, digital purchases can’t be traded. So publishers are pushing those virtual goods with passion.
The effort is paying off too, judging by the Xbox Live 1,600-point card, which buys digital games and goods from the console’s marketplace. It has been the top-selling accessory every month since March.
The Future of the Video Game Industry
Digital sales have grown enough to finally really impact the video game industry’s bottom line. Activision just reported 15% growth in that area for quarters one through three of 2010 over the same time last year.
Meanwhile, Electronic Arts (Nasdaq: ERTS) saw 35% growth in digital sales over its past two quarters compared to the year before. It attributes that to social gaming, iPad and iPhone game sales and downloadable content.
Better yet, video game publishers’ stocks are possibly trading at record lows right now.
- Admittedly, networks like Xbox Live remain a problem, offering billions of free hours. This means that too many consumers are opting not to make any actual purchases.
- On the bright side, that kind of gaming is extremely addictive. So if and when the publishers monetize those consumers, they automatically have a willing audience.
- Back to the negative, selling games on mobile devices is still a dicey sales area. While console games typically cost $60 each, popular iPhone games like Angry Birds sell for as little as 99-cents each.
To take advantage of that trend, Microsoft (Nasdaq: MSFT) is offering its new Kinect. The device allows consumers to play Xbox 360 with body movements rather than controllers… thereby making it ideal for portable devices.
But in the end, perhaps the industry needs to turn to its traditional customers – the hard-core gamers.
Social gaming on social network sites and mobile units are big growth areas. But they appeal to different people… people that buy 99-cent games and often lose interest in video games fairly quickly.
Companies like Activision and Electronics Arts are already putting more emphasis there. Now they just need to generate more hits like Black Ops.