Monday, February 16, 2009

Short calls and long views

Ran into two contradictory headlines on music games over the weekend. The Motley Fool (I had no idea they were still around after dotcom era 1.0) goes with Activision is Music to My Ears, reporting on the Guitar Hero publisher's holiday quarter net profits of $429 million, adding:

The company doesn't break out sales or profits by product line, but it was happy to announce that Guitar Hero III has passed the $1 billion sales mark. Guitar Hero: World Tour was the best-selling console game of the quarter, dollar for dollar. And Nintendo may rule the handheld sales charts in number of units shifted, but Guitar Hero: On Tour collected more money than any other handheld game in 2008.

See a pattern here? So do Vivendi-Blizzard's management, and the analysts following the company. In that conference call, the best-selling PC game franchise World of Warcaft was mentioned 15 times, and the equally successful Call Of Duty 20 times. Guitar Hero got 47 mentions, plus another nine for the upcoming Metallica expansion -- more than even "sales" (27 mentions).

The author also notes that Europe is just getting started on GH and RB, that penetration in Japan is a possibility, and that Activision Blizzard "will live and die with the Guitar Hero franchise."

So it's all coming up roses until I see Music Games Fall Off a Cliff, in reference to a Silicon Valley Insider article titled Guitar Zero: Gamers Growing Bored Of Music Games. The horror! Apparently earnings at Viacom (owner of MTV and Rock Band) are being dragged down by a sales slump in RB, and that Activision is even more poorly placed to deal with the apparent collapse because it was "doubling down" on music games, hyping more GH titles and the upcoming DJ Hero. The SVI piece includes:
We're a bit surpised at how quickly music game sales are falling, but not by the general downturn. Two factors at work here: First, music games sold so amazingly well the past few years the market is approaching its saturation point ... Music games were, basically, a very 2008 sort of fad. And all fads come to an end."

I'm with the Motley Fool on this, and find the SVI analysis to be very narrow. No mention of the suddenly alarming economy and the effect it might be having on entertainment industry revenues; no mention of the massive popularity of downloaded tracks and song packs to GH and RB; no mention of this year's Beatles game, which will grow the rhythm games market to include all sorts of people who hate Aerosmith and/or Metallica; and the fact that music games are ruling the PS2 charts, still the most widely owned console in the world. And these are just the most obvious blind spots. Music and video games are going to continue to expand each others' overall businesses in ever more harmonious and lucrative ways. There's a bigger picture here that post-holiday-season sales drop-offs are not going to reflect adequately.

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