Playstation and Xbox not all to blame for EA's woes EA's problems go beyond hardware Some of its franchise titles may be losing steam By Scott Banerjee, MarketWatch Last Update: 2:56 PM ET March 22, 2005 SAN FRANCISCO (MarketWatch) - While a shortage of video game consoles contributed to Electronic Arts' significant cut to its full-year forecast, that problem may turn out to be the lesser of the game publishing giant's worries. That's because sales of some of the firm's older titles are losing steam in a market that's grown increasingly competitive, forcing distributors to cut prices on some Electronic Arts games to maintain sales. Redwood City, Calif.-based EA (ERTS: news, chart, profile) said late Monday that sales and profit for the year ending in March would be well below its prior forecast due to weak sales in North America. The company also cited slowing sales momentum of "catalogue" titles dating back to the previous quarter. See full story. The warning drove shares of Electronic Arts down $11.20, nearly 17 percent, to $55.15. Some of that weakness was due to shortages of Microsoft's Xbox and Sony's PlayStation 2, the most popular consoles used to play video games. But Electronic Arts, which has long benefited from strong sales of popular sports titles like "FIFA Soccer" and "NBA Live" and its "The Sims" franchise, is feeling the heat from titles made by upstart rivals like Take-Two Interactive Software (TTWO: news, chart, profile) . "Certain EA franchises have performed poorly and are showing signs of fatigue," wrote Bear Stearns analyst R. Glen Reid in a note to clients. Need for Speed Underground 2, which sold 8 million units in EA's third quarter 2004, fell from the number 2 to number 4 ranking for PS2 sales, according to Warren Jensen, chief financial officer at EA, during the company's Monday evening conference call. "Quite frankly, whether in Europe and/in North America, it fell below our expectations," said Jensen. The lower than expected sales and price reductions will negatively impact EA's margins for the quarter, said Jensen. To be sure, EA's results often vary widely from quarter to quarter as sales from new releases tend to come in fits and starts. For that reason, the firm's reduced forecast, like the console shortages themselves, may turn out to be a short-term problem. This year may also turn out to be a particularly challenging one for all game publishers as consumers put off purchases while they wait for new versions of console hardware. "This is likely the beginning of a transition period to next-generation platforms, in our view, which will cause a down year for the industry," wrote analyst William Blair's Ralph Schackart in a letter to clients. Schackart downgraded EA's stock to "market perform" from "outperform." Still, some of EA's problems are company-specific, and due to the emergence of tougher competitors. Shawn Milne, analyst from Friedman, Billings, Ramsey & Co., sales of Need for Speed were negatively impacted by competitive launches in the March quarter, including the release of Sony's (SNE: news, chart, profile) Gran Tourismo 4 and the ongoing success of Grand Theft Auto: San Andreas, from Take-Two and Halo 2, from Microsoft (MSFT: news, chart, profile) . Jensen candidly cited slippage in two more titles. "[NFL Street] went from number 1 last year to number 6 on PS2 and number 8 on Xbox," he said. "[Madden NFL] went from number 3 to number 7... We felt it appropriate that we strengthen our price protection and sales return reserves, given the soft performance." Looking forward, EA expects "to be the leader on this platform, with roughly 15 titles in the coming year," said Jensen. See full story. While PSP software sales are expected to offset revenue declines from PS2 and Xbox games, these revenues aren't expected to kick in until later in 2005 after the PSP has developed a stronger install base. Furthermore, Sony has delayed the launch of the PSP in Europe in order to fulfill its demand in the U.S. EA reiterated its overall U.S. and Europe software sales growth will be flat to up 5 percent in 2006. In additional to PSP releases, driving EA's growth in 2006 could be new releases such as "Battlefield II," "Medal of Honor European Assualt," "The Godfather" and "Batman Begins." For its 2006 fiscal year, which begins April 1, EA forecast top-line revenue growth of 8 to 12 percent over fiscal year 2005, which earnings per share roughly flat year over year. EA said that it underestimated the impact of hardware shortages, where demand has exceeded supply since the holiday season. Both Sony and Microsoft, however, have been candid about these shortfalls. PS2 sales are up 12 percent year-to-date, while Microsoft has raised its expectations for global installed base to 21 to 22 million, up from 20 million. On Tuesday, shares of rival game publishers Take-Two Interactive Software (TTWO: news, chart, profile) , THQ Inc. (THQI: news, chart, profile) , Activision Inc. (ATVI: news, chart, profile) and Atari Inc. (ATAR: news, chart, profile) also fell in sympathy, though none lost more than 3 percent. ThinkEquity analysts, however, reiterated their "accumulate" rating on Electronic Arts after the video game developer issued the profit warning. "We'd look for the stock to consolidate lower from here and hope for an entry point during the back half of the year," ThinkEquity said in a note to clients. The broker said the company remains "the undisputed industry leader" and that investors "should be willing to pay for that status." Scott Banerjee is a reporter for MarketWatch in San Francisco.
I just find it hard to believe that after so many years, so many people are still without a GC, PS2 or Xbox. The PS2 shortages can be attributed to faulty construction on Sony's part, but what about the Xbox? It can probably crush a small horse if dropped from a great enough height and still emit its blindingly eerie green glow without pause. So what gives?
Gaming is in my blood, but the games I like are all either tabletop or on PC. The only thing that even remotely make me Jones for a platform is a decent NCAA Football game, and one football game just isn't enough to make me shell out the money for a platform I'll spend limited time using when I already have two PCs in home, and a regular tabletop group to get together and play with.
No other games on ANY platforms interest you? That's pretty hard to fathom, considering how many quality titles have come out in the years on consoles, and that the first gaming machine was a console.
