Gaming Publishers Catch Rollout Flu (ERTS, ATVI, THQI, TTWO, SNE, MSFT, AAPL)

by: Yankee Group

By Carl Howe

Friday's Wall Street Journal (sub. req.) notes the negative impact that the XBox 360 rollout has had on major game makers like Electronic Arts and Activision. This year's 18% drop is a far cry from the just 1% decline after the Playstation 2 was introduced. Some executives are blaming the increasing reliance on franchise sequels such as James Bond and Tony Hawk games and less focus on great new gaming ideas:

"Consumers are starting to recognize a lot of sameness in titles," says George Harrison, senior vice president of marketing at Nintendo's U.S. unit. "For big public publishers, the bigger you get, the more risk-averse you get."

Game sequels can still be huge money makers. Last Christmas, the two biggest-selling games were the smash hits Halo 2 from Microsoft and Grand Theft Auto: San Andreas from Take-Two Interactive Software Inc., both sequels. But the sequels jamming shelves this holiday season aren't captivating gamers.

"The lineup this year is arguably not as compelling," Electronic Arts Chief Executive Larry Probst told analysts this week.

Amen to that. But even more interesting is the comment that perhaps gaming is being muscled out of consumer wallets by other hot products:

Analysts point out that games also are competing in an increasingly crowded entertainment arena against such products as Apple Computer Inc.'s iPod. iPods, which range from $99 to $399, are flying off shelves this year.

With our projections of iPod sales sucking up anywhere from $1.6 to $2.4 billion in consumer revenues this holiday season, it should come as no surprise that new versions of old games perhaps aren't faring well. Sounds like it is time for game makers to take a step back and start getting creative again.