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  • Finding The Next Guitar Hero-like Franchise 0 comments
    Sep 12, 2013 9:09 AM | about stocks: BZIC, ATVI, GA, ZNGA, CYOU, GAME, PWRD

    Activision Blizzard Inc. (NASDAQ: ATVI) is well known for two of its gaming franchises. World of Warcraft is the most subscribed massively multiplayer online game, with over 7 million subscribers generating about a billion dollars each year. And, Guitar Hero became the third largest video game franchise in history after Mario and Madden NFL, generating $2 billion at retail with more than 25 million units sold around the world.

    With both of those franchises now in decline, investors have been seeking the next big gaming franchise. The problem is that mobile gaming has come to dominate consumer face-time and many of these games are discarded almost as quickly as a McDonald's Happy Meal. For example, social game maker Zynga Inc. (NASDAQ: ZNGA) acquired OMGPOP for roughly $200 million for its then-popular Draw Something game only to close it down a year later.

    In this article, we'll take a look at two companies that could be producing the next big gaming franchises and why investors might want to consider getting involved.

    Interactive Music Revolution

    Beamz Interactive Inc. (OTCQB: BZIC) is a small-cap company that has developed a state-of-the-art laser-based technology that enables anyone to play and enjoy music within minutes, but can be configured with enough depth to attract accomplished DJs, artists and musicians to perform, compose and create highly sophisticated interactive music. Management's three areas of focus are mass-consumer, DJ, and therapeutic (e.g. education, senior care, etc.) markets.

    The company received a huge break in June of this year when rap legend Flo Rida signed an endorsement and licensing agreement. With more than 75 million combined singles sold worldwide, the rap artist is the best selling digital hip-hop artist in the world and was recently named a Billboard Top 100 Artist for 2012. The agreement has already led to the development of the Beams by Flo product and the airing of several commercials on stations such as MTV, Bounce and Centric.

    Since the deal was just announced in June, investors will have to wait for at least a quarter in order to start seeing the fruits of the agreement. But, with Beamz prominently featured in his latest music video and several mentions in interviews, the micro-cap stock could be worth watching over the coming months.

    China's Growing MMO Demand

    Chinese stocks may not be the most popular equities in the U.S., after a flurry of reverse merger scandals rocked the market a couple years ago. But, it's hard to ignore an online gaming market that outpaces its Western counterparts in both number and value. For instance, World of Warcraft may attract 2.5 million North Americans and 2 million Europeans, but these 4.5 million users are dwarfed by an estimated 5.5 million users across Asia.

    There are no shortages of Chinese gaming ADRs in the market for investors to consider, including Changyou.com Ltd. (NASDAQ: CYOU), Shanda Games Ltd. (NASDAQ: GAME), Giant Interactive Group Inc. (NYSE: GA), and Perfect World Co. Ltd. (NASDAQ: PWRD). But, Perfect World stands out from the bunch after the better-than-expected testing of its new massively multiplayer game Swordsman Online and the upcoming release of Dota 2.

    While Perfect World has experienced a run-up over the past few months, the entire sector remains relatively depressed in terms of valuation. The catalysts driving Perfect World higher are poised to continue with the actual launch of those two titles, which should help improve top- and bottom-line financial results over the long-term. However, investors may want to consider averaging into the stock over time in order to avoid buying at 52-week highs.

    Conclusions

    The gaming industry may be short on blockbusters like Guitar Hero or World of Warcraft at the moment, but there are numerous opportunities presenting themselves both domestically and internationally that investors should consider. Beamz Interactive and Perfect World represent two of these opportunities that investors may want to consider for a diversified portfolio.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: TDM Financial is a marketing and consulting firm that specializes in creating ongoing communications strategies for public and private companies. For full disclosure please visit: secfilings.com/Disclaimer.aspx

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