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Delays Hit Video Game Maker’s Guidance Hard

Bob Blandeburgo — Wed, 15 Jul 2009 15:00:00 +0000

Shares of “Grand Theft Auto” maker Take-Two Interactive (Nasdaq:TTWO) took a drubbing yesterday (Tuesday) after it lowered its financial outlook and delayed key video game releases until its next fiscal year.

Take-Two now expects its loss to fall between 65 cents and 75 cents per share and revenue to be between $120 million and $130 million for the quarter ending July 31. Wall Street analysts were expecting a loss of 54 cents and revenue of $162.2 million.

The move reflects reduced sales of catalog products and lower than anticipated initial retailer orders of new releases due to a retail environment that is proving even more challenging Take-Two expected, it said in a statement.

The company delayed the release of “Bioshock 2,” “Max Payne 3” and “Red Dead Redemption” to fiscal 2010, which starts November 1. It is unclear whether any of these titles will ship in time for the holiday season, a critical time for the $22 billion video game industry.

“The decision to shift a release date is never an easy one, especially with a product as highly anticipated as ‘BioShock 2,’” said Take-Two Chief Executive Officer Ben Feder. “We felt that it was essential to invest the additional time to ensure that this title will deliver what its fans expect and deserve.”

Had “Bioshock 2” not been delayed, 2 million copies would have shipped in Take-Two’s fiscal fourth quarter ending October 31, Wedbush Morgan Securities Inc. analyst Michael Pachter said in a note to investors obtained by The Associated Press. Such a shipment would have generated $90 million in revenue, Pachter said.

Still, Pachter reiterated his “outperform” rating on the company, attributing the rating to next year’s earnings and the next title in the popular “Grand Theft Auto” series, which Take-Two has not given any indication of shipping next year.

Shares of Take-Two closed at $8.10 yesterday, down 9.80%.

Once thought of as recession-proof, the video game industry has suffered a series of tough losses in the last few quarters, particularly with industry giant Electronic Arts (Nasdaq: ERTS), which has suffered losses in the hundreds of millions this fiscal year.

Despite Take-Two’s delay of key holiday titles, a slew of big-name titles from other players in the industry will propel the stocks of companies that publish video games, particularly Activision Blizzard Inc. (Nasdaq:ATVI), a possible second-half wonder as reported by Money Morning.

Source: Delays Hit Video Game Maker’s Guidance Hard

Facing Falling Demand, Sony Lops Off 16,000 Jobs

Mike Caggeso — Tue, 09 Dec 2008 19:50:15 +0000

Surrounded by global recession, Tokyo-based Sony Corp. (ADR: SNE) said it plans to eliminate 16,000 jobs, the biggest of several moves intended to cut more than $1.1 billion (100 billion yen) from its annual expenses by March 31, 2010.

Its cost-cutting operation only applies to its electronics division, and further plans include curbing investments by 30% and ceasing production at two overseas manufacturing sites.

The job cuts are nearly split down the middle between full-time and part-time/seasonal employees, Bloomberg reported. And the job cuts don’t include the number of employees reassigned to another position.

The 8,000 full-time jobs amount to about 5% of Sony’s workforce, the company said in a statement.

The job cuts are the largest single slash by a Japanese company since the credit crunch began wringing capital from companies around the world.

Sony, the world’s second-largest consumer electronics maker, said it plans to outline the impact of these cutbacks its third quarter report in January.

“The reason for this move is the deterioration of the economy, which was much larger than we expected,” Senior Vice President Naofumi Hara told Bloomberg.

But that’s not exactly the whole story.

Sony faces multiple major competitors for each of its strongest electronics products – Game consoles, MP3 players, portable devices, DVD players, high-definition televisions, big screen, computers, and cameras & camcorders.

Most notably, Sony’s most recent and popular game console Playstation 3 is the only thing that can be considered a dud in the white-hot (and highly investable) video game industry.

Instead, the Nintendo’s Wii game console is celebrating its second-consecutive holiday season as the hot item. In fact, demand for it never cooled throughout the year.

As of June 2008, Nintendo Wii sales have doubled that of Sony’s flagship console – selling 29.6 million units worldwide compared with 14.4 million PS3 units sold.

Peer Review

The global financial rout has severely blunted retail electronics sales, despite wide acceptance that this is a promising growth industry.

The fact is that domestic and corporate budgets have been slashed, and the extra coin that’d normally buy new high-tech gadgets is instead being used for more basic needs.

That’s why Sony rivals Panasonic Corp. (PC) and Sanyo Electric Co., Ltd. (OTC:SANYY) are hashing out a buyout plan that – if approved by shareholders and regulators – would cement Panasonic’s status as a global electronics leader.

Sanyo’s wide range of products could buoy the company, but only if it had the size and capital to keep its businesses running.

Panasonic – on the other hand – desperately needs to expand its product line and is sitting on a $10 billion cash reserve.

Goldman Sachs Group (GS) is a major Sanyo shareholder and has rejected Panasonic’s first two bids so far, the second an $8.6 billion offer, The Financial Times reported.

Source: Facing Falling Demand, Sony Lops Off 16,000 Jobs

How To Make Real Profits In The Virtual World

Martin Hutchinson — Mon, 01 Dec 2008 13:26:15 +0000

The video game industry has a reputation for being recession proof. And soaring sales this year suggest there are some great profit opportunities in the sector. That’s why the Money Morning team have created this comprehensive guide to virtual investing.

If you want to invest in video games there are, essentially, four ways to do it…

Investing in video game publishers.

Investing in video game retailers.

Investing in companies that make video game consoles.

Investing in companies that make video game accessories.

Game Publishers

These are the companies that make the games. And Electronic Arts Inc. (NASDAQ:ERTS) and Activision Blizzard (NASDAQ:ATVI) are the best bets right now.

Electronic Arts is the publisher of the popular Madden franchise, which gives it a consistent intake every year. Adding to its arsenal with a game like Spore will no doubt boost its bottom line even further.

Activision Blizzard is another strong contender. Guitar Hero has proven extremely popular, as has World of Warcraft. And while the new Call of Duty probably won’t sell as well as its hugely successful predecessor, Call of Duty 4, it will no doubt turn a respectable profit.

Avoid THQ Inc. (NASDAQ:THQI), which seems to have forgotten what games are and Take-Two Interactive (NASDAQ:TTWO), which is overly reliant on its controversial Grand Theft Auto series. Take-Two also had a good opportunity to be taken over by the much larger Elecrtonic Arts, but a deal never got done, which raises questions about the company’s management.

Accessories

As the unrivaled success of the Wii showed, innovation in video game accessories can pay off. For every console, as well as the PC, there are multiple games that can be enhanced by the use of a new input medium.

Games such as Guitar Hero, a game where you use a guitar shaped controller to play along with music, Flight Simulator X – the premiere flight simulator game is greatly enhanced by the use of a joystick, and the Dance Dance Revolution series, which features games that are best played with a dance pad, are always emerging on the market.

While, most of the accessories are made by the company of the game that requires them, there are external controllers that are always there competing for the market. Some companies that make these include MadCatz Interactive Inc. (AMEX:MCZ), a peripheral company specializing in mainly console accessories and Logitech International (NASDAQ:LOGI) a Swiss company that specializes in mostly in PC peripherals.

Retailers

While many electronics stores and retailers sell video games, there are some specifically designed to do so. The biggest of these in the world is GameStop Corp. (NYSE:GME). GameStop stocks new, used and old games, as well as multiple accessories and consoles. The largest video game retailer in Europe is GAME Group PLC (London:GMG). They operate similarly to GameStop.

Consoles

More than $9 billion was spent on video game consoles last year. Nintendo, Microsoft, and Sony all have new systems on the market, and they’ve all proved formidable.

[...] All of these companies are reasonably solid investments, but, in terms of gaming, Sony Corp. (NYSE:SNE) and Nintendo Co. (Pink Sheets:NTDOY) look like they are going to have some very good years.

Sony has got an amazing games division that is producing very high quality games for its console. And Nintendo is always going to be in demand, though it needs to start making more games for the Wii and DS.

Microsoft Corp. (NASDAQ: MSFT), on the other hand, needs to acquire more exclusives, plus this report has nothing to do with the upcoming Windows 7, which is the biggest part of Microsoft’s business.

Hon Hai Precision Industry Co.

Hon Hai Precision Industry Co. (OTC: FXCNF) is a technology company based in Taiwan. It manufactures the Mac mini, the iPhone and the iPod for Apple Inc. (AAPL), cell phones for Nokia Corp. (NOK), and motherboards for Intel Corp. (INTC).

Of course, it also manufactures PS2, PS3, Xbox 360, and Wii – the four most popular gaming consoles – making it a tremendous play on the video game industry.

Emerging Markets: The Future of the Gaming Industry

The Middle East, China, India, Africa, and South America all have extreme pirating problems where video games are concerned. Thus, most companies have trouble expanding into these markets.

The Chinese market is a rapidly growing area for video games. However, the video games that the Chinese are enjoying are not what the West is enjoying. Chinese consumers love MMORPGs. While an average Western MMORPG, like Everquest for example, will reach 500,000 users. An AVERAGE Chinese MMORPG will attract well over 1,000,000 users very quickly.

Of World of Warcraft’s 10 million subscribers, 1.5 million live in China. Analysts estimate that the WoW Chinese market, alone, could eventually have 10 million users.

Most Chinese play MMORPGs in internet cafés (since most of them have limited Internet access). A large percentage of Chinese, however, do play free MMORPG’s. Free MMORPGs usually are completely free to play, but players can pay money to expand the gaming experience (bigger map to play on, more areas etc.) or improve their character (items, weapons character stats, etc.). While this doesn’t seem to like it would make a lot of money, it actually does, thanks to the addictive nature of most MMORPGs.

Some of the bigger names in the Chinese MMORPG market are Giant Interactive Group Inc. (NYSE:GA), Perfect World Co. Ltd. (Nasdaq:PWRD), Shanda Interactive Entertainment Ltd. (Nasdaq:SNDA), and The9 Ltd. (Nasdaq:NCTY).

Unfortunately, China is China. As such, the government always thinks of something ‘imaginative’ to do with the gaming market. The ‘Fatigue System’ is a means by which the government gets to control how long its citizens spend online playing games.

This system requests that games stop rewarding players after three hours of play in one day. Additionally, the system also requests an ID for players so as to be able to control their play more easily. While the system was originally meant for all gamers, it has been limited to gamers under the age of 18, due to the initial outcry it garnered.

China is also notorious for having the largest game sweatshop industry in the world. A game sweatshop is where a person is paid to play a game intensively and to make an extremely good character in it. That character is then sold to whomever wants it.

Chinese censorship is surprisingly low as the government only censors games that are anti-Chinese or portray Tibet and Taiwan as independent nations.

India’s market has yet to fully realize the potential of video games (putting the pirating aside). India is regularly compared to China in 2001. The online video games market is picking up but the overall market is still small. The few Indians who do game, do so like the Chinese: in Internet cafés. Unfortunately, there aren’t any enormous MMORPG makers (or equivalents) in India, yet.

The Middle East is generally also a pirating heaven though there are some legitimate shops usually selling games that haven’t been translated. Countries like Saudi Arabia also tend to ban certain games that are conceived as anti-Muslim.

If you wanted to invest in one of the Chinese MMORPG makers, the one that looks the best thanks to its pricing model and quality of games is Giant Interactive.

PS. This is an excerpt from a three-part guide to investing in the video game industry. For the complete version, please go to Money Morning’s archive pages.

Source: The Investor’s Guide to The Video Game Industry – Page 2