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Archive for July, 2010
Capcom Loves Namco: Street Fighter & Tekken Crossovers Announ
Jul 27th
At the San Diego Comic-Con on Saturday, Capcom announced their newest Versus series collaboration with Namco. Capcom will be developing Street Fighter X Tekken for the Xbox 360 and PlayStation 3, while Namco will be creating Tekken X Street Fighter. This is not the first time Capcom has been involved in a similar situation: a previous collaboration with SNK resulted in Capcom creating Capcom vs SNK 1 & 2, while SNK released SNK vs Capcom: SVC Chaos.
Street Fighter X Tekken, Capcom’s side of the team-up, will be powered by the same engine used in Street Fighter IV and Super Street Fighter IV. Announced characters include Street Fighter’s Ryu and Chun-Li, and Tekken’s Kazuya Mishima and Nina Williams.
“This is history we’re making. Two fighting games that have rivalled each other are finally standing on the same stage,” said Street Fighter producer Yoshinori Ono. “This isn’t just a showdown between Tekken and Street Fighter, but a decisive battle for Capcom and Namco Bandai Games. So I’m going to give it my all.”
M.H. Williams has been writing in some form or another for ten years and has been a hardcore gamer since the NES first graced American shores. You can catch him on Xbox Live as FallenIcon, or on PSN as AutomaticZen.
Sony Expected to Report Profitable Quarter for PlayStation Biz
Jul 27th
As we reported in June, Sony Worldwide Studios head Shuhei Yoshida indicated that Sony is finally making some money on PS3 hardware. “This year is the first time that we are able to cover the cost of the PlayStation 3,” he said. “We aren’t making huge money from hardware, but we aren’t bleeding like we used to.”
It looks like Yoshida’s comments will prove true, as later this week Sony will report its first-quarter earnings (for the period ended June 30) and according to a Nikkei story (via AFP), Sony is expected to post its first profit in two quarters, including a significant improvement in its games business. The PlayStation business should finally show some profitability thanks to the cost reduction for components and the surge in sales at retail.
The Nikkei report noted that Sony is also anticipating a boost to its games business later in the year thanks to the launch of PlayStation Move, and the company believes its huge investment in 3D TVs and 3D gaming will ultimately pay off as well.
SouthPeak Allegedly Failed to Pay My Baby Develo
Jul 27th
The My Baby franchise passed a million units sold back in May, and is now at nearly 2 million sold worldwide; it’s been one of the few bright spots for beleaguered publisher SouthPeak. It was somewhat surprising, therefore, to discover earlier this month that SouthPeak had lost the franchise.
As it turns out, Cooking Mama publisher Majesco secured the rights, and because of SouthPeak’s financial situation, we had guessed that perhaps the publisher didn’t pay developer Nobilis on time. It’s beginning to look like we were right. SouthPeak has sued Majesco, claiming that Majesco does not have the rights to legally publish My Baby 3 & Friends, but Nobilis is clearly aligning itself with Majesco and is none too pleased with SouthPeak’s suit.
Arnaud Blacher, Managing Director at Nobilis, told IndustryGamers, “We vigourously contest the statement made by SouthPeak. The rights of My Baby 3 have been legally transferred to Majesco and in the strict respect of the previous contracts signed with SouthPeak. We confirm that all the contracts signed with SouthPeak in the U.S. or in the U.K. have been terminated after uncured breaches from Southpeak notably for non payment. We also confirm that we brought the litigation with SouthPeak to court to defend our rights. We remain very confident on the outcome of these legal actions.”
Gears of War Movie Still Looking to Emerge
Jul 27th
Comic-Con this year offered up several surprises to comic book fans and gamers alike, and one of those nice little surprises happened to be Cliff Bleszinski telling The Movie Pool that the Gears of War film is still in the works.
The original project called for a massive budget, but no studio was offering up the cash to get the ball rolling. News of director Len Wiseman dropping out on the project didn’t help things either, but it seems as though Epic is still gunning for the silver screen.
A new approach, one that would make the film more like District 9, has come to mind. Bleszinski stated that there is definitely a focus on the script, and that it is likely that an entirely new script could be written to coincide with the proposed new look.
Codemasters Not Shifting Resources to India, says VP
Jul 27th
Though Codemasters recently saw Reliance Big Entertainment acquire a 50% stake in the company, Codemasters VP Gavin Cheshire says that production hasn’t been affected, as many believed would be the case. Popular opinion on the investment was that Reliance would shift resources away from the U.K. to India in order to keep development costs down.
“This is absolutely not the case,” says Cheshire to Develop. “It’s very much about Reliance investing in our skills and abilities over here in the UK.” Cheshire sees the Reliance stake as “a good fit for both parties, which gives us financial muscle to push on to the next level.”
“In Southam it’s full steam ahead with the next iteration in our Flashpoint series, as well as the nextDiRT and GRID. It’ll be interesting to see how it all pans out,” says Cheshire in regards to how the new ‘financial muscle’ is helping out.
Game Trader: Electronic Arts is a Great Long-Term Buy
Jul 27th
Electronic Arts’ fall from grace has been a slow motion train wreck that has been going on for almost 5 years. After reaching an all-time high of $71.16 on March 9, 2005, shares have collapsed to the current level of $16.39. The company’s operations have not been profitable in their last three fiscal years, having lost $2.08/share in their most recent fiscal year ended March, 31, 2010 (source EA Annual Report pg. 145). Shares have fallen 77% from their all-time high in 2005, but this does not necessarily make the stock cheap. So why on earth did PMC recommend buying shares of ERTS in our June 23 Game Trader article?
Wall Street hates this stock, with very few buy recommendations and a smattering of hold/neutral ratings. Any kind of good news could lead to a slew of upgrades, even if they are just from sell to hold. Standard & Poor’s recently rated them 1 star with a 12-month price target of $14.00. ERTS shares recently hit a 5-year low of $14.06 on July 1, 2010. Now there are technical and fundamental reasons for the recent 16.6% rally off of that July 1st low.
The daily ERTS chart had a DOJI candlestick pattern right at the end of a brutal downtrend that began on April 27, 2010 at the recent highs for the stock market. This also occurred at the lower Bollinger Band and at oversold Money Flow, Stochastic and RSI levels. It was a perfect confluence of technicals for the rally. The weekly ERTS chart also had two DOJI after a long downtrend followed by a bullish engulfing candle. The weekly chart’s Money Flow and Stochastic were also reading oversold.
From a fundamental standpoint, this stock is selling at very reasonable valuations. Trading at a price to book value around 1.9 is not out of the question for a company with such a vast catalog of intellectual property. The company also has a $2 billion cash account with no long term debt. Their market capitalization is only $5.2 billion, and we are hard pressed to find a better balance sheet in any industry. The company does spend quite a bit on research and development as well as other investments, but they do so with the focus on growth. In our recommendation last month, we cited earnings growth as a major risk to our call. Expectations remain low, but consensus estimates show 45% growth from fiscal 2010 to 2011 and 34% growth from fiscal 2011 to 2012 in earnings per share. This is not that bad considering the stock is trading at 25 times fiscal 2011 and 18.5 times fiscal 2012 earnings estimates. If the bearish analyst community turns slightly more optimistic, there is a chance that we could see some multiple expansion as they ratchet up their earnings expectations.
On April 2, 2007, John Riccitiello rejoined EA as CEO with a difficult task ahead. Lucky for him, the entire financial services industry was entering its worst collapse since the great depression. EA was not too big to fail, and earnings entered a nose dive with the rest of the economy. The share price has dropped 68% since the day he took over as CEO. These are the facts, and we are sure that this was not his plan. Electronic Arts is a very large company and it would take anyone a while to change its culture and direction.
PMC loves a good turn around story. Riccitiello and the rest of management seems to be really focused on what made EA successful to begin with. An anonymous source in the industry told us that independent developers are more inclined to work with Riccitiello than other more brash CEOs. This was apparent at E3 when the company announced that they will be distributing some great new games from Crytek, Insomniac, Valve, Respawn, Epic and Harmonix. The addition of Vince Zampella and Jason West from Infinity Ward adds to the deep bench of great developers working with Electronic Arts.
EA also has a war chest of intellectual property that they are dumping into mobile gaming. This will allow them to recycle old IP on new platforms at low costs. Just check out the top 10 grossing games on iPhone and iPad on any given day and you will see a few EA titles up there. Last November, EA jumped into the social gaming industry with two feet when they bought Playfish for $300 million with a $100 million earnout. There is no doubt that EA sees secular growth in both mobile and social gaming and this deal is hopefully just the beginning of a wave of consolidation in the industry.
Electronic Arts has a mountain of cash, but it is not out of the question for a larger cash-rich media or gaming company to swallow them up. We do not think this is likely. Even after being eviscerated in the capital markets, the company is still in a position of strength as the industry as a whole has been pulled down. They will also benefit from easy year-over-year comparisons going forward. Low expectations, their return to profitability and earnings growth over the next few years leads us to reiterate that ERTS is a buy. The stock has had a big relief rally off of its lows, and they report earnings after the market closes on August, 3. If they disappoint and the stock gets slammed, there could be a buying opportunity somewhere around $15-15.50. ERTS has rallied 7.2% since our buy recommendation on June 23, 2010. We continue to think this is a great long term investment and would recommend buying on any weakness.
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Investors should do their own research or consult their advisor before acting on this information. Panoptic Management Consultants, Inc. is a Registered Investment Advisor that was founded in 2008. Please go to our website www.panopticinvesting.com for more information about fundamental investing as well as technical analysis. For prospective client inquiries please contact us at panopticmc@gmail.com
Full Disclosure:
At the time of this article our CEO, Asif A. Khan, CPA, his family members and/or Virtue LLC had the following positions:
Long Electronic Arts
At the time of this article, clients of Panoptic Management Consultants Inc. had the following positions:
Long Electronic Arts
StarCraft II to Sell 6.5 Million Copies in 2010
Jul 27th
Today, Activision Blizzard is finally releasing the much anticipated StarCraft II. While the industry has seen a sales slump for a good part of 2010, the new Blizzard title should help boost numbers, especially for Activision of course. Lazard Capital Markets analyst Colin Sebastian said today that pre-orders for StarCraft II have been strong and he expects the game to sell 4.5 million units during Q3 and 6.5 million for all of 2010.
Sebastian also noted that Transformers has been seeing “decent” sales, while Blur, Singularityand Shrek have had “modest” sales.
All eyes are on StarCraft II, however. Janco Partners analyst Mike Hickey said last week that the game should sell around 7 million units and generate $350 million in revenues.
Xbox 360’s Kinect and PlayStation Move Showing ‘Equal Popularity,’ says EEDAR
Jul 6th
While Microsoft would have you believe that Kinect is the greatest thing since sliced bread, and Sony would note that having an actual controller/wand is superior, it would seem that consumers are not really leaning heavily towards one technology over the other. Looking at GameTrailers Stream Stats and IGN GamerMetrics, the folks at EEDAR have sized up the popularity of technologies and certain big name games coming out of E3.
“Whilst the Kinect had more absolute interest among IGN viewers, on a relative basis (by weighting the install bases of both hardware consoles – the Xbox 360 having a larger base) both Move and Kinect showed near equal popularity,” EEDAR analyst Jesse Divnich pointed out.
Overall, Kinect and Move had relatively low purchase intent, but it’s worth keeping in mind that neither product has had much marketing to speak of yet. It was the games, however, that really grabbed consumers’ intentions. Top titles like Assassin’s Creed Brotherhood, Donkey Kong Country Returns and Call of Duty: Black Ops saw very high purchase intent, according to GamerMetrics.
Halo 4 Was Considered Before Halo: Reach
Jul 6th
Halo: Reach will serve as the culmination of nine years of Bungie work on the Halo franchise. The new game takes place directly before the events of the first title, Halo: Combat Evolved. However, according to Bungie Community Director Brian Jarrard, the company had planned to do Halo 4 at first.
Spoilers follow for those who have not finished Halo 3 yet.
Bungie planned for the game to pick up after that game’s ending. “Even before the idea to build a game based around Reach came about, a lot of other concepts were explored, up to and including a proper Halo 4, where Master Chief was going to wake up from cryo-sleep and we were going to tell that story,” Jarrard told MTV Multiplayer.
Ultimately, Bungie decided that another sequel “just wasn’t as interesting to the team to just pick up where that left off and all the baggage that came with it.” The team was also reluctant to start a new story for the Halo franchise, knowing that it would be their last title.
“We don’t want to open up a whole bunch of doors that we’re not going to close,” Jarrard said. “By the end of this, it’s all going to come to a nice, neat finish, and if people want to then go play theHalo trilogy, I think they’ll have a better understanding of what’s going on, but it’s not required at all.”
Halo: Reach is set for release on September 14, 2010.
Microsoft Aiming for $150 Million Profit on Fable III, Planning Episodic Release
Jul 6th
Following on the success of the original Fable, Lionhead’s Fable II went on to sell over 3.5 million copies, making it one of the best-selling RPGs on the Xbox 360. Microsoft and Lionhead boss Peter Molyneux have high hopes that Fable III will fare even better. In fact, according to GI.biz, Microsoft is aiming for sales of 5 million units and a profit of about $150 million on the game.
With the cost of triple-A game development being so high these days, Molyneux was rather realistic about his sales goal, commenting, “We have to do that because if a franchise doesn’t reach that level it will inevitably wither.”
Another aspect of reaching that 5 million sales target is to make the game more accessible, Molyneux said. Apparently, over 60% of Fable II players understood and used less than 50% of the game’s features. ”About 30 percent of people that played Fable II were women,” Molyneux explained, adding that Lionhead is also on the lookout for more female employees. ”The reason we’re doing this is really trying to bring a wider audience into the Fable franchise, because my suspicion is there are a lot of people who are the partners of core game[r]s who probably want to get involved as well.”
In addition to broadening the audience, Fable III will also continue to be on the digital forefront. In a business model that IndustryGamers believes is likely to become more and more prevalent, Lionhead intends to release Fable III not only at retail but in full episodes for download. And to suck players in and incentivize a purchase, the first hour of gameplay is free. “Soon after the retail launch we’re doing episodic. We break it down in chapters. We give away the first chapter entirely free, the first hour,” Molyneux stated. “When you reach a certain point in the game it says ‘thank you for playing the pilot of Fable 3, do you want to spend an extra 2-5 or whatever dollars to buy the next episode, or buy the whole lot?’ Press ‘yes’ and you will immediately continue playing.”
Molyneux noted how making the first chapter free is a superior idea to building a separate demo for the title. “It supports this freemium idea. It gets around this horrible concept of demos. Anyone out there who thinks a demo is a good idea is crazy. It’s never a good idea, because demos are usually done at the end of a game and they require an enormous amount of design talent to make a demo. The other thing is you’re more likely to satisfying the curiosity of a user rather than entice them to play more,” he explained.
This is not the first time that Fable will see an episodic release. Lionhead turned Fable II into an episodic downloadable title nine months after its retail release. Its first episode saw 1.6 million downloads, and all the episodes earned $15 million in contribution margins combined.
