A couple weeks ago I highlighted some bad financial reports from EA and THQ. Since then I've seen a few stories that cast a positive light. This week I'll highlight some of the positive trends. Today's post features insights in the traditional retail games sector courtesy of Acitivision most recent earnings call.
1. Activision projecting 2.2 billion in revenue for 4th quarter. Largely on the back of three franchises, World of Warcraft, Guitar Hero, and Call of Duty.
Here's a quote from their earnings call where Activision discusses their view of the holiday season in light of the current economic conditions (interesting bits bolded by me):
So to summarize, proven franchises win (shocker). Music games are growing the market (awesome). People are going to be buying videogames systems this year despite the bad economy (yay!).
First, retailers are continuing to increase shelf-space allocated to the videogame sector, as games begin to take a larger share of consumer spending versus other forms of entertainment, and are viewed as a growth driver. Over the past year, global retailers have allocated up to 40% more in-store space to the videogame category at the expense of other categories.
Most of this increase has been dedicated to the music genre and Activision Blizzard of course is the largest beneficiary of the increase, given our strong market share in this category.
Second, we’ve all heard that foot traffic at retail is down but actually, the increased share of store in videogames appears to be mitigating this risk. Our survey samples at key retailers suggest that in September and October, while other categories were challenged, videogame software and hardware showed sell-through growth in the high-single-digits, helping to validate our market expectations.
And third, the cost per hour of entertainment of videogames provides a great return on investment for the consumer as they seek value. To illustrate this, last month NPD conducted a holiday shopping survey that found for most shopping categories, consumers’ intent to purchase were flat or slightly lower than in 2007. The most notable exception again was videogaming systems and games, where consumers’ intent to purchase rose seven points over the prior year, putting videogames in the top five holiday purchases for the first time ever.
With respect to retailer purchasing behavior, what we have heard is that retailers are ordering less up-front and are focusing on chasing the winners, and they are being more cautious with their open-to-buy dollars on second-tier titles. We do see some of this but much less so with top-performing titles where expectations remain high.
What this means is that publishers with top-selling titles will likely benefit disproportionately this holiday quarter. For the last three holiday seasons, on average 90% of the top 10 titles were based on proven properties and we couldn’t be better positioned with our strong lineup of proven properties like Call of Duty, Guitar Hero, James Bond, and Madagascar.
How does this affect social games? Not at all directly. Social games aren't exposed to the retail sector. However, the fact that retailers are devoting more shelf space to digital games is a pretty strong indicator that games are becoming more mass-market. Excellent news for social games which offer the lowest friction vector of adoption by non-gamers (free, invited by friends, low tech requirement).