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Game Biz to Enter a Rollercoaster Period

29 Mar, 2004 By: John Gaudiosi

As the life cycle of the latest generation of video game consoles enters its fourth year, the future for software remains bright, but there are bumps ahead. According to a new report from UBS Investment Research, video game software sales will grow by 8 percent in 2004, on top of the industry's 5 percent growth in 2003. Sales are expected to decline in 2005 and be flat in 2006 before exploding with a 36 percent increase in 2007.

A quick look at the hardware landscape for this year shows continued dominance by Sony and Nintendo in the console and handheld markets, respectively. UBS expects Microsoft to cut the price of Xbox to $149 this month, followed closely by Sony's slashing of PlayStation 2 to $149. UBS expects both companies to further reduce the price of Xbox and PS2 to $129 by this fall and states that if the companies don't drop prices, they may not meet sales goals.

The UBS report forecasts that Sony will sell 7 million PS2s this year (bringing its U.S. installed base to 29.3 million), Microsoft will sell 3.5 million Xboxes (11.3 million U.S. installed base), and Nintendo will sell 2.5 million GameCubes (9.3 million U.S. base) and 7.5 million Game Boy Advances (27.3 million U.S. base). With the anticipated release of Xbox Next in 2005 and PS3 in 2006, sales for all three consoles will drop to 5 million PS2s, 2.8 million Xboxes and 1 million GameCubes in 2005. Nintendo's GBA will drop to 4 million units sold next year with the release of the Nintendo DS (aka Nitro at press time) and Sony's PSP, which are both expected to ship next March.

According to UBS video game analyst Mike Wallace, 2003 ended the predictable cycle of the video game industry, which had followed a set pattern of three years of rising console sales, followed by a drop, and four years of rising software sales, followed by a drop. Because Sony and Microsoft didn't drop hardware prices in 2003, and will in April, and likely again this fall, hardware sales will increase after a year-three drop. The good news is that with the price drops out of the way before E3 in May, the annual video game show will focus its attention on games. And 2004 will be a banner year for games, with a stellar line-up of titles.“There are more ‘AAA' games shipping this year than ever before during the fourth year of a console life cycle,” Wallace said.

The new report outlines the top games from each publisher, and while the best-selling game of 2004 will likely be Take-Two Interactive's Grand Theft Auto: San Andreas, there will be plenty of competition.

Electronic Arts' contenders, in addition to perennial stalwart Madden NFL 2005, include The Lord of the Rings Trilogy, James Bond GoldenEye 2, James Bond 007: Everything or Nothing, NBA Street 3 and Harry Potter and the Prisoner of Azkaban.

Activision has a strong lineup that features Tony Hawk's Underground 2, Call of Duty: Finest Hour, Doom 3, Shrek 2 and Spider-Man 2. Sony's Jak III, Sly 2, Ratchet and Clank 3 and Gran Turismo 4 are all but guaranteed to sell 1 million units.

Microsoft's Halo 2 and Fable should sell big. LucasArts has two blockbusters in Star Wars: Battlefront and Star Wars: Republic Commando. Konami's Metal Gear Solid 3 is a guaranteed smash.

And Capcom's Resident Evil 4, Majesco's Advent Rising and Midway's Mortal Kombat: Deception should all sell well this fall.

The report also solidified the leadership role of the strongest software makers. Electronic Arts continues to distance itself from the pack, with sports and entertainment franchises that sell big numbers year after year. EA is expected to grow its earnings throughout the current cycle and into the next one. Activision is expected to have a record year in 2004, thanks to its strong lineup of movie games and the rejuvenated Tony Hawk game franchise.

THQ is forecast to have a solid year, thanks to games like Full Spectrum Warrior and movie licenses like The Polar Express and The Incredibles. Take-Two will ride its “Grand Theft Auto” franchise once again this year. According to the UBS report, Acclaim, Atari and Midway are expected to struggle over the next two years.

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