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This fall is when the next round of the videogame wars officially gets under way. Microsoft (nasdaq: MSFT -news - people ) got a head start last year when it launched its Xbox 360 console; now Sony (nyse: SNE -news - people ) and Nintendo (other-otc: NTDOY.PK -
news - people ) will finally roll out their next-generation competitors, the PlayStation 3 and the Wii. And for good measure, some software publishers will trot out some highly anticipated games as well: Microsoft will push its new locust-filled shooting game Gears of War, and Activision (nasdaq: ATVI – news - people ) plans to make another killing off World War II with Call of Duty 3.
All of these high-profile launches come wrapped around the holiday shopping season, creating a confluence of events that only happens once every half a decade in this business. The payoff could be huge: In 2011—the peak year of the coming console generation--
products will generate $44 billion in revenue, according to DFC intelligence. How this fall's new products fare will go a long way toward making or breaking gaming companies' next five years.
Early signals indicate fall sales are better than expected and demand is strong. September data from NPD Group released last week showed 34% hardware revenue growth over last year, and 28% software growth. Analysts were expecting growth of less than 20%. Even sales of soon-to-be outdated games, like those designed for Sony's PS2, shrunk far less than expected. The $777 million the industry raked in last month was the best September it has ever had, according to NPD. At the same time, stock prices
within the gaming sector have shot up an average of 31% in the last three months.
And consumers seem ready to upgrade to new gaming systems. When videogame retailer GameStop (nyse: GME -
news - people ) announced last week it would sell a few Wii and PS3 pre-orders through its stores, the slots were gone almost immediately.
But all of this good news should be taken with a grain of salt. The lackluster 2005 holiday season makes for easy-to-top comparisons. And while sold-out console pre-orders show at least some consumers are eager to buy, those dollars will be wasted if enough units
aren't made available to retailers in November and December. Here's how each of the major players stands today:
Sony
Some good news for beleaguered Sony: It seems like lots of people want the new PS3, even with a price tag that starts at $500. The bad news: It's unlikely to have enough to satisfy everyone. The company is only promising that 2 million units will hit
the end of the year. (The rest of the world will see even less of the boxes.) Many of these will end up for sale to the highest bidder on eBay. Serious PlayStation fans will seek out those units, but moderate gamers could be turned off by the price. If a PS3 isn't available in stores, would-be console buyers could opt to put their dollars toward a Wii, a Microsoft Xbox 360, or even one of Apple Computer's
(nasdaq: AAPL - news - people ) new iPods instead.
Nintendo
As the least-expensive new console, Nintendo's $250 Wii could appeal to non-traditional gamers as well as hardcore gamers who already own other consoles. Because Nintendo makes many of the software titles available for its systems, each Wii sale could rack up
more than $250 for the company. Susquehanna Financial estimates that for each Wii purchase, an average consumer will also buy more than three game titles.
Microsoft
If holiday shoppers decide to replace a PS3 gift with that of an Xbox 360, Microsoft could see higher than expected sales. As of September, Microsoft had already sold 2.7 million Xbox 360 units in the
Electronic Arts
While EA (nasdaq: ERTS - news - people ) isn't launching any hotly anticipated new games on Wii or PS3--its full slate of top-selling sports titles will be well represented on both platforms--the company is making the most of its presence in the PC gaming arena. This strategy, which includes acquisitions of Swedish studio DICE--maker of the Battlefield PC games--and multi-player online gaming company Mythic, as well as the eventual launch of Will Wright's Spore in 2007, doesn't marry EA to the success or failure of any of the consoles. It does, however, allow Microsoft, Sony Computer Entertainment and Nintendo to profit on the backs of their own hardware platforms through software sales.
Activision
Other than Call of Duty 3--a World War II game taking place during the
late 2007 and 2008, which should include blockbuster games from franchises like James Bond, Shrek and Spiderman.
THQ
With sales up 106% this September over last, and a stock price at its highest point ever, THQ (NASDAQ: THQI - news - people ) has thus far weathered the console transition well. But most of its recent success is related to one original title, the gritty, Grand Theft Auto-style game Saints Row. It's unclear if a return to franchises like WWE, SpongeBob SquarePants and The Sopranos will keep the company in a winning position throughout the holiday season and beyond.
Take-Two Interactive Software
Amid lots of bad news--ratings controversies, lawsuits, options probes and earnings report delays--Take-
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[PogoWolf]
What about MTV? GH2 is going to make a KILLING this holiday season.
