Novice Investing - No Game For Video Game Makers

Date: Monday 01st 2008f December 2008 03:45:04 PM

No Game For Video Game Makers - 12/22/2005

By: Novice Investing Staff

Video game makers have been delivering one earning warning after another recently. The biggest news was yesterday earning warning by the biggest video game makers, Electronic Arts Inc. (ERTS). This wasn't supposed to happen, right? After all, analysts expect video game to slow before Microsoft's X Box 360 is released. Errr.... X Box 360 had been released this past thanksgiving. So, how come the slow sales? I thought Xbox was supposed to jump-start video game sales. It didn't and therefore lies the problem.

Executives at Electronic Arts has been blaming the shortage of Microsoft Xbox 360 console and the anticipated release of Play Station 3 as the reason for the slow sales. Ehem. Shouldn't shortage of Xbox indicates a good selling period for Xbox? If Xbox sale is slow then why would Microsoft limit supply which in turn causes the shortage that Electronic Arts mentions?

Sure, Play Station 3 will be released this spring 2006. But, isn't that old news? Why didn't the world biggest video game makers anticipate this? Having said that, let us tell you what we think and conclude from here.

We believe that video game makers have anticipated the slow sales period due to the upcoming release of both Xbox 360 and Play Station 3. However, now they warn that sales will be EVEN slower than they expected before. Shortage of Xbox 360 indicates a well-received consoles by gamers. Therefore, theoretically, sales of video games should be strong as well. We are not sure why video game sales are slow but we have one culprit in mind.

Enter Shanda Interactive Entertainment (SNDA) with its massively multiplayer online role playing games abbreviated MMORPG. In the past, Shanda charged subscription fee to let gamers play online with other gamers. On Nov 29, things changed. Shanda is letting gamers play online for free ! The appeal of playing with different gamers (which makes the game less boring) plus the free cost of playing it might be the cause of slow sales at Electronic Arts. Sure, Shanda will charge gamers on other things

such as Avatar. But the word 'free' always resonate well with customers. Who wants to pay $ 50 to try out for games that can only be played with your neighbors at best? The opportunity to compete with other gamers in any part of the world for free is too mouth-watering to resist.

Is this the cause of slow sales at Electronic Arts? Nope. We are merely speculating. However, we are quite confident that the reason given by management was not quite valid. MMORPG seems to be the trend that gamers are going with. Hopefully Electronic Arts foresee this trend and act accordingly.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Electronic Arts Inc. (ERTS) or any other securities.

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