Video game publishers seen winners in console wars

Ben Berkowitz

LOS ANGELES: When the world's biggest software maker takes on entrenched

competitors in a billion-dollar battle over the future of the video game

industry, who will be left standing?

The smart money is on the guys at ringside.

Game software publishers, analysts say, stand to gain no matter how

market-leader Sony Corp. and perennial favorite Nintendo Co. Ltd. carve up the

market for next-generation game boxes. The game industry is seen on track to top

the record sales of $6.1 billion recorded in 1999, with much of that in the

crucial weeks ahead.

The anticipation surrounding this week's launch of Microsoft's Xbox,

Nintendo's GameCube and new games for Sony's year-old PlayStation 2 has sent

shares of most game publishers soaring by double- or triple-digit percentage

gains this year.

Acclaim Entertainment Inc., once at the brink of ruin and trading at 34 cents

at the end of 2000, is now trading near $6, a gain of over 1,600 per cent for

the year.

The hype over the Microsoft and Nintendo launches comes in the make-or-break

year-end shopping season for game publishers. For the biggest, Electronic Arts,

Wall Street is counting on the quarter to deliver almost half its roughly $1.5

billion in full-year sales and all its profits.

Expectations are running high that the $500 million that Microsoft has

earmarked to promote its high-powered XBox and the $250 million that Sony has

set aside for its PS 2 marketing will draw new gamers to a $20 billion industry.

"These companies are spending hundreds and hundreds of millions of

dollars to launch their new hardware, and Activision will ultimately be the

beneficiary of those dollars," Activision Inc. Chief Executive Bobby Kotick

said in a CNBC interview last week.

Analysts see broader gains, with the biggest lift for the software

market-leaders, Electronic Arts, Activision Inc, and THQ Inc., all of which are

selling games for all the competing consoles. "While (85 per cent-plus) of

sales are yet to come, at this point we believe that the holiday season is very

much on track," said Heath Terry, an analyst at Credit Suisse First Boston.

Faced with an economy sliding into recession, major retailers hope that some

of the buzz rubs off. "We expect this holiday season to be a

better-than-average one, particularly because of the tremendous excitement in

the video game field," Toys R Us Inc. chairman and chief executive officer

John Eyler told Reuters.

Metal gear solid, solid sales



This week also marks the release on Friday, of Konami Co. Ltd.'s "Metal
Gear Solid 2: Sons of Liberty" for PS2, the most-anticipated game of the

year, with over 2 million pre-orders at $49.99 each.

"Metal Gear Solid 2," in which players take on terrorists who have

seized a ship off New York City, was one of the games that publishers

reevaluated after the Sept. 11 attacks.

Almost all of those games are back on track after a dip the week of the

attacks, and some in the industry expect that the preference of wary consumers

to spend more time and money closer to home could help sales.

"If anything, the more the consumer becomes wary of crossing the bridge

or going to the shopping malls for the holiday, the industries that keep people

at home...tend to benefit," said Peter Moore, president of Sega of America,

in an interview.

Many retailers, such as video game retailer Electronics Boutique, have

pre-sold the Xbox and GameCube in bundle packages with accessories such as extra

controllers and games.

The most popular games for Xbox have been "Halo," opted for by 70

per cent of pre-sale customers, "Dead or Alive 3" by 61 per cent, and

"Oddworld: Munch's Oddysee," by 27 per cent, according to Peter

Roithmayr at Electronics Boutique.

Both "Halo" and "Oddworld" are published by Microsoft,

while "Dead or Alive 3" is published by Tecmo Ltd. of Japan. For the

GameCube, the most popular has been "Luigi's Mansion" at 71 per cent,

"Star Wars: Rogue Squadron II" at 70 per cent, and "Wave Race:

Blue Storm" at 28 percent, Roithmayr said.

"Luigi's" and "Wave Race" are both Nintendo titles, while

"Star Wars" is published by Lucas Arts.

The challenge of Xbox



While most major publishers are now supporting all three major consoles, one
industry veteran is betting his company's future on the view that Microsoft will

fail.

Trip Hawkins, the chairman and chief executive of 3DO Co., founded Electronic

Arts before starting 3DO and is considered one of the pioneers of the game

software business. 3DO is ramping up its production of PS2 games and preparing

GameCube titles, but will have nothing to do with Xbox.

"The Xbox is a challenging opportunity for game publishers to make a

profit from it," Hawkins told Reuters, saying he believes the Microsoft

platform will have to fight to draw market share away from Sony and PC games.

The early marketing data supports the view that Sony will keep its top spot

through the holiday season. The annual PlayDate survey of 25 top specialty and

mainstream game retailers, released last month, did not list any Xbox game among

the 10 most anticipated titles for the season.

But Microsoft remains confident. "The games and the box speak for

themselves," Chief Xbox Officer Robbie Bach told Reuters.

(C) Reuters Limited.