Wednesday, January 11, 2012

Video Game Industry Still Thriving

It was 17 years ago when the first popular title in the “first-person shooter” game genre, Doom, hit the store shelves. Ever since, these type of games have become a fixture on consoles such as Xbox from Microsoft (Nasdaq: MSFT) and PlayStation from Sony ADR (NYSE: SNE).

It seems almost as long ago that naysayers have been predicting doom for the industry. But despite industry naysayers, the video game business is still doing rather well.

Look at the new video game from Activision Blizzard (Nasdaq: ATVI), Call of Duty:Modern Warfare 3. It achieved record sales of $400 million on its first day. That is better than many releases of films from Hollywood!

Nevertheless, some analysts continue to be concerned about Activison's future. They point to some of its main franchises such as World of Warcraft which lost nearly 1 million subscribers this year.

These same analysts also worry that the Call of Duty franchise, which has already sold more than 100 million units, may also be reaching a saturation point.

These doubts persist even though Activision once again beat analysts' estimates for sales in the latest quarter by 47.5%. At the time, the company also raised its earnings guidance for the full year.

Yet, ever since the announcement, the company's stock has fallen more than 10%.

Investors seem to be ignoring that Activision is not standing still. It is actively marketing its key franchises like Call of Duty and World of Warcraft.

Activision has also partnered with film directors, Tony and Ridley Scott, to create a TV show featuring highlights of Modern Warfare 3 game play. The program will be available on the 'Call of Duty Elite' network, another initiative from Activision.

The network is a $50 a year online social network. It did stumble a bit out of the starting gate due to glitches brought on by high demand. That's a good thing!

And so is the more than 1 million users who signed up for the network in the first week. With even more programming planned for the network, it will give Activision a solid new revenue stream.

This is an important step for the company. As Activision's CEO Bobby Kotick said, “This is an important evolution of our medium.”

Activision's main competitor Electronic Arts (Nasdaq: ERTS), with its own recent blockbuster title Battlefield 3, is also moving forward. It is moving aggressively into the social media space to expand its business.

The company has two of the top 10 games on Facebook (Activision has none). Electronic Arts also bought a major social gaming company, Playfish, back in 2009. Another social gaming company, Zynga (Nasdaq: ZNGA), recently raised $1 billion in a popular IPO.

Electronic Arts' stock has outperformed Activison's over the past year – up about 30% versus little change for the analyst-disliked Activision.

Look for both Electronic Arts and Activision to do well in the coming year. The negative analysts will find these companies as hard to 'kill' as some of the characters in their games.

Article originally written for the Motley Fool Blog Network. Check all my Motley Fool posts at


  1. Video games are the addiction of the decade. I dont think kids are going to stop playing video games anytime soon. Video games have continued to keep suck in every generation of players. It is not unusual for a 8 year old and a 30 year old to be competing on x-box live