Game-related Business Looks Ripe For Fourth Quarter

With more traditional music and video retailers continuing to expand their console and computer game inventory, game-related business is expected to play a more significant role in many merchants' fourth-quarter sales this year.

And with music sellers looking for other product offerings to help offset slumping CD sales, expectations for the category are high. Games sold at a record-breaking pace through the first half of 2002, and some are predicting that the upcoming holiday season could be the category's biggest sales bonanza ever.

"Retailers are the critical connection between the game publishers and hardware vendors and consumers," says Richard Ow, senior account manager for NPDFunworld, which tracks retail videogame sales. "We're looking at record volume for the industry, but everyone will be hard-pressed to make decent margins."

On the software side, the record $2.5 billion in video and computer game sales for the first six months is a solid 19% ahead of the comparable 2001 figure, with the fourth quarter traditionally contributing more than 50% of overall sales. The total last year was $6.35 billion, including $4.9 billion for console games and $1.45 billion for computer titles.

For the growing number of stores adding hardware that got a big boost from midyear price breaks (Billboard, June 22), the three-way console race is far from over, according to a recent Ziff-Davis Media Game Group study. Based on a demographic sample of 2,000 U.S. households, the Sony Computer Entertainment America (SCEA) PlayStation 2's (PS2) user base is currently 14.1 million, followed by Nintendo of America's GameCube (GC) with 4.8 million and Microsoft's Xbox with 3.8 million.

Sales through the holidays into next year could change the picture, as 15% of respondents wanted to buy an Xbox, while 9% desired a GC. Based on these answers, Ziff-Davis projects the Xbox U.S. user base in 2003 hitting around 13.7 million, with GC at nearly 11.2 million and PS2 at 24.1 million.

According to Ow, January-June console software topped $1.9 billion, about 25% ahead of the prior year's figure. "The hardware price cuts created quite a spark [at retail] this spring," he observes, "and competition is also driving down software pricing. With five viable platforms and a lot of great titles, consumers will have tough choices."

Retail-dollar sales of PC games climbed past the $600 million level for the first time in the first half of 2002—up $20 million or about 4% from last year, according to NPDTechworld, which tracks sales at retail. "The first half is typically a slower period for retail software sales," senior software analyst Steve Koenig says. "Growing revenues demonstrate that consumers are still buying games for their computers."

A FOCUS ON MUSIC

Also helping fuel music retail's interest in games is the increasingly prominent role that the work of major-label artists is playing in gaming software titles. Game makers and record labels are strengthening their ties to each other in order to create more effective cross-promotion platforms. In perhaps the most telling example of new synergies between the gaming and music industries, game maker Electronic Arts (EA) has created a new division called EA Trax designed specifically to work with labels to develop and acquire music content from top acts for EA titles.

EA worldwide executive of music Steve Schnur says EA Trax is aiming to increase the benefits of pure licensing by creating strong marketing efforts that provide both companies with added value. EA is grabbing new songs for its games rather than the traditional but low-profile method of dusting off labels' back catalogs for tracks. Also, each song will be chyroned and programmed to unspool twice per the usual one hour of game play. In contrast, movies often run snippets of songs and display their information during the end credits in an often-empty theater.

"This is a very well-thought-out process . . . How do we utilize the game as one of the launching pads to releasing the album?" Schnur asks, noting that EA Trax's first effort, the NFL-affiliated Madden 2003 (released Aug. 14), contains Bon Jovi's new single, "Everyday" (Island Def Jam), before it is available in stores. The game also coincides with Bon Jovi's appearance at an NFL-sponsored concert Sept. 5 in New York's Times Square, underscoring the band's upcoming association with NFL's Monday Night Football.

Schnur says, "We're not just timing our releases together . . . we're synergizing the artist with the game, with the sport, with the album."

Madden 2003 debuted during the same period that OK Go's latest song, "Get Over It" (Capitol)—which is heard on the game—was added to radio playlists. On deck for late this month is the next edition of Need for Speed, which will include the songs "Fever for the Flava" and "Going Down on It" from Hot Action Cop, whose Lava Records debut comes out in January.

With the $1.7 billion in revenue EA predicts to bring in for 2002, "the major labels are believing in our reach," Schnur says. "Gaming is this huge creative force. Videogames are mainstream culture. It's not just for people who are into extreme-only sports or where only extreme-only bands can exist. There's room for everybody."

KEY TITLES

With a broad-based audience up for grabs in the game market, console makers will be engaged in a battle for game-platform dominance this Christmas.

Success at retail is expected to hinge on a broad array of eagerly anticipated titles—both those developed by the trio of console-makers themselves and by third-party developers. With online gaming in the early stages of rollout, another opportunity for retailers will be the sale of special adapter kits that allow Web users to play against each other. More new games will incorporate Web links, and retailers are anticipating bonus sales for the new Xbox Live Starter Kit and SCEA's PS2 Network Adapter and USB Communicator.

For PS2, Sony is counting on its titles The Getaway, Ratchet & Clank, ATV Offroad Fury 2, Disney's Treasure Planet, Jet X0, Primal, Sly Cooper and the Thievius Raccoons, and SOCOM: U.S. Navy Seals. Third-party exclusives include BAM!'s Eck vs. Sever, Capcom's Onimusha 2, EA's The Sims, Konami's DDRMAX Dance Dance Revolution, Sega's Shinobi, Take-Two's Grand Theft Auto, and THQ's Red Faction 2.

For Xbox, Microsoft Game Studios will have Blinx: The Time Sweeper, Brute Force, and MechAssault. Key third-party exclusives include Capcom's Steel Battalion, Infogrames' Unreal Championship, Interplay's Baldur's Gate Dark Alliance, Konami's Metal Gear Solid 2, Sega's Panzer Dragoon Orta, and UbiSoft's Tom Clancy's Splinter Cell.

For GC, Nintendo will offer Metroid Prime, The Legend of Zelda, Animal Crossing, Mario Party 4, Star Fox Adventures, Super Mario Sunshine, and Wario World. Among third-party exclusives are Capcom's Resident Evil Zero, Infogrames' Godzilla Melee, and Sega's Super Monkey Ball 2.

Top cross-platform titles—apart from the usual lineup of sports games—include Acclaim's Turok: Evolution (Xbox, PS2, GC); Activision's X-Men: Next Dimension (PS2, Xbox, GC), and Minority Report (PS2, Xbox, GC, Game Boy Advance [GBA]); Eidos' Lara Croft Tomb Raider: The Angel of Darkness (PS2, PC) and Hitman 2 (PC, PS2, Xbox); EA's Harry Potter and the Chamber of Secrets (PS2, GC, Xbox, PlayStation, GBA, Game Boy Color [GBC], PC); James Bond 007: Nightfire (PS2, GC, Xbox, PC); film-based The Lord of the Rings: The Two Towers (PS2, GBA); Kemco's Batman: Dark Tomorrow (PS2, GC, Xbox); LucasArts' Indiana Jones and the Emperor's Tomb (PS2, Xbox, PC); Star Wars: Bounty Hunter and Star Wars: The Clone Wars (both PS2, GC); Midway's Mortal Kombat: Deadly Alliance (PS2, GC, Xbox, GBA), and Freaky Flyers (PS2, Xbox, GC); UbiSoft's Rayman 3 (GC, PS2, Xbox, GBA, PC), and Myst III (PS2, Xbox).



Additional reporting by Susanne Ault in Los Angeles.