VOLUME 1, ISSUE 1; NOVEMBER 21, 2003 STATE OF THE INDUSTRY Last holiday season, the videogame it’s extremely unlikely that the holiday sea- part, this is an industry at a crossroads, just industry was filled with hubris. It was as if son will meet high early-in-the-year expec- beginning to confront such enormous chal- the people selling videogames were taking tations, which analysts are now lowering— lenges as generating successful online busi- their cues from characters in the Grand again. Early-year expectations of modest ness models and getting the most out of the Theft Auto series. A year later, the pendu- growth have been replaced by sobering remainder of the current console cycle. lum has swung hard to the other side. sales figures: NPD Funworld reports that, “Everything is fine in the game business despite being the leader in console sales, An industry at a crossroads is an industry except for one thing,” a regional buyer for PS2 sales last month were down 37.6 per- that needs an authoritative source of infor- one of the country’s largest electronics cent from the year before. Total hardware mation and analysis. Ziff Davis Media’s chains said during Columbus Day weekend. sales are down 16 percent from one year Gaming Industry News aims to be that What’s that one thing? “We’re all gonna ago. Software sales are somewhat more source. This monthly newsletter, comple- die,” he said. encouraging, in part because September was mented by weekly e-mail updates, will look packed with new releases. Leading that closely at the crucial issues facing the indus- Then he laughed. “I don’t really mean charge is, of course, EA, which just try and both their long- and short-term that,” he went on, “but this is going to be announced that net revenue is up 17 per- ramifications. Gaming Industry News is tough when you compare it to last year.” cent compared to the same quarter last year. intended to give readers the tools you need Indeed, analysts have come to a consensus to succeed in a business that is full of more that 2002 was the peak of the current hard- The industry is entering a period of con- trash-talking, surprise, and opportunity ware cycle. Buyers and analysts tell us that solidation. Vivendi Universal Games, left every day. Thank you for joining us. ■ PlayStation 2 console sales are down more out of its parent company’s NBC deal, than one-third off 2002’s torrid pace. Xbox needs a new owner if it’s going to thrive TABLE OF CONTENTS sales are also down, though less so, and the even in more modest form. VU’s plight is only reason GameCube sales are looking symptomatic of many software houses: It up, at least in the short term, is because had to cancel a long-promised Tolkien- SELLING VIVENDI Nintendo just cut its price by one-third. estate-licensed Lord of the Rings game in Who’s going to buy the (former) media There isn’t much buzz about holiday games part because it would have been up against giant’s games unit? (with the revitalized Prince of Persia one of a movie-licensed omniplatform Return of PAGE 2 a handful of huge exceptions). Retailers and the King juggernaut to which EA has the analysts predict good things for the usual luxury of devoting more than 100 people. BUNGLING BUNDLING suspects—such as the Grand Theft Auto Competing against EA in videogames is As Nintendo and ATI have learned, they're combo packs for PS2 and Xbox, the latest becoming like competing against Microsoft far from a sure thing anymore. Lord of the Rings game from Electronic in PC software. Arts, and SOCOM II—but some of the sea- PAGE 3 son’s most highly anticipated games, like VU is far from alone. Eidos is abandon- Half-Life 2, have seen their ship dates slip ing development for the moribund LORD OF THE BRANDS to next year. GameCube, but it has problems of its own, Electronic Arts knows how to make its changing in-house development groups in licenses last. It’s bad, analysts agree, but it’s only hopes of saving its sagging Lara Croft fran- PAGE 5 “we’re all gonna die” bad if you compare it chise, a once-great brand smacked down by to last year. Those who appreciated that last lousy games and lousy movies. Nintendo’s SONY’S CONVERGENCE year’s holiday season was a once-in-a-cycle GameCube problems have been offset by its event knew this was coming. As this holi- Game Boy monopoly, but the handheld- PLAY day buying season hits high gear, you don’t gaming business is about to get much more The PSX and the coming war with Microsoft see many gaming executives dressing as competitive thanks to Nokia, Sony, and PAGE 6 Santa Claus. As Electronic Arts CFO others. There are still some sure things in Warren Jenson puts it, “There’s going to be the business—Enter the Matrix shows there TOO SOON TO VERIFY some road kill. There are going to be people are some brands so strong that even ragged The hottest industry tips, unfiltered who are not going to make it.” Hardware gameplay and a host of high-profile bugs PAGE 11 and software sales trends are troubling, and can’t hold them back. But, for the most Who Should Buy Vivendi Games? We look at the possibilities and suggest the best new owner Earlier this month, Vivendi Universal will be in excess of $5 billion next year— announced that its VU Games unit was no even after the transfer of many of its WHY VIVENDI longer for sale. Don’t believe it. The former entertainment assets to General Electric KILLED BILL utility company sold Houghton Mifflin late is complete. last year to a consortium of private invest- The biggest action movie this month, in ment funds after company officials publicly So, who would want VU Games? Here terms of both buzz and box office, is the indicated it was not for sale. And unlike the are the predictions we’re hearing: first installment of Quentin Tarantino’s Vivendi music division, also said to be Kill Bill. Most big-budget action films withdrawn from possible sale, the games ■ It won’t happen right away. Rumors business, although consolidating, is experi- run rampant that large job cuts are coming, nowadays arrive hand in hand with big- encing nothing similar to the free fall and it’s unclear whether those layoffs will budget videogames, but not Kill Bill, afflicting the music business. bring with them a shift in internal struc- despite Black Label Games, a division of ture. If current costs are high, why not wait VU Games, having signed a deal last We spoke to analysts, competitors, and for the current owners to deal with them year to make and market one. Vivendi executives current and departed. first, as is inevitable? Tarantino’s core fans—young adult males All but one agreed that VU Games is still with a love for violent entertainment very much on the market, although the cur- ■ VU Games may follow the lead of rent offers for the division, reportedly rang- VU corporate. Just as Vivendi is selling and junk culture—are exactly the sort of ing from $700 million to $900 million, are sundry assets to different buyers in the people who pay $50 for videogames. less than the $1 billion the French newspa- hope that doing so will generate more cash, Why is there no game for them? per Les Echos reports the current manage- VU Games will look for its strongest prop- ment is asking for. erties to perform best separately. Blizzard, According to two sources at VU Games, home of WarCraft and Diablo, was fre- the decision to build the game was Two executives familiar with the negotia- quently mentioned as a division that tions confirmed that VU Games’ suitors “would be the subject of a bidding war,” as vetoed by a “new corporate green-light have included strategic investors, other was Sierra Entertainment. Both EA and system.” Despite the demographic game companies, and at least one combina- Microsoft are reported to have indicated match, the execs up top “simply did not tion of the two. These potential acquirers their interest, so that bidding war may be believe that a Kill Bill game made sense have been brought in by different Vivendi underway already. Perhaps this is what for the company. It’s just another exam- entities—some by the North American divi- Fourtou means when he hedges that VU ple of the new centralized structure sion, some by its international headquar- Games isn’t for sale, but he is still pursuing making it difficult for the individual stu- ters—and one executive tells us, “North “strategic maneuvers.” America and international are each desper- dios to go about their business without ate to bring in their own team because each ■ If it does go as a unit, don’t getting micromanaged. You want to side thinks that if they bring in the buyer, assume a game company will be the know why there’s no Kill Bill game? It’s they will be in control.” buyer. If Vivendi wants to quickly get out because corporate wants everything at of the videogame business altogether, it will the company to be top-down. They want Those at VU’s corporate office in France sell to an investment group that will sell off control.” If so, they’d better extend that say not to compare VU Games to the bits and pieces itself.