Electronic Farts

EA posted an $86 million loss for the first fiscal quarter. One view would be that this is good news because EA's games are "quality challenged" and may force them to establish higher standards, but it could just as easily prompt them to establish even lower standards in order to push more garbage out of the door. The bad news is that this is going to highlight the cop-out that publishers are using about sales being down during a "transitition period." They either have to start shipping better products around the calendar year (and stop cramming everything into Oct/Nov) or face a scary fact: this "transition" is going to be the longest ever.

It isn't going to be over when Wii and PS3 launch. In fact, this November is likely to just be the halfway point, with things picking back up for third parties some time next summer, with a really big jump in sales next fall when some true blockbusters come out. Microsoft phased out Xbox a year early, and despite a userbase advantage vs. XB360, people pretty much stopped buying new releases for it, either in anticipation of what is to come or perhaps to buy handheld software. Gamecube has been a black hole for third party software for some time. Despite the critical acclaim (which was a bit overzealous to begin with), Resident Evil 4 didn't even sell one million copies on Gamecube in the U.S., significantly less than crap like Luigi's Mansion, which had a smaller userbase to work with as a launch title. This leads me to wonder why people think Wii will help anyone other than Nintendo (which I'll get to in another post, along with some hard numbers to back up my point).

As it stands, that has left PS2, the PC (which could not have been helped by the EB/GS merger, since they give barely any shelf space to PC games) and handhelds to drive third party software sales of "current generation" titles. In a lot of ways, it is a losing proposition. On PS2, titles are not just competing with other new releases, but an entire back catalog of high quality, low priced games. It is a bit hard to get excited about "2007 edition of mediocre annual series" being released when there are other, better games already available at less than half the price. This is actually some of the incentive that a company like EA would have jumping into next-gen too early since there is less competition, but looking at sales of games like BF2, it isn't working out. Despite the overall boost they provided to monthly figures because of the dollar amounts being raked in on hardware sales, handhelds are never going to be a great replacement for having two strong consoles. Historically, the attach rates on handhelds are pathetic, and on the Nintendo platforms it is beyond obvious that it pretty much benefits Nintendo and nobody else (once again, this will be illustrated with the requiste numbers in the near future).

So here is what third parties are facing:

01. A "current generation" market that got the carpet pulled out from under it a year too soon.
02. A "transition" that is actually going to be about one third of the Xbox's total lifespan... ouch.
03. No price drop - according to official word - on XB360 this fall.
04. A supply contrained PS3 launch. You know they will never make enough of them, even for the ridiculous MSRP they have it. The price will become more of an issue for second-tier adopters next spring.
05. Enough Wii-Wii's being released, with people buying pretty much just Nintendo games for it. You don't actually think Ubi Soft's "Red Steel" will be anything other than a train wreck, do you?
06. Price attrition. By their own doing, the number of games that get shipped to retailers every month has devalued what people consider them to be worth on a whole. All but the megahit franchises are gonna be fighting for the same shelf space, which means anyone who pays any attention at all will be able to get games for $20 or less before long. This is one dumb move that actually benefits gamers, or at least the ones with the time to play everything that ends up in bargain bins these days. They are going to have a hell of a time getting the average person to spend $60 on incomplete games after four years of an overcrowded market drove prices down so fast.

Overall, the industry and large publishers like EA have backed themselves into a sharp corner. That is good news for bargain hunters, and now is a great time to look into buying some stocks since the share prices will be going down. I'm not the type that wishes death upon EA, but I won't be feeling sorry for them either. Three systems, higher prices, and I'll still only have one lousy NFL game to choose from in the next five years. Happy times ahead.