The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
We attended the E3 Expo this week in Los Angeles, CA, and met with a number of companies presenting products at the show, including Activision Blizzard (NASDAQ:ATVI), DeNA, Electronic Arts (NASDAQ:EA), GameStop (NYSE:GME), Microsoft (NASDAQ:MSFT), Nintendo (TYO:7974), PlayJam “Game Stick”, Sony (NYSE:SNE), Turtle Beach, Ubisoft (EPA:UBI), and UNU. The show was once again very large, with the Los Angeles Convention Center hosting over 45,000 attendees and 200 exhibitors from over 100 countries. E3 was once again the centerpiece of the video game world, and we applaud the ESA for putting together another highly enjoyable and memorable conference.
Two new consoles are slated to launch later this year, along with a slew of high-profile current-gen and next-gen software releases expected to positively impact the share prices of our covered publishers through the remainder of the calendar year. The PS4 is expected to be a holiday release (likely before Black Friday) with a price point of $399, and no new restrictions around used gaming or transfer fees.
In addition, it will not require an Internet connection for gameplay. The Xbox One will debut at $499, requires a daily connection to the Internet and leaves used gaming and transfer fee decisions up to the individual publishers. We continue to believe that all of the publishers will enable used gaming, fearing a potential backlash from core gamers.
There were a number of compelling software titles on display at E3. The software highlights of the show from our covered publishers included Activision Blizzard’s Call of Duty: Ghostsand Destiny, EA’s Battlefield 4, Titanfall, and its sports games, Nintendo’s 3DS releases (including The Legend of Zelda: A Link Between Worlds, Pokémon X and Y, and Mario and Luigi Dream Team) and Wii U releases (Donkey Kong Country: Tropical Freeze, Mario Kart 8, Pikmin 3, Super Mario 3D World, and Super Smash Bros.), and Ubisoft’s Assassin’s Creed IV: Black Flag, The Crew, Tom Clancy’s The Division, and Watch Dogs.
Take-Two did not meet with investors at E3 this year due to its convertible debt redemption and new offering, and chose to pass up exhibiting its games at the show in favor of apparently more efficient marketing opportunities. Retailer GameStop met with investors during the show and had a positive E3 from excitement about the launches of the two new next-gen consoles, in spite of no price cuts yet for the current-gen consoles.
It also benefitted from a compelling price point for PS4 and no new restrictions on used gaming for PS4. A strong slate of games should jumpstart GameStop comps through 2014.
We believe Sony won the first skirmish in the next-gen console battle with its solid performance at E3. At its press conference, Sony announced that the PS4 will have no new restrictions on used gaming, unlike the Xbox One, which essentially leaves the decision up to the individual publishers. Although we continue to believe that all of the publishers will enable trade-ins and used gaming on the Xbox One due to fears of a potential backlash, Microsoft angered a number of gamers by giving publishers this option in the first place.
In addition, Sony appears to have ruled out unpopular transfer fees, while Microsoft has not, again leaving it up to the publishers. Finally, PS4 does not require an Internet connection for gameplay, whereas Xbox One allows offline gaming for up to 24 hours before an Internet connection mustbe re-established.
Xbox One’s higher price point and Microsoft’s approaches to used gaming and “always on” will likely cost Xbox One some market share in the first year or so of the cycle. PS4 will be the clear beneficiary, and we believe that Sony’s consumer-friendly approach to next-gen gaming made it the clear winner of this year’s E3.
We attended a slew of events and hosted a number of investor meetings throughout the week. On Monday, we attended Microsoft’s Xbox E3 2013 Media Briefing, The Download: EA’s 2013 Press Conference, the Ubisoft E3 2013 Media Briefing, and the Sony PlayStation E3 2013 Press Conference. On Tuesday, we attended Ubisoft’s Analysts & Investors Meeting with Top Management and Nintendo’s BusinessPartner Presentation. We also hosted investor meetings with members of the DeNA and GameStop management teams. On Wednesday, we attended EA’s Analyst Breakfast and the Nintendo E3 Analyst Briefing. We also hosted investor meetings with members of the Microsoft and EA management teams.
Michael Pachter is an analyst at Wedbush Securities.
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