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Pivotal Point for Electronic Arts

Michael Comeau

It's not always easy being the 800-pound gorilla in an industry, especially if you're Electronic Arts (ERTS Quote).

The video-game titan is arguably in the toughest strategic position among all of the publicly traded video-game software companies. The console cycle is at a volatile point, favoring smaller publishers that can benefit tremendously from just a few popular titles. Companies can no longer sit back and rely on general industry growth.

As more consumers snatch up next-generation consoles over the next couple of years, the going will get even tougher. Big-name hits are now driving the business, and game-production costs are skyrocketing. Electronic Arts can't afford a major miss.

If December is any indication, the company might be in for a challenge. The industry giant came up short Thursday night, when market-research firm NPD Group released December video-game sales data. According to the report, Electronic Arts' U.S. retail sales suffered an 11% year-over-year drop, with the Need for Speed: Carbon title standing out as a notably weak performer.

A Fresh Crop of Titles

One major concern I've had about Electronic Arts is that some of its franchises may be getting a bit stale. This year, investors need to play close attention to how the next editions of its franchises shape up. As I noted in a previous column, some common-sense, real-world research, such as monitoring sales charts and game reviews, can give you an edge on Wall Street.

So let's take a look at some key Electronic Arts titles to watch. For the record, I am not mentioning the company's sports titles, such as Madden, because they're like little versions of Microsoft (MSFT Quote) Office: They change a little bit here and there but can generally be counted on for reliable sales, with some occasional minor market-share shifts.

First up is Battlefield: Bad Company, due for the Xbox 360 and PlayStation 3 next year. The Battlefield series has been a big winner for Electronic Arts on the PC and, to a lesser extent, on the last-generation PlayStation 2 and Xbox consoles. However, the first-person military shooter genre is quite crowded, and competitors are beginning to emulate the Battlefield formula. It will be interesting to see whether Electronic Arts can successfully extend the life of this franchise.

Second is Medal of Honor: Airborne, the latest update to the World War II-themed shooter series. This game is getting a significant makeover in terms of game-play features, likely as a result of Activision (ATVI Quote) dominating the WW2 genre with the juggernaut Call of Duty series. That said, Activision is taking the Call of Duty series out of WWII, which could be either very good or very bad for Electronic Arts. On one hand, it reduces competition in WWII-themed games, but it could also be a sign that the theme is overdone.

The next important title is the eagerly awaited sci-fi shooter (the word "shooter" is popping up quite a bit here, no?) Crysis, due in the first quarter of 2007 on the PC. The game is being developed by independent German game-software firm Crytek, known for the monster hit Far Cry series, which was considered revolutionary by many gamers and industry pundits.

Another much-buzzed-about PC title is Spore, a strategy game in which players guide a species from origin to civilization.

We'll also see Army of Two for Xbox 360 and PS3, a military action game that may have been inspired by the megahit Gears of War, and Skate, an Xbox 360/PS3 skateboarding game targeted to compete with Activision's Tony Hawk series, which has generated more than $1 billion in sales for Activision since inception.

The Bottom Line

These are just a few of the many titles Electronic Arts will release in 2007, but they will have a big effect on the company's top and bottom lines this year. So keep your eyes on the sales charts at the sites such as Amazon.com (AMZN Quote) and Best Buy (BBY Quote), and read reviews, because they do have an impact.

In a hit-driven industry, the giant has to have a lot of hits to succeed. Those who own or are interested in Electronic Arts need to monitor whether these games become hits or misses, because they'll ultimately determine the direction of the company's stock price.