Take-Two Gains Ground on Electronic Arts

When it comes to sports video games, Electronic Arts (ERTS) rules. But some analysts see Take-Two Interactive (TTWO) becoming a serious challenger to the throne.

That's because Take-Two is using cut-rate prices to take on EA -- a plan that has boosted sales of its ESPN NFL 2K5 game, which Take-Two co-publishes with Sega. Analysts fret that EA will have to resort to discounting prices on its own sports games -- or risk losing sales to Take-Two.

"I don't think [EA is] accustomed to competing on price. I think they're really confused as to what to do," said Michael Pachter, who covers the video-game industry for Wedbush Morgan. But "if EA doesn't cut their prices, they're going to have real trouble," Pachter added, projecting that the video-game giant could lose up to $40 million in sales to Take-Two this holiday season -- about 2.5% of EA's expected December quarter revenue.

(Wedbush Morgan hasn't done investment banking with EA or Take-Two, and Pachter doesn't hold either stock.)

At first glance, the latest sales data seem to reinforce EA's dominant position. The company's Madden NFL 2005 game was the bestselling title in August across all platforms, according to a recent report from NPD Group. And a special collector's edition of Madden and the company's NCAA Football 2005 were Nos. 2 and 5 in sales across all platforms.

Using NPD data, Pachter estimated that unit sales of Madden were up 14% from a year ago.

That's a healthy number, to be sure. But console sales grew at a considerably faster clip over the last year, noted P.J. McNealy, who covers the video-game software industry for American Technology Research. For instance, the number of people who own a PlayStation 2 is up 30% from last year, McNealy said.

NPD's data also indicate that Madden's market share is down considerably from last year, especially in terms of units. Take-Two sold nearly 760,000 boxes of NFL 2K5 in August, according to NPD. Since the company released the title last month, NFL 2K5 has sold about 1.5 million units. In July and August of last year, all of Madden's competitors combined sold about 44,000 units.