Next Generation's Software Growing Pains
A Slow Start
During transitions, game companies often come under pressure on both the top and bottom lines. Typically, sales of next-generation games don't ramp up quickly enough to make up for the decline in sales -- and prices -- of old-generation games. At the same time, companies take on increased development costs as they try to get up to speed with and master the new game-machine technology.
On the cost side, things look much the same. Game development costs are going up for the new consoles, according to most analysts. If the average game could be made for less than $10 million for the current generation of consoles, the run-of-the mill next-generation games will cost more than $10 million, says John Goldman, CEO of Foundation 9 Entertainment, one of the leading privately held game developers. And, depending on who you ask, per-game costs for top-of-the line titles could run into the $20 million to $30 million range.
But things were supposed to be different on the revenue side. Acknowledging past mistakes, most major software publishers have pledged to support Sony PlayStation 2 and other current consoles far longer than they supported previous machines, such as the original PlayStation -- the idea being that there's still a huge market for those machines.In the meantime, high-powered handheld systems such as the PlayStation Portable and the Nintendo DS, launched in advance of the console transition, were supposed to help bridge the gap between cycles, helping bring in sales -- at a relatively low cost -- that publishers didn't have before. But so far, many publishers seem to be experiencing some of the same transition-year trouble that they've experienced in the past. Shares of EA, for instance, were hammered in March when the company announced a big earnings miss. It has predicted flat sales and earnings this year, but recent price cuts on current-generation games could hamper results. Other companies are also starting to feel the pressure. Midway Games (MWY) and Take-Two recently slashed their guidance. Activision expects earnings to essentially stagnate this year, while THQ (THQI) predicts its profits will plummet on flat sales.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
24/7 market commentary from Jim Cramer and 20+ veteran Wall Street gurus. Get access to the latest trading ideas on stocks, options, and ETFs as well as a real-time forum to see the pros exchanging their investment ideas.
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV