EA to Fight Activision With New Titles

NEW YORK ( TheStreet) -- As Electronic Arts ( ERTS) prepares to report its first-quarter earnings Tuesday afternoon, investors will be looking to gain insight into two of the video game publisher's biggest titles ever, Battlefield 3 and Star Wars: The Old Republic, which are poised to take on entrenched games from rival Activision ( ATVI).

While these titles mark a departure from EA's recent, aggressive push into social, casual and mobile gaming -- including its $750 million acquisition of PopCap Games -- they're a significant part of the company's strategy to create fewer, bigger titles that incorporate digital components.

"The biggest elements that matter right now are Star Wars and Battlefield 3," said Eric Handler, an analyst with MKM Partners. "It's a matter of just waiting on execution."

The huge titles are also an opportunity for EA to grab market share from Activision.

Battlefield 3, a first-person shooting video game, is being positioned as a competitor to Activision's wildly popular Call of Duty franchise. Activision's most recent title in the series, Black Ops, generated more than $1 billion in sales only a month after its release, becoming the best-selling video game ever in the U.S. Its newest edition, Modern Warfare 3, will hit stores in November, several weeks after the release of EA's Battlefield 3.

" Battlefield 3 is designed to take on Modern Warfare 3, ," EA CEO John Riccitiello said in April at an industry conference. "If you're looking at a battle of the titans, like Red Sox vs. Yankees, or Google ( GOOG) vs. Microsoft ( MSFT), this is it."

EA is betting big on the success of Battlefield 3 -- it's already planning to spend $100 million on marketing campaigns for the game.

Big franchises like Call of Duty and Battlefield 3 are attractive to gamers because of their online, multi-player features. They also provide publishers with new revenue streams via the sale of expansion packs, or supplemental storylines and other related content.

Investors will be waiting for further insight into pre-order numbers for Battlefield 3. In May, the company said pre-orders for the game were up significantly from those its predecessor, Battlefield: Bad Company 2, saw in 2010.
Star Wars: The Old Republic is expected to be released this holiday season.

Another upcoming title EA investors want to know more about: Star Wars: The Old Republic, the company's upcoming massively multi-player online (MMO) game. EA announced late last week that pre-orders of the game are now available and it will be available during the holiday season, though it hasn't yet revealed an official release date or subscription fees.

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Star Wars, which will go up against Activision's well-entrenched World of Warcraft franchise, is EA's most expensive game in history, with costs totaling more than $80 million in development alone.

The success of Star Wars -- EA's entry into the $8 billion massively multi-player online market -- is crucial, particularly as the company tries to move away from packaged games and grow a $1 billion digital business.

" Star Wars is a pure digital play and they've spent a tremendous amount on R&D," said Mike Hickey, an analyst with Janco Partners. "It's critical they get success there."

MMOs require gamers to install a piece of software and then purchase a monthly subscription. Publishers can also sell virtual goods within the games and expansion packs to drive incremental revenue.

Star Wars will sell for $60, more than the cost of a typical MMO, which typically is priced at around $50. "Selling for a higher price signals confidence in the product," said Arvind Bhatia, an analyst with Sterne Agee. "We'll be looking to see what that means in their eyes."

News of new titles aside, analysts expect few surprises Tuesday in EA's report, which should set the pace for the rest of the sector's earnings. Industry-wide, video game sales are low because of the lack of new titles.

The company pre-annoucned earnings earlier this month, saying it expects an adjusted loss of 37 cents to 40 cents per share and adjusted revenue of $500 million to $525 million.

Analysts expect EA to post a loss of 42 cents per share on revenue of $502.9 million. In the year-ago period, EA reported an adjusted loss of 24 cents on sales of $539 million.

Shares of EA have increased more than 47% this year. Shares were losing 25 cents at $23.82 in morning trading Tuesday.

--Written by Olivia Oran in New York.

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