- The Force Awakens sets box office records, but Battlefront misses the mark.
- ATVI's Black Ops III dominates holiday sales while Madden leads the way for EA.
- Cowen: Strong Q4 for video game industry, with innovate 1Q 2016 coming up.
In case anybody was confused as to why a bunch of adults in white Storm-trooper outfits braved the elements to stand outside movie theaters en masse last weekend, it was because Star Wars: The Force Awakens debuted in theaters worldwide to record box office numbers and glowing reviews from critics. Even with the memory of the dud that was The Phantom Menace still fresh on many fans’ minds, the allure of a new era for the franchise still drove people to crash ticket websites in hopeful anticipation that the new trilogy would be a hit. Such a phenomenon goes to prove how strong the brand identity is, that it can generate huge sales even when previous incarnations left such a bad taste in fans’ mouths.
This is especially true in the video game world, where studios bank on successful franchises, some decades old, to drive holiday sales. This year, it was expected that EA’s Star Wars Battlefront would cash in on both the video game’s nostalgic popularity and the eager release of the new movie to ride it to the top spot among major releases. Yet unlike The Force Awakens, Battlefront took a back seat to Activision Blizzard’s Call of Duty: Black Ops III on Black Friday – and even to Madden NFL 16. Why?
According to retail figures, Black Ops made up 9.8 percent of video game sales on Black Friday alone, thanks to tie-ins with Microsoft’s Xbox One and discounts from big box stores like Walmart. The game is also on track to beat its predecessor in the series, as Cowen Research Group predicts video game sales in the United States to be one of the big movers in the 4th quarter of 2015. In addition to the high sales figures projected for this new title when the year is all set and done, it has also debuted to positive reviews from gaming magazines, citing an exciting campaign and upgraded multiplayer.
It’s an upset of sorts for Electronic Arts (NASDAQ:EA), and particularly Star Wars, because the same nostalgia that drove many to put on their Darth Vader and Yoda outfits for the movie premiere was supposed to drive Battlefront sales from the old 6th generation days of the Xbox and PlayStation 2. Instead, Battlefront wasn’t even EA’s best-selling game, losing out to Madden NFL 16. On top of it all, critics have slammed the game for a flimsy single-player mode, and a multiplayer battle arena that flings newcomers into the heat of battle against experienced players with little grace period. Yes, the effects are spectacular, and the air combat portions of the game look very fun to play, but with relatively little to do as a solo player, unlike Black Ops III, the game suffered with critics, and got beaten out by the decade-old Call of Duty behemoth. It’s ironic because conventional wisdom would dictate that the movie would be more likely to flop than the video game, but nostalgia for Battlefront wasn’t enough to carry the day in a video game landscape that is increasingly tapping into nostalgic sentiment like re-releases of Final Fantasy VII and XII.
For investors of both Activision Blizzard (NASDAQ:ATVI) and Electronic Arts though, there is still a lot of profit to go around. With the 4th quarter looking like a strong one for the industry, EA can still bank on the success of Madden NFL 16 as a crowning achievement. Battlefront wasn’t a sales slouch as the #3 game on Black Friday, it should be noted, but it appears as though the real Star Wars thrust will fall on Disney banking the huge box office projections rather than EA. The game has had a few patches recently, and should still entice players now that the movie has been released, so there is still room for EA to capitalize on the franchise, and overall holiday performance was enough for Cowen to raise the EA stock price target to $79/share, a 15 percent increase. Activision got a similar 15 percent target bump to $44/share, though First Call is suggesting a more modest 7.5 percent upside to $41.46/share, which is still very good for a company that has nearly doubled in value since the beginning of the year.
Gaming Stocks Like EA & ATVI Look Good
It’s increasingly clear that one can’t go wrong with video game investments this year, and there is likely more to come in 2016 with virtual and augmented reality moving center stage, but it also shows that nostalgia and movie tie-ins have their limits when it comes to the power of the purse, and a recognizable brand isn’t enough when the contents fail to deliver on the promise and the memories of fans.
You know, like the prequels. For now, things look good for EA and Activision, with a potential upside for both the stocks.