Pachter's Podium: EA Won't See Buyout Offers Until Stock Over $30

It's time for another edition in our ongoing monthly Q&A series with analyst extraordinaire Michael Pachter. The Wedbush Morgan analyst this month answered questions about the state of PC retail gaming, a DS successor, EA as an acquisition target, the impact of cloud computing services, and yes, he brings up Wii HD yet again.

IndustryGamers: Reports were that the PC version of Modern Warfare 2 sold as low as 170,000 copies its first month; how much do you think it did digitally and does this signal that PC retail is 'finished'?

Michael Pachter: I think that part of the reason the number is so low is that PC gamers are increasingly relying on Steam. I haven’t checked to see if CoD MW2 was available on Steam, but my perception is that the download option captures something close to 50% of PC game sales, so the U.S. numbers may be somewhat distorted. Also, the online experience is quite robust on the PS3 and 360, and I think that most people bought the game for the online game play. I wouldn’t say that PC gaming or PC retail is finished, just diminished in importance.

IG: Iwata was apparently quoted as saying that there's a more powerful, motion detecting successor to the DS in the works. Nintendo is trying to act like this quote never happened, but how likely do you think that it's true? 

MP: It’s been over five years since the DS launched, and the only innovations have been a slimmer version, the addition of a low resolution camera, and now a big screen version. It’s unlike Nintendo to go this long without a gameplay innovation, and my guess is that they have something planned for launch within the next 12 – 18 months. A motion sensing DS is quite logical, given the success of the iPod Touch as a gaming device. I presume that they will give us something with the memory and controls of a DS and the fun motion sensing chip included in the iPod Touch, and assume it is for launch in the fall.

IG: EA had to recently slash its fiscal outlook and the stock took a hit. Do you think that the publisher's become a takeover target for some of the big media companies?

MP: It is possible that EA’s misfortune signals a media company’s opportunity, but most big companies have trouble buying companies when they are down. Unless there is a competent team within the media company that can be relied upon to capture the value of the target, getting a deal done is difficult. If a media company bought a video game company and lost money, the CEO of the purchaser would come under pressure for making a bad deal. That’s why Disney waited to buy Marvel until it was doing well, despite several opportunities to buy it cheaper over the past few years. I think that most media companies will be inclined to wait to make a bid on EA until the company hits its goals, and don’t think we’ll see an offer until the stock is over $30.

IG: Will cloud-based services like OnLive or Gaikai have any real impact on the market in 2010? 

MP: Cloud based services won’t have a financial impact on the market in 2010, but they will have a technological impact. If the new services provide an opportunity for the publishers to distribute their content without requiring a console or any other fancy hardware, they make games more accessible. It’s not clear what the OnLive or Gaikai business models will be, so it’s hard to say if they will be a better value than buying packaged products. By the beginning of the next console cycle, they will likely be a cheaper option, and should gain a lot of traction.

IG: Let's make a prediction - what do you think will be the biggest surprise for the game industry this year?

MP: I think the biggest surprise will be the introduction of the Wii HD.