Pachter's Podium: Sony 'Trying to Salvage Home' and Gears 3 'Being Held Back' by XboxThere have been a lot of interesting news developments to talk about of late. In this month's "Pachter's Podium" we talk to the Wedbush Securities analyst about Deus Ex and GameStop, Sony's free-to-play push with PlayStation Home, the standoff between Valve and EA regarding Steam, Gears 3 sales and more.
IndustryGamers: Deus Ex has been getting great reviews and seems to have strong backing from Square Enix. Do you think it has what it takes to become a big commercial hit? And do you think the GameStop OnLive scuffle had any effect?
Pachter: I suppose the answer depends on what you mean by "big". The game will do well, and will likely sell around 2 million units, maybe a tad more, but that's hardly a "big" hit. The last one sold under 1 million, so this one is a vast improvement, and people genuinely seem to love the game. I really like the developers, and am glad that review scores were solid, so I hope that my forecast is conservative and they knock it out of the park. If anything, I think that GameStop's behavior will help sales, since it put the game in the spotlight for a few days.
IG: What are your thoughts on Sony's free-to-play push with PlayStation Home? Do you think the core console industry will move more and more towards that model and away from the $59.99 pricing?
Pachter: I think Sony is trying to salvage Home. It was a lame idea at its inception, and although they have done a first-rate job with the offering, most gamers can't figure out why they want/need to hang around in a virtual lounge instead of playing actual games. Sony's answer: give them some games to play while they hang out in the lounge. It makes a ton of sense, except for the lounge part. I think people would be just as happy with free games on PSN, and if they could bypass Home to get to the free games, most would probably do so.
As far as whether the core industry will move "more and more" towards the free-to-play model and away from $59.99 pricing, I suppose the technically correct answer is "yes", insofar as "more and more" means any measurable amount. Full-priced games will continue to comprise 60% of sales each year, with the rest catalog and free-to-play. Maybe that declines to 59.99% of sales (pun intended), so free-to-play will capture "more and more" of the market. My off the cuff answer is "no way", as I think core game prices are seeing hidden increases by the creation and promotion of "must have" DLC and the introduction of premium subscription services like Call of Duty Elite.
IG: Gears 3 is launching in less than 3 weeks, and like previous games will be 360 exclusive. You've already estimated 10 million units sold for the game, but do you feel the franchise is being held back by being an Xbox exclusive? Could it do Call of Duty like numbers if it were multi-platform?
Pachter: Yes, Gears 3 is being held back by being an Xbox 360 exclusive, and no question that the game would sell a greater number of units if it were multiplatform. I think it's safe to take the final Xbox 360 total and multiply by 1.6 or so (that is my estimate of the number of core shooter gamers on both platforms), consistent with the ratio for Call of Duty. So the answer to your last question is yes, it can do Call of Duty-like numbers... if we are comparing to Call of Duty Modern Warfare 2.
IG: Who will sell more in the holiday period (calendar Q4) - Xbox 360 or PS3 with its new low $249 price point?
Pachter: That's a close call. IF Microsoft does nothing, I think PS3 will outsell Xbox 360. However, my friends at Microsoft are extremely proud, and they absolutely refuse to tolerate the possibility that the PS3 will outsell the Xbox 360. I think they have the ads printed for the Xbox 360 price cut, and will drop them on us the instant they see PS3 sales greater than 360 sales. In the meantime, I think we'll see a reduction in the price of the Xbox 360/Kinect bundles (similar to Wal-Mart's "goof" last weekend), and Microsoft will use that to keep the PS3 at bay until they decide whether to match price for the console only.
IG: What's your take on the ongoing standoff between EA and Valve over EA's games on Steam? Do you think this hurts EA or Steam more?
Pachter: EA and Valve potentially will compete, but so far, EA is only publishing EA games on Origin. It isn't clear to me that they intend to publish third party games, but it is clear that they intend to keep all profits from EA's PC game downloads for themselves. They have an ulterior motive; they are intent upon growing their "digital" business, and PC downloads are part of this business. They have a couple of PC games this fall that should perform quite well--Star Wars: The Old Republic and Battlefield 3--and I think that they expect meaningful sales from downloads.
Given that their digital business overall was $833 million last year, the download of 1 million units of each game would drive a 10% increase in digital revenues, nothing to sniff at. As far as competition with Valve, it remains to be seen whether Origin will offer downloads of third party games. However, EA Partners has a number of titles in development, including 38 Studios' Reckoning and Copernicus, so we might see an outreach to other PC developers in the future.
