Last Thursday, ATVI released Call of Duty: Modern Warfare 2. First day sell through was 4.7 million units, according to the company, or $310 million worth, in the US +UK. By the same time this week, sales could be over $700 million. ATVI is calling this “the biggest launch in history across all forms of entertainment.” It comes as the US and UK are only starting to crawl out of the biggest economic downturn of a generation.
Before I go any further, I should say that I own ATVI stock. It has been a so-so performer vs. my expectations for it. That’s because, I think, investors are worried about overall retail spending and about the future viability of the shrink-wrapped game software business. I think these fears are understandable, but misplaced as far as ATVI is concerned. But that’s a story for another day.
Call of Duty: Modern Warfare 2 illustrates three characteristics that I think will show themselves to be true throughout the holiday season,namely:
1. People are able to spend. They won’t buy indiscriminately, as they did during better economic times, but if they see something they really want, they’ll find money for it.
2. Buyers of MW2 are mostly male and mostly under 35 years old. The first attribute isn’t that important, I believe, but the second is. Video gamers are generally not high-cost fifty-something workers who are prime targets for downsizing. They’re also not worrying about what the stock market has done to their retirement nest eggs. I think consumers under 40 will be much more liberal holiday spenders than their older counterparts.
3. The tide won’t lift all boats–but it will lift some. Witness the performance of ATVI’s rival ERTS. When demand is strong, the number one firm in an industry won’t be able to fill all orders promptly (if at all), so some sales overflow to the second- and third-tier market entrants. In bad times, there is no overflow, so sales revert to the industry leader. This holiday season it appears the tide is not going to rise very much. But beneath the surface there will likely be a sharp differentiation between winners and losers.
The next data point may well come from another ATVI game, Tony Hawk Ride, which launches today. The game costs $120 and includes a simulated skateboard, which players “ride” and help perform the tricks the game requires. To me it seems a neat, if unusual idea. But will potential buyers be put off by the price?