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Game Makers Looking to Ring in Holidays With Strong Digital Sales

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11/08/2019 | 02:04pm EST

By Sarah E. Needleman

Videogame companies are planning to lean further on high-margin digital sales this holiday season, as more consumers ditch discs for downloads and publishers find creative ways to generate revenue from their biggest hits long after release.

Activision Blizzard Inc., Take-Two Interactive Software Inc. and Electronic Arts Inc. all raised their end-of-year guidance for revenue and net bookings in recent weeks, citing stronger-than-expected consumer spending. The December quarter, which is typically the largest revenue-generating period for these companies, is expected to show continued demand for digitally delivered content.

Game makers are organizing special events inside their blockbusters and adding new features to keep players engaged. For example, Electronic Arts late last month brought new factions, maps, weapons and vehicles to "Battlefield V," the most recent installment of the company's nearly two-decade-old war franchise.

"The holidays will also be a busy season for players in our live services," Electronic Arts Chief Executive Officer Andrew Wilson said on last week's earnings call, referring to spending that occurs after a game has launched. "Our communities will all have new content and new experiences to dive into during the holiday quarter." The company also forecast the holiday quarter to be one of its biggest for net bookings, an important measurement of industry revenue.

While Take-Two expects revenue to fall year over year due to a lighter release slate, it forecast growth in spending inside its videogames. That is because people can spend money on virtual perks in its existing hits such as "Grand Theft Auto Online" and "NBA 2K20" any time.

"The business as a whole is overperforming," Take-Two CEO Strauss Zelnick said in an interview Thursday.

In the latest quarter, digital sales made up roughly three-quarters of net bookings for Take-Two and Activision Blizzard, both companies said Thursday. Last week, Electronic Arts said more than 60% of net bookings came from digital purchases.

"This is a trend we've seen happening for the last several years," Stephens analyst Jeff Cohen said. "It's having a positive impact on margins."

Investors also want to see these companies boost margins. Share-price growth in all three companies has lagged behind the broader Nasdaq Composite Index this year, in part because analysts have raised concerns about their ability to lift profits.

This year, the major publishers are again serving up just a handful of mostly sequels and spinoffs for the holidays, continuing a decadeslong pattern that analysts attribute to rising development costs. They say publishers are investing in more advanced technology and talent to create beefier and higher-quality games.

With tentpole games now commanding budgets of around $100 million or more, up from single-digit millions in the 1980s, analysts say big publishers view original properties as a major risk, just like in sequel-heavy Hollywood for movies. "Franchises have built-in audiences with proven customer loyalty," said Jefferies analyst Alexander Giaimo. "They're a much safer play."

For those big-budget holiday releases, Take-Two introduced a sequel to its decade-old Borderlands franchise in September while Activision Blizzard put out a new installment of its 16-year-old Call of Duty franchise last month. Next week, Electronic Arts is expected to launch its latest Star Wars-themed game, a franchise that has already been licensed for dozens of games over the last four decades.

The major game publishers are also pursuing opportunities to boost revenue through new channels, such as Stadia, a cloud-gaming platform launching later this month from Alphabet Inc.'s Google.

Electronic Arts also said last week it is growing its digital subscription business. The company ended the quarter with about 5 million subscribers on EA Access, a service that allows people to play a collection of games through Microsoft Corp.'s Xbox One and Sony Corp.'s PlayStation 4, up from 3.5 million in July. The service is also expected to launch on the popular game-download store Steam in the spring, Electronic Arts said.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
ACTIVISION BLIZZARD -1.09% 51.95 Delayed Quote.11.55%
ALPHABET -0.08% 1297.21 Delayed Quote.24.14%
CBS CORPORATION -3.62% 37.76 Delayed Quote.-13.63%
DJ INDUSTRIAL 0.00% 27691.49 Delayed Quote.18.66%
ELECTRONIC ARTS INC. -0.06% 96.33 Delayed Quote.22.08%
MICROSOFT CORPORATION 0.66% 147.07 Delayed Quote.44.80%
NASDAQ 100 0.27% 8263.788728 Delayed Quote.30.43%
NASDAQ COMP. 0.26% 8486.09056 Delayed Quote.27.73%
S&P 500 0.16% 3091.84 Delayed Quote.23.14%
SONY CORPORATION 1.26% 6767 End-of-day quote.31.45%
TAKE-TWO INTERACTIVE SOFTWARE, INC. -0.55% 118.99 Delayed Quote.16.23%
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EBIT 2019 2 083 M
Net income 2019 1 229 M
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Yield 2019 0,65%
P/E ratio 2019 36,7x
P/E ratio 2020 31,6x
EV / Sales2019 6,29x
EV / Sales2020 5,56x
Capitalization 43 230 M
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