NW & RBL This may explain some of the weakness in Electronics Boutiques.......guilt by association, perhaps. Additionally as we enter the Feb to July time frame we get into the slow time of year
Best Regards,
Mad2
Copyright 2000 The Financial Times Limited
Financial Times (London)
January 19, 2000, Wednesday London Edition 1
SECTION: COMPANIES & FINANCE: UK; Pg. 28
LENGTH: 744 words
HEADLINE: COMPANIES & FINANCE: UK: Games players lose out to the dread foe - market forces: Lara Croft et al face 'Game Over', thanks to the life cycles of consoles and supermarket discounting, warns Gautam Malkani:
BYLINE: By GAUTAM MALKANI
BODY:
For much of the past year, the pneumatic image of the virtual heroine Lara Croft has gripped the imagination of not only computer game players but also more than a few investors.
Eidos, the software developer behind the Tomb Raider games that feature Ms Croft, was one the eight best performing stocks in the FTSE 250 last year, rising almost sixfold.
But the sudden deflation of the company's share price following yesterday's surprise profits warning has raised doubts not only about Eidos but the computer game industry and its cyclical nature.
News of Eidos' misfortunes followed on the heels of last week's downbeat statements from retailers Electronics Boutique and Dixons, which offered damage reports from a recent price war on computer game products.
Some of Eidos' problems are company-specific with delays in the development of some titles and weaker-than-expected sales of some games - the aptly titled Urban Chaos, Nomad Soul and Abomination.
The problem of dwindling sales is common to game retailers, publishers and developers. And relief looks unlikely in the near future.
"We are not expecting a wildly successful year this year," says Nick Gibson, an analyst at Durlacher. "But we anticipate the market for 2001 to pick up sharply."
While computer games designed for PCs have largely seen steady growth, the overall market has ebbed and flowed along with the precarious fortunes of video games designed for specific gaming consoles.
Throughout the past decade, demand dried up as consoles matured, only to be reinvigorated by fresh hardware based on new technology.
"The cyclicality is built in to the hardware because it is not upgradeable," says Mr Gibson. "If hardware manufacturers released something every year, the market and user base would be frag mented. Developers and publishers would not develop products."
Today, the main problem stems from the simultaneous ubiquity and obsolescence of Sony's PlayStation. Launched six years ago, more than 70m PlayStations have been installed worldwide, accounting for some 40 per cent of Sony's turnover last year.
A successor - PlayStation 2-is scheduled for later this year. "I think PlayStation 2 will start a new product cycle, generating very large volumes of sales," says Isabelle Payet, at Sutherlands.
For retailers, the maturity of PlayStation has caused an additional headache. Supermarkets and other retailers have tried to obtain a quick foothold in the games market by discounting PlayStation software.
But because use of the console is so widespread, this discounting has corroded overall margins for specialist retailers.
It is hoped the launch of PlayStation 2 and other consoles will help alter retailers' mix of software sales.
"Electronic Boutique's outlook depends on the timing of PlayStation 2," says Tim Steer, at Merrill Lynch.
"Any delay in the launch is bound to mean a discounted market lasts longer."
The recent launch of the rival Sega Dreamcast made greater inroads into living-rooms and bedrooms than was expected - with its installed base approaching 3m.
However, while a steady stream of fresh consoles offers a way out of the misery - an "extra life" in gamespeak - few analysts believe it will be enough in the long term.
"Price deflation is the feature of the market going forward so they've got to find a way of circumventing that," says Ms Payet.
The same goes for the cyclicality.
To make matters worse, it takes about two years to develop a game - creating a hi-tech version of the classic predicament faced by farmers of slow-growing crops; trying to keep up with changes in demand.
However, analysts say the industry is in an increasingly better position to smooth out the peaks and troughs of the game consoles' cycle.
The key lies in increasing the life expectancy of the hardware. Although dated now, the market for PlayStation lasted longer than had been expected.
Mr Gibson points out that as consoles begin to function as set-top boxes for decoding digital television and internet access, so their life expectancy and installed base will grow.
And even when consoles do die out, manufacturers have managed to guard against a repeat of the 1994-95 trough - when the Super Nintendo and Sega Megadrive became obsolete at the same time - by launching hardware in a more staggered fashion.
The industry is not yet heading relentlessly towards those familiar, soul-crushing words: "Game Over".
LANGUAGE: ENGLISH
LOAD-DATE: January 19, 2000 |
