Saturday, December 22, 2012

NFL Labor Dispute May Kill ‘Madden’ Video Game

Even when business lags, Electronic Arts (NASDAQ:ERTS) can rely on the Madden NFL video game franchise. This past year marked the game�s 22nd anniversary and it still has lost no cache with devoted fans.

Madden NFL 2011 was the second best-selling game in the U.S. last year, beat only by Activision Blizzard’s (NASDAQ:ATVI) Call of Duty: Black Ops.

But will EA and its shareholders have to live without Madden NFL? The looming labor lockout in professional fooball could potentially hit the game maker�s business harder than it will News Corp.’s (NYSE:NWS) Fox television network and its advertising customers.

While Madden NFL 2012 will come out this August, it will likely do so without the support of NFL marketing or the updated player rosters and team information that make the perennial franchise entries so alluring to returning users. EA CEO John Riccitiello said during his company’s fourth-quarter earnings call two weeks ago that EA is prepared for the worst — no NFL season in 2012.

Speaking with website Gamasutra, Wedbush Morgan analyst Michael Pachter said that EA’s plans might not be enough to weather the storm if the worst comes to pass. “[The] hardcore will buy it because it will have all the new features,� said Pachter, �But the irregular buyers probably won�t.� He expects Madden sales to drop by at least 50% if there is no season this fall.

The NFL is moving fast to provide insurance for EA. The specifics of the deal have not been revealed, but SportsBusiness Daily reported Tuesday that the NFL has significantly reduced the licensing fees on EA’s contract with the league, and also extended the game publisher’s exclusive use of the NFL license into 2013. NFL business ventures chairman and Jacksonville Jaguars owner Wayne Weaver said that the decision is intended to “give our partner relief in the short term but [so they] gain something in the back end.”

This is cold comfort to EA’s shareholders. Madden is a lynchpin in EA’s 2011 strategy — a pillar that holds up the rest of its business. While the franchise was outperformed by the FIFA soccer franchise last year — FIFA sold 11.5 million copies worldwide — the lack of a World Cup competition guarantees that franchise won’t see a repeat performance this year.

While other game titles like Dead Space 2 and Bulletstorm (shooters in the Call of Duty mold) and adventure titles like Dragon Age 2 will perform well, EA needs Madden to at least match its 5.5 million sales from 2010 in order to keep its home gaming business healthy. The company’s mobile business on Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) Android handhelds in conjunction with its social gaming outlets like Pogo, though strong, are simply not enough to make up for the lost revenue.

Investors considering a gamble on EA shares should keep the NFL labor dispute squarely in their focus.

At the time of publication, Anthony John Agnello did not own a position in any of the stocks named here.

No comments :

Post a Comment