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$49.60 -1.92 (-3.73%)
5/16/2008 4:00 PM

Electronic Arts, Inc. (ERTS)

CAPS Rating:
***

The Company develops, markets, publishes and distributes interactive software games that are playable by consumers on video game consoles, personal computers, mobile platforms and online.

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Avatar Tastylunch (86.20) Submitted: 12/05/07 2:41 AM : Underperform Start Price: $54.52 ERTS Score: 5.46

Activision's recent merger with Vivendi is a huge negative for EA. Suddenly they are no longer the top US video game publisher and investors tired of a slow start to the new product cycle are impatient with EA. There will be tremendous pressure on EA to acquire Ubisoft (it already owns a 20% stake). That move would likely a very hard and expensive fight as Ubisoft's management has shown indications that they would be very hostile to a buyout.

EA's top franchises are mostly licensed properties, another disadvantage in their competition vs ATVI whose top properties are soley owened IPs.

EA's dominance in the sports game market also has come at hefty price as the exclusivity contracts for their NFL property didn't come cheaply and they lost rights to MLB for their MVP Baseball franchise.

With no new big hit IP's in the immediate future (your guess is as good as mine as to when Will Wright will finally deliver Spore) look for EA to lag as they may have to acquire a big company to stay competitive and investors look for hotter video game investments.

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Avatar SewellMarbury (51.82) Submitted: 1/02/08 1:38 PM

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They have much better franchises than ActiBlizzard. There is room for both in the same market.

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Avatar Tastylunch (86.20) Submitted: 1/03/08 4:14 AM

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You may be right about there being room in the market for both, video game holiday sales looks they performed better than I expected. That being said I disagree about the franchises

EA 's top franchises are for the most part licensed IPs (Madden, NBA live, NHL and their other sports titles,) and while they have a near stranglehold on sport game market they paid so much to get those licenses that it eats into their profitability.

As for their non-sports titles they tend to be hit or miss

I'd say their top non sport franchises are the the Sims, SimCity, Medal of Honor, Battlefield, Command and Conqueror,Rock Band ,Crysis and Need for Speed,

compare that to ActvisionBlizzard's Call of Duty, Warcraft, World of Warcraft, Starcraft, Tony Hawk, Guitar Hero, Diablo, Spiderman, Spyro the Dragon, World in Conflict and Transformers

the real prize here is World of Warcraft, which continues to generate enormous amounts of revenue for blizzard. EA doesn't really have a comparable property, the Sims is the closet probably to it but it's not subscription based like WOW is. Wow as of july 2007 had over 9 million active players each paying roughly 13-15 US dollars per month. That's a ton of reliable revenue. Do the math and you'll see that in 5-6 months Wow generates more revenue than the SIMS 2 (which has sold 13 million copies) has since inception and that's not counting the price you pay for the game or its expansion packs themselves. And unlike EA's Lucrative Madden series ActivisonBlizzard doesn't have to pay anybody for the rights to the game as it's their solely owned IP.

so EA does have more titles when you factor in their sports titles but at this point in time I think Activisions' stable is likely to be more lucrative. I'm counting on a bear market for 2008 though for this thumbsdown pick. If the market rallies EA will probably do alright, it's not a bad company afterall. ActivisionBlizzard is just better in my opinion at least for the short term.

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