For this week's edition of "Game On," The Fly spoke with SunTrust analyst Matthew Thornton on a variety of gaming subjects, including the upcoming earnings season for big publishers, cloud gaming, and more.
NEW CONSOLES: Both Microsoft (MSFT) and Sony (SNE) are rolling out brand-new gaming consoles next month, and all the major publishers, namely Electronic Arts (EA), Activision Blizzard (ATVI), and Take-Two (TTWO) will have new games available on the new systems. When asked which publisher he thinks will benefit most from the launch of the PlayStation 5 and Xbox Series X, Thornton told The Fly that it's "hard to say" since bundles haven't been announced yet, though he noted that all will likely benefit over the course of the new console generation. "The one call that you probably might make...given that 'Halo Infinite' has been pushed back to next year, you could argue that Activision’s new 'Call of Duty' has some more shelf time to itself in that genre," the analyst said. "So there’s probably a positive call out there.”
“Take-Two doesn’t have a lot new coming this go-around," Thornton said about the upcoming holiday season. "They’ve got 'NBA 2K,' but their 'Grand Theft Auto' title will be re-released for next-gen next year. EA will have next-gen versions of its sports titles this year, but their non-sports frontline releases are light this year, meaning they don’t have a 'Battlefield' or something like that. So it really comes down to Activision who will have their “'Call of Duty' this year. Like I said, not only do they have 'Call of Duty,' but what would have been their primary shooter competitor was pushed out to next year.”
EARNINGS: The SunTrust analyst said he expects all of the "big three" U.S. publishers to have a "good earnings performance" for the quarter, though Activision Blizzard is the only that seems "most interesting" in that regard. "They had two smaller games, 'Tony Hawk' and 'Crash Bandicoot,' that we believe have tracked well. They will have, of course, a new 'Call of Duty' coming out. They just dropped a whole lot of content for their 'Call of Duty Mobile' game. Finally, you’ll have 'World of Warcraft,' with a big expansion coming later in the quarter as well.”
M&A: With Microsoft agreeing to acquire "Fallout" and "Doom" publisher Bethesda for $7.5B, The Fly asked if Thornton anticipates any other major M&A in the video game sector. “It’s a question a lot of people are asking," he said. "If you talk to the various publishers, there isn’t a lot out there of scale that you can really buy. The caveat to that is that there’s not a lot you could buy that’s at a tenable valuation. Think about Activision, Take-Two, and EA: they tend to be fairly disciplined acquirers. If you think about what’s out there and available that would be of scale, meaning would actually move the need for them: Bethesda’s off the table, Ubisoft (UBSFY) doesn’t want to be sold.”
The analyst noted that CD Projekt (OTGLY) is also "very hard" to acquire right now ahead of the launch of "Cyberpunk 2077," and since AT&T (T) no longer is putting Warner Bros. Interactive on the market, the pool of available M&A targets has gotten "pretty small, pretty quickly." "There’s not a ton you can do," he added.
GAME PASS: Electronic Arts announced recently that EA Play, its own gaming subscription service, will be coming to Xbox Game Pass, Microsoft's gaming subscription service. When asked if other big publishers intend to make their games available on subscription services going forward, the SunTrust analyst said that it doesn't make sense for companies like Take-Two and Activision to put frontline titles into a subscription service, though it "makes sense" for older games.
“I tend to find myself more in the camp of Take-Two and Activision with the belief that it doesn’t make sense to put frontline titles into a subscription [service]," Thornton said. "For catalogue, I think it makes a ton of sense, and you've seen most of these studios and publishers participate, and I think you’ll continue to see them participate. But for frontline content, I think it sets a dangerous precedent. So I think they’ll continue to hold back there.”
STREAMING: When asked if major publishers should be looking to make cloud gaming and streaming a bigger part of their strategies going forward, Thornton said he doesn't know that there's a rush to be on platforms such as Google Stadia (GOOG) or Microsoft's xCloud right away.
“I don’t know that there’s necessarily a rush to need to be on the [streaming] platforms upfront," the analyst said. "If you’re putting your content on that platform, and the platform performance just isn’t quite there, the user experience is not outstanding, [you may not] want to be associated with that kind of experience. Xbox and PlayStation are multiple generations in, well-honed, and you know the experience you’re getting.”
“A lot of platforms are going to throw a lot of economics at the publishers to get content up on that platform, so there’s a balancing act there," he added. "But I don’t think there’s really any need to rush things there. I think they’re going to look to see how the platforms perform, what the user experience is like. Everyone kind of knows where the puck is going longer-term, and there’s going to be a fight among the various platforms. We’ve got two incumbents who are clearly going to try and position themselves, and you’ve got challengers in Amazon (AMZN) and Google who are going to certainly try and do what they need to do to push themselves to be one of the key, dominant platforms.”
"Game On" is The Fly's weekly recap of the stories powering up or beating down video game stocks.
