Publishers Paying to Play
Posted on Monday, May 22 @ 07:03:05 Eastern
By Lora Kolodny
The long wait for new video game consoles from Sony and Microsoft hit game publishers' profits hard last year. Consumers put off purchases of current-generation items, and overall sales for the industry dropped 5% to $7 billion, according to research by the NPD Group.
Several Wall Street analysts expect further overall sales to decline through this year.
Investors now are asking if game publishers can maintain operating margins (and return some value to shareholders) as the steep costs of developing and marketing titles for new systems hit the balance sheets ahead of a market revival.
One illustration of the rising costs is Electronic Arts, which in the quarter ending March 31 recorded operating expenses of $372 million and operating income of $33 million. That was up from spending $320 million in the same quarter a year ago for an operating income of $30 million. In its most recent quarter, EA spent $188 million on research and development, compared with $161 million a year ago. For the period, EA saw a net loss of $16 million, down from an $8 million profit a year ago.
Take-Two Interactive, makers of "The Da Vinci Code" game, recorded lower year-over-year operating expenses of $104.5 million for the period ending Jan. 31. Take-Two's spending declined $3.3 million year-over-year but the company also went from a $72.8 million profit to a loss of $48.8 million.Take-Two spent $51.8 million on software development through third-party studios alone, and internal software development costs for games it had yet to release spiked to $88.4 million for the quarter.
To allay some costs, the firm recently opened offices in Shanghai, which will afford Take-Two access to less expensive art production and code writing talent, sector analysts said.
Globalization is a common practice in game publishing: Ubisoft, based in Paris, has major production studios far from its headquarters in Canada and China, for example.
THQ Inc. struggled with the decision to again outsource the development of a top-selling franchise, "WWE SmackDown vs. Raw," after bringing the game's development in-house for a time. But the firm this month, having justified royalty payments, again partnered with the original, outside creatives that helped it launch the title.
Harris Nesbitt video game analyst Edward Williams said this month that the future looks bright, despite the higher development costs.
"It is possible -- with a fair amount of help from a growing installed base of hardware -- that operating margins in the next cycle can surpass that of the last cycle," he wrote, noting that the consoles also will make in-game advertising revenue and higher-priced games a possibility for publishers.
Courtesy of The Hollywood Reporter
|
| Content on this page was provided by Action Trip and was not written by, nor does it express the opinions of the Game Revolution staff. |
|
|
REVIEWS
PREVIEWS
VIDEOS
FEATURES
CHEATS
SCREENS
COMMUNITY
RSS FEEDS
