Video Games Kick Axe
By Rick Aristotle Munarriz
January 18, 2008
Fake guitar axes are replacing video game controllers.
The one-two punch of Rock Band and Activision's (Nasdaq: ATVI) Guitar Hero III finds the video game industry raising its lighter -- or illuminated cell phone, to keep it current -- at the air-guitar pretenders fueling the sector's strength.
Neither title outsold Microsoft's (Nasdaq: MSFT) Halo 3, but collectively, they represent a much more powerful trend than the popular Xbox 360 shooter.
For starters, folks aren't just plunking down $50-$60 for a video game. They're paying $100 for Guitar Hero III with the guitar. Prices go as high as $170 for Rock Band, which features a microphone and four-pad drum set in addition to the string-free six-string.
It gets better after that. Everyone knew that Activision's entry would be huge, since Guitar Hero is the established brand. Rock Band -- created by Viacom's (NYSE: VIA) Harmonix (Guitar Hero's original creators) and distributed by Electronic Arts (Nasdaq: ERTS) -- was the bigger unknown. Would gamers pay three times the typical video game ransom for a faux band experience?
They have. More than 1 million copies of the game have been sold since its debut two months ago, according to market-watcher NPD Group. More importantly, an additional 2.5 million songs have been digitally downloaded. The game comes packed with dozens of songs, unlocked as you advance through the game. However, players are also paying as much as $3 for additional tunes.
Episodic installments will be a real driver for the industry over the next few years. When Take-Two Interactive (Nasdaq: TTWO) puts out Grand Theft Auto IV later this year, the real gravy train will come from future digitally delivered chapters. No inventory to stock. No returns to wrestle with.
Software developers work on thick margins to begin with. The future will get even better. Sure, the 2.5 million songs sold for Rock Band pale in comparison to the 4 billion tracks that Apple (Nasdaq: AAPL) has sold since launching its iTunes Music Store. And that's OK. This is really just the beginning for Rock Band. As far as opening acts go, it really does know how to rock the house.
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