Video Game Giants Are Letting Go

The past few days haven't been kind to video game developers. Industry watcher Gamasutra is reporting that THQ (Nasdaq: THQ  ) is closing down several of its game studios and scaling back its payroll at others.

The news comes just days after Electronic Arts (Nasdaq: ERTS  ) announced that it will eliminate 500 to 600 jobs, after posting a wider quarterly loss and hosing down its near-term guidance.

Video gaming seemed as if it would be able to scrape by in this dicey environment. GameStop (NYSE: GME  ) has been posting spectacular store-level performance. Take-Two Interactive (Nasdaq: TTWO  ) even set a record for the fastest-selling video game of all time with its springtime release of Grand Theft Auto IV.

Steep console price cuts from Microsoft (Nasdaq: MSFT  ) and Sony (NYSE: SNE  ) have spurred a run on hardware, which naturally bodes well for software purchases as we head into the juicy holiday season.

However, the industry is clearly worried. Two major players don't begin hacking at their payrolls if they want to flood the market with new games over the next few quarters. The trend will be more problematic if Activision Blizzard (Nasdaq: ATVI  ) warns of lukewarm sales of its new Guitar Hero: World Tour game, but that's unlikely to happen. Then again, the company does report earnings tomorrow night, so the industry's new bellwether will be baking under the spotlight as analysts weigh every word out of the company.

Until GameStop's comps start slipping or the companies behind this year's winning titles -- Activision and Take-Two among them -- begin watering down expectations, we can view the THQ and EA layoffs as isolated events.

Activision Blizzard, don't fail us now.

Other games to play:

Microsoft is a Motley Fool Inside Value pick. Take-Two Interactive Software is a Motley Fool Rule Breakers recommendation. GameStop, Electronic Arts, and Activision Blizzard are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz knows that his household can't be blamed for the industry's weakness. He owns no shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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  • Report this Comment On November 05, 2008, at 2:54 PM, gaucho420 wrote:

    Luke warm sales of Guitar Hero could happen, as it has not gotten good reviews, while Rock Band has.

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