It's the End of "Guitar Hero" As We Know It

Games are like fashion: One day you're in, and the next day you're out.

After another quarter of disappointing sales, video game giant Activision Blizzard (Nasdaq: ATVI  ) has officially disbanded its Guitar Hero business unit and deep-sixed the Guitar Hero title under development for a 2011 release. Making great games just isn't good enough when fresh ideas become aged fads. As publishing chief Eric Hirschberg puts it: "Despite a remarkable 92 rating (out of 100) on DJ Hero 2, a widely well-regarded Guitar Hero: Warriors of Rock, as well as the 90-plus rated release from our most direct competitor, demand for peripheral-based music games declined at a dramatic pace."

It looks like add-on downloads will continue, at least as long as they're making money. Other than that, Guitar Hero is dead.

To add a bit of anecdotal evidence, the Guitar Hero 5 boxes at my local Target (NYSE: TGT  ) store still have stickers on them proclaiming an included Guitar Hero: Van Halen coupon. That was a launch-day promotion -- the game still hasn't sold out the original shipment from the summer 2009. And so it goes.

Harmonix tried to breathe new life into the genre with Rock Band 3 and honest-to-goodness stringed guitars, but Viacom (NYSE: VIA  ) sold the studio into private equity for its trouble. It's the end of a multibillion-dollar era, people. I'm a diehard rocker myself, but even I'm not sad to see the music games go.

But don't cry for Activision: The Call of Duty and World of Warcraft franchises are making money hand over fist, since military action and strategy games have much longer legs than the faddish music genre. Though the bottom line looks sad with a $233 million GAAP net loss, Activision recorded $993 million of operating cash flows in the holiday-flavored fourth quarter. That cash-juicing power puts fellow industry giant Electronic Arts (Nasdaq: ERTS  ) to shame, though Nintendo (Pink Sheets: NTDOY.PK) still is the plumpest cash cow in the business.

To find out more about the video game industry and who will dominate this $91 billion business in five years, grab a free report titled "Top 2 Plays for the Coming Tech Boom." You won't be sorry.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Activision Blizzard and Nintendo are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended a synthetic long position on Activision Blizzard. The Fool owns shares of Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On February 10, 2011, at 1:28 PM, junaidfarooq wrote:

    Finally an over-hyped and over-valued Company getting smashed! Fools has almost a perpetual buy on this dead cat.

  • Report this Comment On February 10, 2011, at 2:45 PM, esxokm wrote:

    Maybe I'm completely, utterly wrong to even ask this, but is ATVI a possible buy if it goes lower, say under $10? After all, it probably isn't going to disappear.

  • Report this Comment On February 10, 2011, at 2:57 PM, sept2749 wrote:

    I think ATVI was over -hyped too and maybe over valued as well. Why is it a perpetual buy? Frankly, if I didn't read your hype I would never have bought a video game stock as things in that industry tend to change suddenly.

  • Report this Comment On February 10, 2011, at 5:57 PM, 123spot wrote:

    Come on, guys above. No one @ MF ever recommends you buy anything without your own DD-- so don't bite back when it doesn't work out for you one afternoon. Courage, my friends. I continue to hold and follow the stock . That's because I still see potential in an innovative company with a large cash balance and the future ahead of it changing everyday. I think ATVI will change with the future until it gets it right in a big way (? military simulator training for drones, mass casualty incident drilling or what about interactive toys for a tailwind to our flagging educational system, the possibilities are endless) and the stock is cheap for a moonshot.

  • Report this Comment On February 11, 2011, at 12:35 AM, newageinvestor wrote:

    As soon as this stock recovers enough for it to get out of the loss category for me I'm dumping it and putting my money into a different industry. SA rec or not, I don't like its volatility and lackluster performance for too many years. I think my money is better spent elsewhere

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