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How Next-Gen Video Games are Changing the Industry

By Callum Turcan - Oct 5, 2013 at 8:00AM

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This is the time of year blockbuster games are released and some are already breaking new records, but whole new franchises that could be the next big thing are just around the corner.

File:XBoxOnePoster.jpgFile:PlayStation Four.png

Source: Wikimedia Commons

As the holiday season fast approaches all the big game developers release their best, trying to set new records and draw in new gamers. With the upcoming release of the Xbox One and PS4, game developers are creating a whole new line up of franchises to revolutionize the industry and create new billion dollar hits.

Grand Theft Auto V is flying off the shelves and setting new records, hitting $1 billion in sales three days after its launch. This beats Activision Blizzard's (NASDAQ: ATVI) Call of Duty Black Ops 2, which had sales of $1 billion in 15 days. Take-Two Interactive ( TTWO 0.00% ) is poised to reap even larger rewards, as the full game has only just been released.

More to come
The multiplayer, which came out recently , should provide a bump in sales. Gamers are now able to play together in 16 player modes, and it is rumored GTA may release 32 player modes in the future.

To expand GTA V further, Take-Two is going to release several downloadable packages that gamers can purchase online. When that downloadable content (DLC) is released, then Take-Two will be able to keep capitalizing on the game's record-breaking sales.

Take-Two is using more than DLC's to push up revenue, though; it also is going to create an online micro-transaction marketplace for GTA. Gamers will be able to purchase in-game items on their credit cards, which will provide Take-Two with an additional way to make money after each sale of the game.

SuperDataToday, a digit goods analyst, predicts that GTA V's DLC will bring in $165 million and micro-transactions will bring in an addition $41 million. This of course could surprise to the upside due to the overwhelming demand for the game.

However there is a giant lurking around the corner, planning on building out new franchises come 2014 to compete with Take-Two.

The giant
Activision has a major catalyst coming up: the next reiteration of its Call of Duty franchise, Call of Duty Ghosts, which will run on both the next-gen and current-gen consoles.

So far 24.65 million copies of Call of Duty Black Ops 2 have been sold , which puts it a little behind Activision's best selling game ever, Black Ops (two CoD's ago).

In Activision's latest quarter management said second quarter sales saw strong levels of engagement and digital sales, which points to gamers still being very interested in the game. The record digital sales are promising because Call of Duty has 4 different DLC packages that each cost $15, or a season pass that costs $50. If more gamers buy the DLC's then it's almost like Activision is selling 2 copies of the game to those customers.

The downside to Call of Duty is that it is somewhat plateauing, and will need to either find growth elsewhere or hope that next-gen consoles drive sales higher.

One way Activision is finding growth is with Skylander's. Skylander's has generated over $1.5 billion in life time sales since debuting in October 2011. Sales have really started picking up in 2013, with over $500 million in sales coming in the last 7 months. Skylander's will be one of Activision's major sources of growth going into the holiday season. 

Activision has also signed a deal with the maker of Halo, Bungie, to make a game called Destiny, which will be launched in 2014. Activision sees this potentially being another $1 billion-plus game, which could provide Activision with another franchise to help the business grow for years to come. 

One company is seeking to dethrone Call of Duty, and its about to launch the game almost a week before Call of Duty Ghosts, which comes out on Nov. 5.

One more competitor
On Oct. 29 Electronic Arts ( EA 0.88% ) will launch Battlefield 4, and expectations for the game are high. Battlefield Bad Company 2 sold 6.74 million copies , and the installment after that, Battlefield 3, sold 16.12 million copies . This points toward gamers increasingly taking to the Battlefield franchise and could help justify some expectations for Battlefield 4 to outsell Battlefield 3 and put a dent in Call of Duty.

Electronic Arts is also trying to build out a new franchise that is being created by two of the minds behind Call of Duty. Titanfall is being released in Spring 2014, and the reviews are very bullish for EA. IGN called it the "next big thing in gaming," and the reviewer compared how excited he is for Titanfall to when Halo 2 was about to come out. Titanfall has a good chance of being a solid title that draws in a crowd that's tired of game publishers releasing reiterations of the same game.

Final thoughts
All of these game publishers have big catalysts coming up for the holiday season, but what really matters is growth. Take-Two has a good chance to really outperform this holiday season as GTA breaks records and creates more GTA content to profit from.

Activision has shown that it can create other billion dollar franchises, but for shares to really outperform, the company needs to show that it can create another big first-person shooter hit. If Bungie can deliver like it did with Halo then this stock is a good long-term buy.

EA's Battlefield 4 offers a lot of potential for the stock as sales could potentially top 20 million, and if you add in DLC sales then EA will see very strong earnings growth. I'm bullish on EA in the midterm, and if Titanfall becomes a hit them it could be a good long term investment as well.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Electronic Arts Inc. Stock Quote
Electronic Arts Inc.
$123.67 (0.88%) $1.08
Take-Two Interactive Software, Inc. Stock Quote
Take-Two Interactive Software, Inc.
$161.38 (0.00%) $0.00

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