Monday evening, Motley Fool Stock Advisor selection Electronic Arts (NASDAQ:ERTS) announced that it would cut the prices of its key EA Sports simulators -- Madden NFL 2005, NBA Live 2005, NHL 2005, and NCAA Football 2005 -- for the holiday season. As Frank Bibeau, EA's senior vice president of marketing, said in a press release, "This is great news for mainstream sports fans."
But this is pretty awful news for investors.
Last month, we discussed the mainstream sports simulator battle between EA Sports and Sega (see Sega vs. EA Sports). In the past, Sega had been known for its high-quality sports games using Disney's (NYSE:DIS) ESPN brand, as well as its World Series Baseball games. The problem was that, despite their quality, Sega could not sell the games against EA Sports' ubiquitous brand and marketing power. So beginning this past summer, Sega and new publishing partner Take-Two Interactive (NASDAQ:TTWO) decided on a new approach to challenging EA's Madden NFL, selling brand-new ESPN games at a value price of less than $20 a pop.
What's most telling about the announcement is that the games involved are in only the sports where EA competes with Sega. Beginning today, Madden NFL 2005, NBA Live 2005, and NHL 2005 will be sold for only $29.95 -- previously unheard-of for EA Sports games this early in the holiday season. NCAA Football 2005, which still dominates Sega's offering, will face a more subtle markdown to $39.95.
To date, EA said, it has sold more than 4 million copies of Madden, more than 2 million copies of NBA Live 2005, and "close to two million copies" of NCAA Football 2005.
But how much should investors really fret? The frontline NFL fans are already in the books, and now -- in the middle of the football season -- seems like a good time to price down and steal the marginal business. We already knew that EA anticipated fallout from Sega's pricing -- not to mention the NHL lockout -- when it released NBA Live last month at $39.95 while offering a "buy two, get one free" deal on EA Sports games. Plus, with highly anticipated super games such as Take-Two's Grand Theft Auto, Microsoft's (NASDAQ:MSFT) Halo 2 (released today), EA's Need for Speed Underground 2, Sony's (NYSE:SNE) Gran Turismo, and Konami's (NYSE:KNM) Metal Gear Solid 3 hitting the shelves this holiday season, more than any other year before, EA Sports faces major competition for video-gamer dollars.
I think that, perhaps for the first time, EA Sports is starting to show some real competitive vulnerability. That said, with all the big-name titles on the market, maybe it's not such a bad idea that EA present its games as impulse buys this year.
Fool contributor Jeff Hwang owns shares of Electronic Arts.
