Analyst: E3 Could Bring Wave Of 'Positive Momentum' For Game Industry

Wedbush Morgan analyst Michael Pachter says next week's E3 could bring a wave of "positive momentum for the video game industry" to help turn around what's been a tough year. "After a difficult year in the video game industry, next week’s E3 Electronic Entertainment Expo has the potential to turn the tide of investor concerns and start a wave of positive momentum for the video game industry for the rest of 2010." His firm expects industry sales to increase in the latter half of this year partly due to Microsoft and Sony's respective motion controllers, which will likely serve as a focal point for both companies' media briefings at E3. "The much-hyped Natal and Move motion controllers have the potential to drive meaningful incremental hardware and software sales upon their releases, and the entire video game industry will be anxious to see whether the new devices are game changers or gimmicks," says the analyst. He continues, "Microsoft is expected to provide the permanent name for the Natal device, and display the full range of games that will be available for the device. We do not expect pricing to be resolved at E3, and think that Microsoft continues to weigh the lifetime value of a new Natal customer against the profits that can be made by the initial hardware sale." While Pachter foresees Natal and Move serving as the highlights for the show, he says Nintendo's upcoming 3DS system could steal the show, though very little is still known about its technology. He also notes that Nintendo may announce price cuts for its other various DS models, following announced reductions for the portable hardware in the UK and Japan. Sharing his Sony predictions, he says the platform holder could unveil a premium, subscription based PSN service allowing access to PSN titles, among other key announcements: "Sony may also announce the 2011 release of the touch-screen PSP2, and the release date for the PS3 system update that will allow the console to play 3D games and videos." As for software, the analyst says shooters will attract the most attention from fans and the media due to the popularity of titles like Call of Duty: Modern Warfare 2 and Battlefield: Bad Company 2, as well as recent headlines for studios like Infinity Ward, Respawn Entertainment, Bungie, and Insomniac Games. "Call of Duty: Black Ops, Gears of War III, Halo: Reach, and Medal of Honor will lead a group of highly-anticipated shooters that will also include Bulletstorm, Crysis 2, Dead Space 2, and Ghost Recon: Future Soldier," he predicts. "Assassin’s Creed: Brotherhood, EA SPORTS Active 2.0, Fallout: New Vegas, Gran Turismo 5, Legend of Zelda 2010, Metroid: Other M, Pokemon Black and White, and WWE SmackDown vs. Raw 2011 will attract attention as well. We may also get greater detail on Electronic Art’s MMO Star Wars: The Old Republic, due out in 2011." While Pachter says the first half of 2010 offered several gems in terms of software releases, he argues that the titles that will be shown off at E3 and are scheduled to debut during the latter part of the year have the potential to drive significant growth compared to previous sales periods. "We expect industry sales to increase in the latter part of the year due to the motion controllers (which will boost hardware and software sales incrementally), high-profile software titles (particularly for shooters), and easy software comps (an average of -14 percent from May through December, with September’s +5 percent the only positive)," says the analyst.