Pachter: Activision Facing Tough Rock Battle

Following the release of Activision's record holiday quarter results, Wedbush Morgan's Michael Pachter has expressed some doubt whether the company can indeed raise its revenues in the forthcoming fiscal year, particularly due to increased competition from MTV and Harmonix's Rock Band. As previously reported, Activision is particularly focused in the coming year on increasing its European marketshare for Guitar Hero, and reasons it can significantly increase revenues but upping overseas Guitar Hero sales to its average 30 percent international split. Pachter, however, isn't as convinced this will be as nominal a task as Activision reckons. "For the calendar year, we estimate that Guitar Hero sales were approximately $650 million in the U.S. and $150 million in Europe," he said. "We acknowledge that the international market has the potential to absorb another $650 million in music-themed games over the coming year," he continued, "but believe that the market is likely to be split among sequels to Guitar Hero and Rock Band, as well as among new products to be offered in the coming year." Pachter says the publisher is unlikely to generate much more than $350 million for the franchise overseas in the coming year. "This is an impressive figure," he adds, "and certainly would reflect impressive international growth for the brand. However, given that our estimate reflects Guitar Hero revenue growth of only $200 million for the year, we think it is important to look at the rest of the company's lineup to determine whether growth in FY:09 is likely." Because holiday and ongoing sales of Call of Duty 4 have raised the bar so high, and because future Guitar Hero releases will likely be disc only, rather than hardware bundles, not to mention the increasing pressure from Rock Band, Pachter says "We believe that the success of its lineup this holiday creates a formidable hurdle to revenue growth." "Because we think that increasing competition in the music-themed genre is likely," Pachter concludes, "we think it is aggressive to model that the company can grow publishing revenues next year," instead predicting an 8 percent decline for fiscal 2009.