Electronic Arts Inc. (
EA
)
recently announced that it will launch a new downloadable content
(DLC) pack for
Mass Effect 3
. The new DLC known as
Mass Effect 3: Extended Cut
can be downloaded for free on
Microsoft's (
MSFT
)
Xbox 360,
Sony's (
SNE
)
PlayStation 3 and personal computers this summer.
Developed by BioWare, the Mass Effect series is one of the most
successful franchises for the company with over 7 million copies
sold to date. However, the latest version faced severe criticism
because of its inconclusive ending. The new DLC expands the story
of the original game, adding a new dimension to the ending; and EA
hopes that it will be able to woo back dissatisfied customers.
So far, EA has always benefited from the launch of DLCs for some
of its famous franchises. In the last concluded quarter for
instance, DLC along with mobile and other handheld devices were
responsible for much of EA's digital revenue growth. EA's DLC and
free-to-play micro transaction content shot up 86.0% year over year
to $123.0 million in the last quarter.
Electronic Entertainment Design and Research (EEDAR), a video
game market research firm, estimates that given the increasing
popularity among the Xbox 360 and Play Station 3 console owners,
DLCs will generate $1.0 billion in sales in 2012. EA, with its
famous franchises and timely content pack releases, is likely to be
one of the chief beneficiaries.
However, some gamers remain dissatisfied with the continuous
launch of DLCs, as they believe that DLCs are being used by gaming
companies such as EA to exploit them. They have blamed video game
companies of intentionally holding back game content, which they
later on release as DLCs to garner additional revenues. Most
recently, EA was voted the worst American company of 2012,
apparently for these practices in an annual contest organized by
the Consumerist.com.
Although this negative publicity may hurt EA's subscriber base,
we nonetheless believe that EA will continue to launch DLCs of its
popular franchises going forward. We believe that EA's high-quality
titles and a robust product pipeline along with the increasing
online exposure and traction in the social and mobile gaming market
will not only offset any near-term dissatisfaction among its
subscribers, but will also boost top-line growth over the long
term.
However, we remain cautious on EA due to the sluggish consumer
spending, dismal video game sales and increasing competition from
its peers such as
Activision Blizzard Inc. (
ATVI
)
. Activision has some of the famous franchises of the gaming
industry in its kitty, which makes it a strong contender for the
top spot in the billion dollar DLC market going forward.
Considering these factors, we have a Neutral recommendation on
EA over the long term. Currently, EA has a Zacks #3 Rank, which
implies a 'Hold' rating in the short term.
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EA
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MSFT
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