Analyst: Deflating Music Genre To Play Flat Notes For Activision

Sales of Beatles: Rock Band and Guitar Hero 5 fell short of expectations, and now one analyst says weakening numbers may mean the music genre might be faltering -- and less able to play hero for Activision's revenues. Pre-orders for Activision's DJ Hero aren't trending favorably compared with expectations either, says Cowen Group analyst Doug Creutz. "Our previous estimate had been for combined Guitar Hero 5, DJ Hero, and Band Hero U.S. retail sales of $408 million through December. We now estimate total sales of $199 million, slightly more than a 50% decrease," he says. Earlier this year, Creutz, along with many other analysts, predicted the music genre could resist the "fad" label and sustain, thanks to newer and more diverse SKUs -- like DJ Hero. The result should have been at least flat growth for Activision in the music sector. But according to Creutz, casual and mass market game sales have borne the brunt of the recession's impact. "While the core gamer side of the business has held up relatively well, sales of other titles with mass-market appeal have been impacted, particularly on the Wii (which was a key platform for Guitar Hero)," he says. "We saw this with Madden NFL 10 (unit sales down 13 percent year over year-to-date) and we believe the impact has beeneven more pronounced with the music genre." As concerns Activision's market-dominant presence in the genre, The Beatles: Rock Band took more market share from Guitar Hero 5 than Creutz anticipated. "We had thought that a title focusing on a single band would necessarily sell fewer units than a title featuring multiple bands and appealing to a broader variety of tastes," he says -- apparently, when that one band is arguably the most popular of all time, the rules don't apply. And it seems trend-ism has indeed dented the Guitar Hero franchise, Creutz adds: "We probably underestimated the extent to which the 2007-08 peak in Guitar Hero unit sales was driven by the extreme amount of buzz around the product," he says. "In retrospect, Guitar Hero III likely attracted a lot of one-time buyers (that have not returned for subsequent franchise installments) due to its ‘it-game’ status at the time." All this combines to weaken the prospects for upcoming turntable game DJ Hero, says the analyst. "As a result, we are reducing our estimate for DJ Hero Q4 U.S. unit sales from 1.6MM to 600K, and we are reducing our first year estimate from 2.5MM to 950K," Creutz says. "We still believe that DJ Hero will be an important part of Activision Blizzard’s music franchise strategy, but we think it may take a few versions of the game for it to reachits full market potential -- similar to the original Guitar Hero," he concludes.