Baird Equity Research E3 Wrap-Up

Analyst Sebastian Colin of Baird Equity Research noted in his E3 wrap up that there were few catalysts from the annual event and more questions were raised than answered on the direction of the industry in 2012 and beyond. He noted that most of the games from the big players were "well polished" and should sell "well." The firm's biggest concern seems to be with Sony, who may struggle with the PS3 and Vita in the year ahead. Their opinion on Nintendo remained mostly neutral because key factors like a release data and pricing were not revealed at the show, though they appreciated seeing more of the Wii U GamePad's uses. They also had good vibes for Microsoft’s SmartGlass.

Colin expects a late-2013 launch of new consoles and price cuts for current-gen hardware later this year, which he considers "necessary to drive new console sales among value-oriented consumers." He also said that Microsoft indicated that its subscription pricing for the Xbox 360 was successful by expanding its $99 deal to Best Buy and GameStop – of course it should be noted that they expanded outside the Microsoft Store because it only has 16 locations in the United States.

On next-gen hardware they predict modest gains in speed and graphics, but a keener focus on integration with other platforms (mobile, web, etc.) and more flexible software pricing models (free-to-play, micro transactions).

The firm also sees the social game slowdown as a temporary thing as developers "expand into new types of games." They also note that the word on the street is that some developers are shifting focus to mobile platforms and casual game websites. The firm recently lowered its estimates for Zynga based on that slowdown, although the company will provide a glimpse into its pipeline at a June 26 media event.

Finally, Colin notes that EA is predicting a bullish industry perspective. At its analyst meeting, executives outlined a multi-year industry growth outlook for the next console cycle and a transition into digital. EA expects industry sales to grow from $30 billion in 2012 to $40 billion in 2015, driven by new consoles and the transition to online distribution. Currently the firm puts its rating on EA at neutral.

Baird Equity Research seems to be in line with the man on the street when it comes to E3. While the event wasn't a flop this year, the level of excitement towards the biggest players seems to be mostly subdued. While Nintendo showed off more of the Wii U, the slate of game offerings didn't include any new IP's worth talking about (save some interesting third-party stuff) and left its biggest brands out of the loop (Zelda, Mario, Metroid, etc.). Microsoft showed off SmartGlass and Halo 4 but the rest of its presentation (save third party titles) was kind of boring; and Sony showed off some great new games (new God of War and Last of Us) but seemed to mostly ignore the PS Vita. The soup of the week is cream of apathy.

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