BMO: Next-Generation Future Will Bring a Sustained Period of Growth

With E3 over, equity research firm BMO Capital Markets offers its perspective on all the big players and the industry as a whole going forward. According to BMO analyst Edward Williams the video games industry has earned an overall rating of "outperform." In a note to investors Williams says that the interactive entertainment industry is on the cusp of a "period of sustained growth."

Williams comes to this conclusion based on the press events this week at E3 which fully revealed two new consoles and a healthy line-up of games for them.

"We expect the adoption of these new consoles, coupled with continued growth of mobile platforms and PC/web gaming, to lead to a period of sustained top-line growth for the global category and margin expansion for most of the interactive entertainment companies within our coverage universe."

He says that these new consoles launching later this year will give the sector a serious boost, and that the $100 price differential between the Xbox One ($499) and the PlayStation 4 ($399) opens the door for Sony to have a "stronger launch window than we otherwise would have expected."

Williams has come to the conclusion that GameStop’s used business is in less peril than was previously feared as well.

"The main take-away for us – is that those that want to engage in used games (either through the selling of used games, or the purchase of used games) will have an opportunity to do so – though specifics remain somewhat unclear. The issue to focus on, in our view, is not whether or not consumers will be able to buy and sell previously owned disks – the issue is will consumers engage in more digitally distributed content."

Franchises coming for the next-generation that impressed BMO: Battlefield 4 (EA), Call of Duty: Ghosts (Activision), Halo (Microsoft), Assassin’s Creed IV: Black Flag (Ubisoft), and Batman: Arkham Origins (Warner). New IP that has the potential to be hits included Titanfall (Electronic Arts), Watch Dogs (Ubisoft), Destiny (Activision), Tom Clancy’s The Division (Ubisoft), The Last of Us (Sony), Beyond: Two Souls (Sony), Dying Light (Warner), and Quantum Break (Microsoft).

While optimistic about the sector, BMO is looking for more information such as launch dates for both consoles. Williams predicts that Xbox One will launch before Black Friday, with the PS4 releasing in early December.

"We believe the next major time period for details could come at the end of August (at Gamescom) or in early September."


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