Video Games Are the New Blockbusters

by Brad Moon | November 19, 2013 2:07 pm

Video Games Are the New Blockbusters

Disney (DIS[1]) spent $300 million on Pirates of the Caribbean: At World’s End, the costliest movie ever produced. For that investment, the studio collected nearly $150 million at the box office on opening weekend, en route to a $963 million worldwide gross.

Sounds impressive, but believe it or not, video games often do better.

The budget for Grand Theft Auto V hit $265 million, but when it was released in September, the game quickly justified Take Two Interactive’s (TTWO[2]) investment with an $800 million launch day. After just three days on shelves, sales passed the $1 billion mark, faster than any video game — or movie — in history.

Video games are the new blockbusters.

The Glitz and Glamour of Gaming

Movies might have a red carpet premiere, but video games are getting into the release hype business too. Long, snaking lineups outside of stores have become common at retailers like GameStop (GME[3]) and Best Buy (BBY[4]), which open after regular hours specifically to release highly anticipated games. Activision’s (ATVI[5]) Call of Duty: Ghosts launch on Nov. 5 was one such blockbuster. Some 15,000 stores worldwide stocked more than $1 billion in copies of the game[6], opening their doors at midnight to meet demand.

Hollywood actors are increasingly in on the action, lending their voices to video games. Liam Neeson, Emma Stone, Christopher Walken, Martin Sheen — those A-listers are among names you can find on a game console. Mark Hamill may have risen to fame as Luke Skywalker in the original Star Wars movies, but his voice acting — particularly his 19-year role as The Joker in various shows and games ending with 2011′s Batman: Arkham City game — has been the core of his career ever since.

Consumers are willing to fork over $60 for a video game because they can get tens and even hundreds of hours of entertainment out of it. The single-player mission of a typical game might last 10 to 20 hours, and often much longer when you include side quests. Add in multiplayer capability — especially via online services like Microsoft’s (MSFT[7]) Xbox Live — and that one $60 game can provides months of play, plus the opportunity to socialize virtually.

You can’t say the same about your $10 movie ticket or $20 DVD.

The next generation of video game consoles will take realism, immersion and interactivity to new levels. Next-gen consoles have roughly eight times the processing power of the current Xbox 360 and PS3. That means smarter artificial intelligence, more lifelike animation and the ability to render detail like lighting effects in an ultra-realistic fashion. Advanced cloud integration and online capabilities mean the potential for huge worlds to explore, populated by other players and advanced AI characters.

Meanwhile, Microsoft’s new Kinect motion sensor includes infrared capability, and its camera is powerful enough to track a user’s heartbeat.

MSFT is launching the Xbox One on Nov. 22, starting at $499. Sony’s PlayStation 4 just hit U.S. shelves Nov. 15 at $399. Besides the rush to grab one of the powerful new boxes, expect the holiday season to kick off a flood of new blockbuster games.

Launch titles should see big numbers as new console buyers stock up on games compatible with their new systems, and publishers are salivating at the prospect of a whole new cycle of gamers rebuilding their libraries. Since its 2007 launch, 4,332 games have been released for the PS3[8] alone, and because those game discs aren’t compatible with the new console, PS4 owners will be starting their game collection from scratch.

Show Me the Coins

Despite growing expenditures, blockbuster video games continue to offer wider margins than their film counterparts.

The cost of developing a title has increased significantly from the days when a single programmer could churn out a video game. According to game publisher Ubisoft (UBSFY[9]), an average title for the current generation PS3 or Xbox 360 costs in the $20 million to $30 million range[10] to produce, and it expects that average cost to hit $60 million for the PS4 and Xbox One. The MPAA stopped releasing production stats in 2009, but even back in 2007, it reported the average movie cost $107 million[11]. Movies remain significantly more expensive to make than video games.

You can see the math in action when you look at the record holders: Adjusted for inflation, the top five highest single-day grossing entertainment properties are video games; the top five most expensive productions are movies.

EntertainmentKings Video Games Are the New Blockbusters
Click to Enlarge

Movie studios will be looking forward to big releases over the holiday season. For example, The Hobbit: The Desolation of Smaug – with a $250 million production budget — is hoping to repeat the success of last year’s installment in the film series, which sold $85 million in tickets its opening weekend.

But the movie will be competing for entertainment dollars with recently released billion-dollar video game titles, along with launch titles for the new consoles such as Killzone: Shadow Fall for the PS4 and Crimson Dragon for the Xbox One.

When the numbers are finally tallied, video game industry might have the happier holiday.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Endnotes:
  1. DIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DIS
  2. TTWO: http://studio-5.financialcontent.com/investplace/quote?Symbol=TTWO
  3. GME: http://studio-5.financialcontent.com/investplace/quote?Symbol=GME
  4. BBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBY
  5. ATVI: http://studio-5.financialcontent.com/investplace/quote?Symbol=ATVI
  6. 15,000 stores worldwide stocked more than $1 billion in copies of the game: http://www.digitaltrends.com/gaming/call-duty-ghosts-sells-1-billion-launch-day/
  7. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  8. 4,332 games have been released for the PS3: http://www.vg247.com/2013/11/06/ps3-sales-pass-80-million-worldwide-4332-titles-on-system-to-date/
  9. UBSFY: http://studio-5.financialcontent.com/investplace/quote?Symbol=UBSFY
  10. costs in the $20 million to $30 million range: http://www.edge-online.com/news/ubisoft-development-costs-double-next-gen/
  11. even back in 2007, it reported the average movie cost $107 million: http://articles.latimes.com/2009/apr/01/business/fi-cotown-mpaa1

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