Last month, Take-Two Interactive (TTWOBuy and Focus List) released ESPN NFL 2K5 under a co-publishing arrangement with Sega of America. The game was released on PS2 and Xbox, at a retail price of $19.95. It received average ratings of 91.8% on Xbox and 89% on PS2, according to website
www.gamerankings.com, placing it on solid footing to compete favorably with industry Goliath Electronic Arts (ERTSBuy) Madden NFL 2005, priced at $49.95. Although the more popular Madden NFL game received higher rankings (both versions at 93%), the differences in rankings are minor, and all four games are ranked in the top six highest scores for their respective platforms for the
year-to-date.
We initially learned of Take-Twos plans to compete with EA in June. The company announced that it would copublish and distribute all Sega ESPN Videogames sports titles for a multi-year period. At the time, we were skeptical that Take-Twos participation would materially alter Segas distant second place ranking as a sports game publisher.
Notwithstanding Take-Twos announcement that the games would be aggressively marketed and value priced, we were pessimistic that any of the ESPN titles would gain significant share of the sports video game market. We also expected Electronic Arts to respond with more aggressive marketing of its titles. As of today, it is too early to
determine the extent to which Electronic Arts intends to respond.
Take-Twos first salvo in its quest to gain market share was its decision to launch ESPN NFL 2K5 on July 20, three full weeks before the scheduled release of Madden NFL 2005. Last years Sega entry, ESPN NFL Football, was released on September 3, 2003, three weeks after Madden NFL 2004, and the games first month sales (according to NPD
Funworld TRSTS data) totaled only 195,000 units, compared to Maddens 1.75 million unit launch in August 2003. While we expected price elasticity to drive higher ESPN NFL sales at release, especially given the pre-emptive launch, the 792,000 units sold over the first 12 days of release astounded us (we had expected 300,000 units). Our channel checks reveal that sell-through for the game has remained quite strong over the last two weeks, and we expect Take-Two to record sales of at least another 600,000 units in August.
It is difficult to determine (or quantify) the impact that the value priced ESPN games will have on Electronic Arts. We expect other titles (ESPN NHL 2K5 is due out on August 30, ESPN NBA 2K5 on October 5, and ESPN College Hoops 2K5 on November 16) to compete for market share with Electronic Arts titles (NHL 2005 is due on September 22again three weeks after Take-Twos title, with NBA Live 2005 due on October 5, and NCAA March Madness 2005 due on November 2). Suffice to say, the surprising popular reception for ESPN NFL 2K5 has caused us to rethink whether that game and other ESPN video games will have strong sales over the balance of the year. If sales are strong, we think that some portion of the sales strength is likely to come from market share losses by EA.
Our initial thought is that the value pricing of ESPN games will expand the market. We believe that there are many consumers who would not consider purchasing an EA Sports title for $49.95, but who would be intrigued by the opportunity to purchase a similar game at $19.95. However, this analysis is far too simplistic, as it implies that EA sells all of its games at premium prices. In fact, while all Madden titles in calendar 2003 generated a total of $233 million in U.S. retail sales (according to NPD), $25 million of this amount represented older versions of the game sold at reduced prices. More significantly, Madden 2004 held premium pricing through June, 2004 (10 months after
release), in spite of the fact that Segas NFL game was discounted to approximately $30 in February. While we expected sales of this years ESPN NFL games to be higher than last years level, we did not anticipate the tremendous consumer response to Take-Twos marketing and aggressive pricing campaigns.
