Fueled by hit franchises, gaming biz soars 49%

A summer full of sequels (“Spider-Man,” “Shrek,” “Pirates,” et al.) helped propel the film biz to a tidy 5% jump in revenue so far this year.

That’s not bad, but it’s nothing compared to the 49% revenue growth for the videogame biz, which has soared to $10.5 billion as of October. Even excluding the hefty coin from console hardware (which has no equivalent in the film world), games sales alone are up 27% from the same period in 2006, to $5 billion, according to the NPD Group.

When it comes to sequel-itis, the film biz is clearly in the shadow of vidgames. Five of the top 10 movies this year are sequels — but in vidgames, it’s nine of the top 10, and 17 of the top 20.

So does that mean three of those bestsellers are based on fresh ideas? Not really. “Cars” and “Transformers” are based on hit movies and the success of the third, “Wii Play,” is widely attributed to the fact it comes with an extra controller for Nintendo’s bestselling console.

“The videogame industry is very sequel-reliant,” notes NPD analyst Anita Frazier. “It’s easier to forecast revenue and allocate resources toward franchises with a proven history and then use that umbrella of properties to support any new ventures.”

Aside from the spectacular stats, the vidgame sequels have one more huge advantage over their film counterparts: Their budgets don’t balloon from the predecessor editions.

Year-to-year box office increases are at least partly attributed to higher ticket prices. That’s not the case with vidgames. Pure unit sales are up 10% year-to-year — thanks in part to the release of new consoles and partly to the vagaries of any media business.

It’s not just the publishers that rely on franchises. They’re particularly important to the three major console manufacturers — Microsoft, Nintendo and Sony — which count on their self-published franchises to help drive console sales.

By investing heavily in “Gears of War” or “Mass Effect,” the theory goes, Microsoft can better convince gamers to buy an Xbox 360 so that they will be able to play the inevitable follow-ups.

While vidgame sequels overwhelmingly outperform originals, it’s not simply a matter of popularity: It’s just that very few top-tier original titles are released each year — much fewer than in movies and TV.

Only a handful of new vidgame properties, including “Bioshock,” “Crackdown” and “Lost Planet,” have been solid successes thus far in 2007, though none is a chart topper. Several recent originals, like “Rock Band,” “Mass Effect” and “Assassin’s Creed,” could turn out to be hits before the year is done.

It’s worth noting, however, that all of those games are designed to spawn sequels if they’re successful. Unlike Hollywood, virtually every new vidgame is designed to spawn sequels. The idea of a “Beowulf” or “300” — big movies with no chance of turning into a franchise — is unheard of in the vidgame biz.

“In videogames, unlike movies, the expectation is that almost everything we put into development will make it to production and should have a good shot at being a commercial success,” says Philip Holt, general manager at EA’s Tiburon Studio, home of the “Madden NFL” franchise.

“That forces us to gravitate toward games that have, or could have, a fan base that clamors for more and more.”

Among vidgame publishers, in other words, the action is all in the franchises. And the results show on their bottom lines:

  • Activision recently upped its guidance and saw a 14% jump in its stock last week based almost exclusively on boffo sales for “Guitar Hero 3″ and “Call of Duty 4.”

  • Microsoft turned “Halo 3″ into one of the biggest entertainment launches of the year, earning more than $170 million on its first day, primarily from gamers who reserved copies ahead of time. The game has thus far sold 5 million units worldwide and is the bestselling title this year in the U.S., even though it’s only available on one console.

  • Red-hot Nintendo has built its business in large part on three franchises, each more than 20 years old: Mario, Zelda, and Metroid. “Super Mario Galaxy,” the latest of more than 50 games that have prominently featured the tubby little plumber in one form or another, sold more than 500,000 units in its first week on sale in the U.S.

  • Electronic Arts has two vidgames in the top 10, both of which share a very similar title. “Madden NFL ’08,” the 19th entry in Electronic Arts’ perennial football powerhouse, is No. 2, while “Madden NFL ’07,” released in August of last year, is No. 10.

  • Many observers have pointed out that one of the reasons Sony’s Playstation 3 has been selling poorly is that sequels to several of the franchises most associated with the Playstation brand, including “Metal Gear Solid,” “Grand Theft Auto,” and “Killzone,” aren’t coming out again until 2008.

In any media biz, execs like franchises because they provide predictability and opportunities for spinoffs, merchandising, and other ancillary revenue.

In the film biz, however, costs tend to escalate rapidly. The first “Spider-Man” cost $140 million to produce, the second $200 million and “Spider-Man 3″ at $258 million, according to estimates.

In videogames, that’s not the case. Most major game franchises, in fact, are made at the same studio with largely the same team of developers year after year.

Yes, some game producers and designers get big bonuses and raises, while the developers have to keep raising the technological bar. But that’s nothing compared to the ballooning effects that budgets and star salaries have on a summer tentpole.

“There are definitely economies of scale from using the same group of experienced people, the same engine, and repurposing some assets,” explains Tracy Williams, marketing manager for THQ’s successful WWE vidgames, which come out every November. “It takes a significant investment to start, but ultimately, (franchise sequels) can be a little cheaper than other games.”

With the cost of top-tier games now often exceeding $20 million, vidgame publishers are more conservative than ever, which makes original properties even rarer.

But while that’s coming true on the shelves of Best Buy, there’s a countervailing force. Thanks to digital distribution, there are more opportunities for inexpensive, so-called “casual” games that can be downloaded to a PC, console, or mobile phone. Nintendo’s low-powered Wii and DS are also significantly less expensive to develop for than the 360 and PS3, making it easier to take some risks.

“There will always be those big blockbusters, but the mobile phone and the Web and Wii are offering business models that aren’t so daunting,” says EA’s Holt. “That may open up new opportunities for creative exploration.”

(Pamela McClintock contributed to this report.)

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