Videogame beat goes on, but muted

Industry worries as gamers tire of music titles

Are videogamers getting tired of rocking out?

Just a few months after music games like “Guitar Hero” and “Rock Band” were being hailed as red-hot, many industry watchers are questioning whether the titles have already peaked, apparent victims of a tough economy, high pricing and possible oversaturation.

And the music biz, which has been relying on such games as a new source of licensing revenue and as a useful promo vehicle, is starting to worry, too.

Fall’s highly anticipated “Rock Band 2” and “Guitar Hero: World Tour” have sold well below expectations, trailing their 2007 editions by significant margins. Activision’s “World Tour” has thus far sold 1.5 million units domestically, an impressive number compared to most games, but down 55% from “Guitar Hero III,” which launched on the exact same day last year. MTV’s “Rock Band 2” has moved only 809,000 copies.

The past few months have also seen a number of competitors for “Guitar Hero’s” throne arise, including Disney’s “Ultimate Band,” Konami’s “Rock Revolution” and Nintendo’s “Wii Music,” all of which have seen soft to disastrous sales.

December sales data comes out Jan 15, but there’s no indication any of the music titles will have jumped up the sales charts.

For the year, music is still the best-selling vidgame genre, repping a sizable 16% of revenue according to the NPD Group. But after a very strong first eight months, the trend is moving in the opposite direction. Musicgame revenue was down 6% in November despite the growing number of titles, with “Guitar Hero” and “Rock Band” off a more sizable 12%.

The decline has flummoxed vidgame execs because in their industry, sequels almost always sell better. Activision Blizzard has staked much of its future on growing “Guitar Hero” as a franchise, a strategy that involves annual sequels and frequent spinoffs. But with “World Tour” repping the fourth installment in as many years, along with spinoffs like “Aerosmith,” “On Tour,” and “Rock the ’80s,” some observers question whether “Guitar Hero” has grown faster than demand, particularly since each iteration reps only a modest change.

“I do believe the music and rhythm category is definitely here to stay, and it will always have a large and loyal market base,” analyst Jesse Divnich of Electronic Entertainment Design and Research recently wrote. “I believe, however, we may have seen a peak in sales from the category.”

Boredom may not be the only problem, however. Thanks to their instrument peripherals, “Guitar Hero: World Tour” and “Rock Band 2” retail for $190, more than triple the price of an average videogame.

In the midst of a recession, that’s a major impediment to potential new buyers, as well as existing fans who might decide they’re not ready to spend $200 for an upgrade when they’re worried about losing their job.

While “Guitar Hero” and “Rock Band” are selling solidly, they’re no longer topping the charts and appear unlikely to save the biz from its recessionary woes.

“We can’t count it out,” notes analyst Ben Schachter of UBS, “but (‘Guitar Hero’) almost certainly won’t be the growth driver it has been over the past two years.”

The most positive sign for both gamemakers and diskeries has come in downloads — the new songs that “Guitar Hero” and “Rock Band” players purchase to play in the games. Though retail sales are slowing, the growing base of fans has kept download sales strong. So far, “Guitar Hero” players have downloaded 25 million songs online, while “Rock Band” players have purchased 30 million.

Though the revenues from downloadable purchases, each of which costs about $2, aren’t close to those from game sales, insiders say they’re becoming significant — and not just for Activision and MTV. That money is split between the game publishers, distributors Sony and Microsoft, the diskeries and music publishers.

Just as in most media, however, digital revenues aren’t yet close to supplanting physical products. And videogame publishers still have a lot of coin invested in the latter for the coming year.

Activision has said it plans to double the number of “Guitar Hero” games it releases next year, starting with a “Metallica” edition in March. The biggest gamble will be MTV’s “Rock Band” spinoff featuring the Beatles, due next holiday season, for which it is reported to have shelled out a record breaking amount of money.

If gamers don’t get their rhythm back, 2009 could be a hard day’s night.

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