Game Makers Not Impacted By PS3 Delay

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The delayed release of Sony 's PlayStation 3 won't likely impact major game-software companies, according to an industry expert.

PS3 is now scheduled for simultaneous release in November 2006 in North America, Europe and Japan.

This timetable seems to represent a delay for the launch of the PS3 in Japan, which Standard & Poor's Equity Research analyst Gary McDaniel expected in late-spring, but is on-track for the U.S. and Europe for November.

Sony's Ken Kutaragi apologized for the delay, citing problems with protecting content on PS3's Blu-ray disc player. But while gamers in Asia might be disappointed, U.S. video game software companies remain generally unaffected by the news and the U.S. and Europe timetable is as expected, said McDaniel in an interview.

Sony plans to launch 2 million PS3 consoles globally in early November, with 1 million units shipping monthly.

If anything, the announcement represents a slight upside in the analyst's view, since it means Sony is planning to ship 3 million units by the end of 2006, instead of 2 million, as he previously expected.

The analyst's two favorite video game software stocks are Electronic Arts , which he rates a "strong buy," and Activision , which he rates a "buy." The U.S. and Europe provide 93% of Electronic Arts' sales and 98% of Activision's sales. McDaniel doesn't expect the Japan delay to hurt either company's revenues.

Both companies, he said in an interview Wednesday, are well-positioned for the PS3 launch later this year. Electronic Arts's strength is in its sports games and Activision's strength is in its pipeline of games that it has delayed for other consoles and can continue to develop during the year, he said.

Likewise, since Asia provides only 3% of THQ 's sales, the analyst said he doesn't expect the PS3 delay in Japan to impact revenues. McDaniel maintained a "hold" recommendation on THQ shares.

THQ's strength is in mass market games and those that appeal to a younger audience, the analyst said. For instance, the company has licensing deals with Pixar Animation Studios and Viacom 's Nickleodeon. Players of these games tend not to be early adopters of next generation machines, so he sees these consumers as less likely to buy the PS3 for a year or two down the road anyway, he explained.

The analyst reiterated a "strong sell" recommendation on Take-Two interactive shares, but again, said the impact of a Japan delay of the PS3 will have little impact. Only 2% of the company's total revenue comes from Asia, he said.

McDaniel's rating on Take-Two relates to the company's issues with discipline and corporate governance. According to McDaniel, Take-Two pays entirely too much to Rockstar Games, the developer of the company's successful Grand Theft Auto series, relative to industry standards. "Because of royalties, salaries, and other compensation to Rockstar, there is simply nothing left for shareholders," he said.

At the close of trading Wednesday, shares of all four software makers were up. Activision shares rose 5.45% to $13.93, Electronic Arts shares rose 2.85% to $54.45, Take-Two shares rose $2.58% to $16.69 and THQ shares rose 4.26% to $25.97.