2014 summer video game consumer survey (8!7!14) - edit

8/11/2019 2014 Summer Video Game Consumer Survey (8!7!14) - EDIT

1/14

SUMMER 2014 CONSUMER VIDEO GAME SURVEY

We recently conducted a survey of over 1,600 gamers in an attempt to gauge awareness and purchase intentions for hardware,

software, and peripherals in the wake of E3. If our previous surveys are any indication, the responses from our participants are a strongdirectional indicator of upcoming trends within the video game space. Importantly, our survey kicked off in mid-June, and so our surveydoes not capture games announced since then or since delayed.

Consumer Awareness of Upcoming Software Titles

Much has changed since our last survey which was conducted in February, as several titles have been officially announced, includingGrand Theft Auto V for new-gen consoles (PS4/Xbox One), Call of Duty: Advanced Warfare and Battlefield: Hardline . Additionally, severamajor titles, such as Watch Dogs and Titanfall , which had performed well on our last survey, have since been released.

To gauge consumer awareness of more than 100 upcoming video games expected in 2014/2015. We simply asked consumers to identifywhich games they had previously heard of.

Top Twenty Upcoming Games Consumer Awareness

B a t m a n : A r k

h a m K n i g

h t

A s s a s s i n ' s C r e e

d U n i t y

C a l l o f D u t y : A

d v a n c e

d W a r

f a r e

D e s t i n y

G r a n

d T h e f t A u t o V

( N e x t - G e n

)

L a s t o f U s

( P S 4

)

F a r C r y 4

B a t t l e f i e

l d H a r

d l i n e

B o r d e r

l a n d s : T h e P r e - S

e q u e

l

E l d e r S c r o

l l s O n l i n e

( N e x t - G e n

)

D e a

d I s

l a n d 2

H a l o : T h e M a s t e r C

h i e f C o

l l e c t i o n

M i r r o r ' s E d g e 2

S t a r W a r s : B a t t l e f r o n t

H a l o 5 : G u a r d i a n s

T h e W i t c h e r 3 : W i l d H u n t

T o m C l a n c y

' s : T

h e D i v i s i o n

C h i l d o f L i g h t

D i a

b l o I I I : R e a p e r o

f S o u

l s

D r a g o n A g e : I n q u i s i t i o n

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

( % r e s p o n d e n t s )

Top Twenty Upcoming Games - Consumer Awareness

The top spot in the awareness poll went to Batman: Arkham Knight , which is the first next-gen installment in the Batman franchise. Thetitle recently saw its release date pushed back from late 2014 to sometime in 2015, which surely boosted gamer awareness.

The next two spots on our list of games from an awareness perspective are the latest iterations of two of the industrys most successfuland high-profile franchises: Assassins Creed: Unity and Call of Duty: Advanced Warfare . These two titles jumped from #17 and #29 inour last survey, which was conducted before their official announcements.


2/14

The #4 title in consumer awareness was ATVIs Destiny , up from #5 on our last survey, an impressive feat for new-IP. Activision placingtwo titles in the top four is evidence of the level of marketing support that the company brings to the table. Interestingly, the #5 and #6titles are new-gen re-releases of prior-gen games in GTA V and The Last of Us . Clearly gamers are well aware of these titles, as they were

among the most well reviewed games of the entire previous console generation.The top-ten titles are rounded out by new installments of existing IP. The #7 spot went to Ubisofts Far Cry 4 which is the firsinstallment in the franchise since 2012 and is due out 11/18. The #8 and #9 titles in the awareness poll are October releases for two ofthe most popular franchises among our covered publishers: EAs Battlefield: Hardline (10/21) and TTWOs Borderlands: The Pre-Sequel (10/14). Finally, coming in at #10 is the new-gen version of Bethesdas Elder Scrolls Online , which does not have a set release date.

Of our covered publishers, EA leads the way with four of the top-twenty titles in terms of consumer awareness ( Battlefield: HardlineMirrors Edge 2 , Star Wars: Battlefront, Dragon Age: Inquisition ). Activision Blizzard comes in second with three of the top-twenty ( Cof Duty: Advanced Warfare, Destiny , Diablo III for new-gen ). Take-Two had two titles in the top-twenty, with the aforementioned GTAfor next-gen consoles and Borderlands: The Pre-Sequel .

Upcoming Software Purchase Intentions

Our second question asked consumers which of the same 102 games they planned to own, on a scale of one (would most like to own) tofive (would like to own, but lowest priority), respondents were also given the option of answering N/A if they were unaware o f a gamor had no interest in owning it. The chart below illustrates which games ranked highest based on our weighted scoring system, in whichwe awarded games five points for each response of most like to own and one fewer point for each progressively lower respons e (ifour points for a response of two, three points for a response of three, etc.).

To 20 Purchase Intentions

D e s t i n y

B a t m a n : A r k

h a m K n i g

h t

S t a r W a r s : B a t t l e f r o n t

T o m C

l a n c y ' s : T h e D i v i s i o n

F a r C r y 4

A s s a s s i n ' s C r e e

d U n i t y

M a s s E f

f e c t 4

H a l o : T h e M a s t e r C h i e f C o l l e c t i o n

U n c

h a r t e d 4 : A T h i e

f ' s E n

d

G r a n d T

h e f t A u t o V

( N e x t - G e n

)

T h e W i t c h e r 3 : W i l d H u n t

H a l o 5 : G u a r d i a n s

N o M a n

' s S k y

L a s t o

f U s

( P S 4

)

E v o l v e

M e t a l G e a r S o l i d V : T h e P h a n t o m P a i n

S u p e r S m a s

h B r o s

. W i i U

/ 3 D S

R i s e o

f t h e T o m

b R a i

d e r

M i r r o r ' s E d g e 2

D r a g o n

A g e : I n q u i s i t i o n

0

500

1000

1500

2000

2500

3000

3500

4000

4500

( p o i n t s )

"Weighted Score" of Most Desired Games

Activisions upcoming Destiny game is the #1 most anticipated title among all upcoming releases. While this was somewhat expectedgiven the #2 placement in our prior (Spring) survey behind Watch Dogs (which has since been re leased), the magnitude of Destinysdominance, ~18% ahead of the #2 most wanted game ( Batman: Arkham Knight ), was fairly striking.


3/14

Warner Bros Batman: Arkham Knight took the second spot on our list. While it has no set release date, when you combine its #1awareness ranking with its #2 plans-to-buy ranking it appears to be set up for success.

Coming in at #3 on our list was EAs Star Wars Battlefront , the first game expected from the companys agreement with Disney for EA todevelop a series of Star Wars games concurrent with (although not directly based on) the theatrical release of the next Star Wars trilogThis continued the consistently strong purchase intentions that the game has seen ever since its teaser trailer debuted at last years E3.

In addition to Star Wars Battlefront , EA placed two more titles with no set release date in the top-20 with Mass Effect 4 (#7) and MirrorEdge 2 (#19). While #19 is still a great ranking for a sequel to game that was largely a cult hit and not a financial success, Mirrors Edge nevertheless slid several spots from its #8 ranking following its E3 2013 unveiling.

Ubisoft takes the #4-6 spots in our survey with one new-IP title ( Tom Clancys The Division at #4), as well as two established franchises inFar Cry 4 (#5) and Assassins Creed: Unity (#6). The #8 and #9 most desired titles are the newest SKUs from the two biggest exclusivefranchises for Sony and Microsoft. One of them, Microsofts Halo: The Master Chief Collection, is an Xbox One re-release of a collectionof existing Halo titles, including Halo 2 , 3 and 4 as well as Halo: Combat Evolve d. The other, Sonys Uncharted 4: A Thiefs End, is a brandnew PS4-exclusive sequel in the popular franchise, but is not due out until 2015.

Take- Twos highest ranke d game, the new-gen/PC version of GTA V , places #10 in plans-to-buy. The all-time best-selling game is set for afall 2014 release of its PS4, Xbox One and PC SKUs. While one would think that most people that wanted to play the game have alreadydone so, c onsidering the record sales, its impressive to see such strong interest in a new -gen port coming out just a year after its initialrelease. With the newest version TTWO hopes to establish a GTA Online community on platforms with more years ahead of themrelative to the PS3 and Xbox 360, where interest may have faded somewhat given the delay in promised features, such as the onlineheists game mode.

After a strong E3 presence, Evolve (now set to be released 2/10/15) placed #15 in plans-to-buy, making it TTW Os second highest rankedgame. The new-gen title, acquired from defunct publisher THQ, made a huge leap from our last survey in which it placed #45. The gamewas well-received by video game publications and critics, winning numerous awards, which was clearly beneficial to its publicperception. Although the TTWO story has been dominated by GTA V for years, Evolve has the potential to be an under-the-radar hit.

TTWOs Borderlands: The Pre-Sequel came in at #25, a somewhat disappointing placement in the rankings relative to the lastinstallment, Borderlands 2 , which placed #4 in the Summer 2012 consumer survey. Although, a certain drop-off was expected since the

game is not a major numbered sequel in the franchise and is only available on prior-gen consoles.One of the most noteworthy data points from the survey was EAs Battlefield: Hardline coming in at #43 on the list, an astounding 37spots behind Battlefield 4 in the year-ago survey. Furthermore, the game placed 17 spots behind of Call of Duty: Advanced Warfare , thgame against which Battlefield will be most closely compared. It is important to note that neither of these games is likely to finishoutside of the top ten in annual sales, with Call of Duty the odds on favorite to again be the best selling game. However, it is clear thatthe Battlefield franchise has taken a hit from the highly publicized issues with Battlefield 4 .

Although Call of Duty: Advanced Warfare placed above Battlefield: Hardline , it also performed worse than its predecessor ( Call of DutGhosts ), which placed #18 in the summer 2013 survey. While both games will rely heavily on mass-market gamers to reach their fullpotential, Call of Duty s continued decline among these avid gamers (more on this in the Activision section), as well as Battlefield suddedrop are nonetheless concerning.

While many of the highly-anticipated games on our lis t arent expected to be released until 2015 (and in some instances 2016), an

impressive holiday slate of games is ahead of us. First is a string of annual sports titles ( Madden in August, FIFA in September, NBA 2K iOctober) and then a slate of blockbusters begins with Destiny in September, and is followed by new releases in nearly every one of theindustrys biggest franchises such as GTA V for new-gen consoles and PC, the Halo: Master Chief Collection , Call of Duty: AdvancedWarfare, Borderlands: The Pre-Sequel!, Assassins Creed: Unity and Far Cry 4. Despite the volume of new releases, the industry will becomping against 2013 releases in many of these same franchises, including the Sept-13 release of GTA V (the biggest event in theindustrys history) as well as Oct- 13s Battlefield 4 and Batman: Arkham Origins .

When we look at these results through the lens of our covered publishers, we believe there are reasons for optimism for each of thepublishers, although it seems the data is most positive for EA, which boasts ownership of four of the top-twenty most wanted titles.


4/14

Additionally, these four titles do not include the newest installments in Battlefield and the EA Sports franchises, which tend not toperform well on our hardcore-gamer focused survey, but will surely sell well. ATVI has the most-wanted title on the list in the form ofDestiny , which is likely to be a big success, particularly for a new IP. TTWO also had a strong showing with two titles in the top-15.

Survey Results for Covered Publishers

Publisher Title Release Date % Aware

Plans to BuyRank (out of

102 titles)Activision Destiny 9/9/2014 82% 1Activision Call of Duty: Advanced Warfare 11/4/2014 84% 26Activision Diablo III (New-Gen) 8/19/2014 68% 34Activision StarCraft II: Legacy of the Void TBA 19% 83Activision Heroes of the Storm TBA 20% 87Activision Skylanders Trap Team 10/5/2014 16% 102

Electronic Arts Star Wars: Battlefront TBA 71% 3Electronic Arts Mass Effect 4 TBA 59% 7Electronic Arts Mirror's Edge 2 TBA 71% 19Electronic Arts Dragon Age: Inquisition 10/7/2014 68% 20Electronic Arts Battlefield Hardline 10/21/2014 77% 43Electronic Arts FIFA 15 9/23/2014 62% 60Electronic Arts The Sims 4 9/2/2014 51% 70Electronic Arts NHL 15 9/9/2014 46% 71Electronic Arts Plants vs. Zombies: Garden Warfare (PlaySta 8/19/2014 63% 78Electronic Arts Madden NFL 15 8/26/2014 52% 82Electronic Arts PGA Tour 15 Spring 2015 26% 93Electronic Arts NBA Live 15 10/7/2014 33% 100

Electronic Arts Dawngate TBA 11% 101Take-Two Grand Theft Auto V (Next-Gen) Fall 2014 81% 10Take-Two Evolve 10/21/2014 62% 15Take-Two Borderlands: The Pre-Sequel 10/14/2014 75% 25Take-Two Tales from the Borderlands TBA 46% 36Take-Two Civilization: Beyond Earth 10/24/2014 53% 40Take-Two NBA 2K15 10/7/2014 48% 74Take-Two Agent TBA 19% 88Take-Two WWE 2K15 10/28/2014 28% 89

Consumer Survey Results: Most Desired Upcoming Games by Publisher


5/14

ELECTRONIC ARTS

Whereas ATVI unsurprisingly took the top spot with Destiny , we would argue that Electronic Ar ts was the winner of our post -E3 surv

with two games in the top ten and four in the top twenty.

Star Wars: Battlefront Remains the 3 rd Most Wanted Game

Star Wars: Battlefront took the third spot on our most wanted list. This marks the fourth consecutive survey that Battlefront has place3rd since its unveiling at E3 2013. The fact that Battlefront has managed to remain front and center in the minds of consumers despitenot having a release date, a trailer, or any gameplay footage shows the potential inherent in the Star Wars IP in the hands of Dice.

This is the first game expected from the agreement with Disney for EA to develop a series of Star Wars games concurrent with (althoughnot directly based on) the theatrical release of the next Star Wars trilogy. Being developed by EAs Dice studio (the makers ofBattlefield ), EA appears to be putting its best talent on this deal, which also includes games being developed by Visceral ( Dead Spaceand Bioware ( Mass Effect , Star Wars the Old Republic ). Although we do not yet have much of a timeline with regards to when the firstof these games should be released, the first of the new Star Wars movies is expected in 2015.

Its hard to tell when this AAA title will be released, but the delay of another major EA title may give us a clue.

Battlefield: Hardline Faces Uphill Battle

The major story for EA at E3 was the official announcement of Battlefield: Hardline , which at the time we believed brought EAs premishooter one step closer to an annualized franchise as it was set for an October 2014 release (one year after Battlefield 4 ). However, ilate July EA announced it would be delaying the game until early 2015 in order to incorporate player feedback received duri ng thbeta period. While we have only this reasoning to go by, it is likely the decision was made in order to avoid going head to head with themany big games set to be released in the holiday period. Instead the game will likely be released ahead of Easter in March, the thirdbiggest month of the year for video game sales, and a month where EA has released major titles in the past ( Mass Effect and Titanfall ).

With this delay it would appear that the Battlefield franchise is in fact not moving to an annual release slate, as it would be unlikely thatanother Battlefield title would be released just eight months later in November 2015. It would also seem unlikely that EA would move itsbiggest franchise permanently out of the holiday release window. Therefore, unless EA goes two consecutive years without a major

holiday release, it is quite possible we could see Star Wars: Battlefront in late CY15.At E3, we were pleasantly surprised by the response and the gameplay for Battlefield: Hardline , although the existence of the game wasscooped ahead of E3. Developed by Visceral studios (the first time Dice hasnt developed a Battlefield game), EA hopes to bring thesame trademark multiplayer exhilaration played out in the war setting from prior Battlefield games to a cops and criminals setting withBattlefield: Hardline .

Immediately following the official reveal of Battlefield: Hardline at E3, EA launched the initial open beta test to any gamer who alreadyowned Battlefield 4 on PS4. This beta test makes available only a small piece of the Hardline game, but the test was a general successamongst gamers, particularly relative to the slew of technical problems Battlefield 4 has faced since its launch. Many gamers who havesworn off the Battlefield franchise due to the persistent issues may be enticed back with a problem-free launch of Hardline .

However, it seems evident that the issues with Battlefield 4 have impacted the Battlefield franchise in gamers eyes, with Hardlincoming in at #43 on the survey, down 37 spots from Battlefield 4 s #6 placement on our summer 2013 survey and 17 spots behind itsclosest competitor, Call of Duty: Advanced Warfare .

Regardless of this poor showing, before the release was pushed back management was previously assuming that Hardline would ongenerate roughly half of the sales of Battlefield 4 last year, or 7-8M units this year. While some of that will now fall into FY16, a largepercentage of sales should still take place in FY15 depending on the official release date. Overall, we believe EAs previous conservativtarget is still doable within the games first twelve months despite moving the launch out of the holiday season. We expect to seeBattlefield climb the list as we get closer to its release date and further from the issues of Battlefield 4 . As was the case with Battlefield a year ago, Battlefield: Hardline serves as the biggest X- factor in EAs guidance for FY15.


6/14

High Demand for EA Sequels

EAs second highest ranked game in our survey was the fourth installment in the Mass Effect franchise, which came in at #7. EAconfirmed the games existence at E3, but other than saying that it is in development few other details were provided.

Coming in at #19 on our plans to buy list was Mirrors Edge 2 , a sequel to the 2007 game that was a cult favorite but never reallyachieved much commercial success. In our opinion, it is unlikely that this game will ever live up to the level of sales equal to its peers onour survey, even assuming a material increase relative to the disappointing 2.5M units sold by the original game. Given the rather largedrop off from its #8 ranking in the year-ago survey, we are already seeing the dissipation of excitement surrounding the game.

Dragon Age: Inquisition , the third installment in the franchise and set to be released in November, was the #20 title in our most wantedlist. This is down one spot from its #19 ranking in our spring survey, but still a strong showing in the wake of E3.

The other major holiday title for EA is The Sims 4 , which will be released on 9/2/14. While being an immensely popular franchise for EA,it is not one that is likely to be played by our hardcore primarily console gaming survey respondents and in turn places 70 th on the moswanted games list. Nevertheless, the Sims franchise is the best-selling PC franchise of all ti me and its bee n 5 years since the release ofThe Sims 3 , so we expect the title to quite well. It should be noted that as a PC title, these sales will not show up in NPD numbers andwill be nearly 100% digital through EA Origin.

FIFA Enjoys World Cup Bump

While annualized sports titles have historically not done well on our survey, this year should prove to be a pivotal one for EA Sports as itshifts titles in and out of its lineup. Whereas the company did not release a new installment of its NCCA Football game in July (followinyears of related legal battles), they did release their first title in the UFC franchise in June, which sold just under 280k units in its firstmonth. Similarly, EA will be releasing a PGA Tour golf game in early CY15, its first golf title since the discontinuation of the Tiger Woodfranchise in CY14.

It should also be an interesting year for EA Sports two flagship franchises, Madden and FIFA. FIFA 15 is set to get a boost in theaftermath of this years World Cup. Not only will there be some lingering excitement in the countries where soccer and FIFA are alreadthe main sport and sports video game, but the title could also see solid growth in the U.S. However, we do not expect sales in the U.S. togrow as much as viewership did across the 2014 World Cup, which was up 45% over the 2010 World Cup in the U.S.

Although the Madden franchise does not enjoy such a bump from a quadrennial event, Microsoft is offering an interesting bundle withthe title. For $399, the regular price of an Xbox One without Kinect, customers are getting a digital copy of Madden NFL 15 thrown in forfree. EA had a similar partnership with Microsoft earlier this year when they bundled an Xbox One with a free digital copy of TitanfalWhile EA is surely gettin g paid by Microsoft for these free copies, the fact that they are digital copies clearly points to where theindustry is headed.

TAKE-TWO

Evolve Has Potential to Be a Hit

If weve learned one thing so far in this console generation, its that new IP can quickly become a hit unlike in prior console generations.For Take-Two, we would argue that Evolve is the companys most commercially viable new IP since 2011s Red Dead Redemption . Tdoes not mean that Evolve has the potential of Red Dead (which has sold 12.5M units life to date and was the surprise hit of 2011), but

the gameplay looked quite strong at E3, the reaction at the Microsoft media event was encouraging, and the apparent interest at theTake-Two booth was better than we would have anticipated. With no obvious path to widespread recognition ( Red Dead and new Isuch as Destiny and Titanfall had high-profile developers behind them) TTWO is doing its best to make Evolve a household name.

This effort is reflected in the fact that Evolve placed #15 in our pans-to-buy ranking and was the winner of E3 in terms of criticalreception. Each year, we compile a list of E3 awards from major publications, which this year included Game Critics Awards, IGN, GameInformer, Digital Trends, GameSpot, Nerdist, The Escapist, Polygon, Joystiq and EGM. As shown in the following graphs, Evolve wfifteen awards in total, with Nintendos Super Smash Bros. coming in a close second with thirteen .


7/14

Evolve : E3s Most Well -Received Game

0

2

4

6

8

10

12

14

16

Evolve Super SmashBros.

Batman: ArkhamKnight

Civilization:Beyond Earth

Dragon Age:Inquisition

Far Cry 4 No Man's Sky Middle-earth:Shadow of

Mordor

Rainbow Six:Siege

Assassin's Creed:Unity

E3 Award Count (By Title)

Furthermore, the Game Critics Awards, which is an aggregation of votes from 29 publications, chose Evolve as the Best of Show for E32014. Largely due to Evolve , TTWO picked up a total of 23 awards among these publications, behind only Nintendos 24 awards .

E3 Publisher Award Count

Evolve was originally scheduled for an October 2014 release. However, on their most recent earnings call TTWO announced the delay ofEvolve from its planned October release date until February 2015. On the call, management explained that the release was delayed inorder to give developers a few extra months to polish the game and to benefit from a more favorable release window in February, whichis nearly identical to the reasons given by EA on the delay of Battlefield: Hardline .


8/14

Management stated that the February release window was more favorable because it is less crowded and will benefit from launching toa larger new generation install base augmented by console sales over the holiday season. While this is logical, the early 2015 releasewindow is now much less attractive now that both Evolve and Battlefield: Hardline have moved into it. We will have to wait and see just

how well Evolve does, but based on gamer and critic response thus far it looks like the game, which the market seems to be discounting,the game has some understated potential.

New-Gen GTA V Poised for Success

The biggest news coming out of E3 for TTWO was the announcement of Grand Theft Auto V on Xbox One, PlayStation 4, and PC this fall.The game was TTWOs most desired game in our survey, coming in at #10. There are many factors that will play into the sales potentialof GTA V on these platforms, including how many gamers held off buying on the prior gen in anticipation of next gen, how many new-gen console owners no longer have (or never had) prior-gen consoles, and (as crazy as it may sound) how many buyers of GTA V on thprior-gen would be likely to upgrade to the next gen, effectively buying the game twice.

Take-Two is doing everything in its power to encourage such a trade-up, and management ensures us that the game will look and playbetter with the power of the next-gen hardware and feature significant incremental content not available on prior-gen. Importantly,gamers progres s and accomplishments from GTA Online on current gen will be ported to the next-gen on the gamers platform of

choice.We asked our survey respondents directly if they planned to purchase GTA V for new-gen consoles or PC. The charts below show thebreakdown in responses among those who owned a PS4 and/or Xbox One. The responses were very similar between platforms, withmore than 30% of PS4/Xbox One owners saying they would buy it for their respective console and more than 30% saying that it woulddepend on the improvements made compared to the prior-gen version. These numbers do not include people who will have purchaseda new-gen console after taking our survey, or people planning to buy the game for PC, which was ~9% of all survey respondents.

Do you plan to purchase GTA V on Xbox One, PlayStation 4 or PC?

3%

36%

6%32%

23%

PS4 OwnersYes, on Xbox One

Yes, on PlayStation 4

Yes, on PC

It depends on theimprovements made vs. last-gen version

No

34%

7%

5% 33%

21%

Xbox One OwnersYes, on Xbox One

Yes, on PlayStation 4

Yes, on PC

It depends on theimprovements made vs. last-gen version

No

Based on these numbers we can very conservatively get to 40% of PS4/Xbox One owners buying a copy of GTA V . Given a current newgen installed base of ~14-15M+ worldwide and growing , it is hard to imagine that the new gen potential couldnt be at least 5 -6M unitWhen we couple this with a much smaller development budget, this could equate to nearly $1.00 in earnings over the course of a year.However, as the company recently guided 2Q15 revenue to a range of $95-110M, it is extremely unlikely that we see a Septemberlaunch for the new-gen/PC versions of GTA V (or DLC for that matter). And, while a 3Q release would not allow for the entirety of thisearnings power to realiz ed in FY15, when we consider this potential next to TTWOs current FY15 guidance of $0.80 -$1.05, we arconfident that there continues to be upside to guidance.


9/14

GTA V DLC Remains an Unknown

The biggest lack of news from TTWO remains the timing, quantity, and pricing of the downloadable content for Grand Theft Auto V . Wcontinue to believe that this is a huge earnings opportunity for the company, although with each passing day, the impact on 2014 doesbecome more questionable. We previously pegged the contribution from DLC at ~$0.80, but the likelihood of reaching this number hasdiminished the further we move away from the Sept-2013 release of the game.

In an effort to quantify this opportunity, we once again asked those among our respondent group that currently own GTA V about theilikelihood of purchasing DLC for GTA V . As shown below, the likelihood of purchasing DLC among our respondents has droppedprecipitously since our Fall-13 survey, which was conducted about a month after the Sept-13 launch of the game. Overall, responseswere still fairly positive, considering the game is nearly a year old, with 21 % saying they were most likely to purchase DLC (#1) ananother 13% rating the probability as the second most likely.

GTA V Owners Less Likely to Purchase DLC

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1 (Most likely) 2 3 4 5 (Least likely)

Likelihood of GTA V DLC Purchase on Any Platform

Summer-14 Spring-14 Fall-13

However, this 33% of respondents rating the likelihood of purchasing additional DLC as #1 or #2 compares to 45% in our Spring-14survey, and 61% in our fall-13 survey. Furthermore, while only 18% and 14% of res pondents said they were least likely to pur chaDLC in our spring-14 and fall-13 su rveys, a whopping 32% responded with the least likely rating this time around. Clearly the delay inpromised features, specifically the online heist gameplay mode, as well as a natural decline in interest as the game ages have taken a tollon the ultimate potential of GTA V DLC.

Admittedly, our respondent group skews fairly hardcore, and so we are conservatively assuming that about 25% of GTA V owners will asome point purchase some form of DLC.

We know that TTWO shipped 34M copies through 1Q15. For the purposes of our estimates, we believe that by the time DLC ships (mostlikely sometime in the December quarter, GTA V will have sold through roughly 34.5M units. Based on 25% buying some form of DLC,this equates to ~9M DLC customers.


10/14

As we try and triangulate how much, on average, these DLC purchasers will pay, we can again look to history as somewhat of a guide.Back in 2009, both DLC packs retailed for $19.99 each, while the standalone disk that contained both retailed for $39.99. While it isdifficult to pinpoint how much DLC will be made available by the end of the year, this pricing is likely to be repeated. And while the

majority of DLC purchasers are likely to buy just one piece of DLC, some will purchase every piece of content available for the game(which in all likelihood will reach over $100). When we combine the two, we are conservatively assuming that DLC purchasers will pay,on average, an extra $30.

Hence, based on ~9M gamers that purchase an average of $30 in DLC, we arrive at total retail sales of $254M. The following table showsour math with respect to profitability, with the resulting $66M of profits translating into roughly $0.60 in earnings, down from ourprevious estimate in the $0.80 range.

Potential for GTA V DLC

Digital Packaged Goods TotalUnits (thousands) 10.9 4.7 16

ASP 20 20 20Retail Sales 217 93 311Retailer Cut (19) (19)

Sales Reserve 0 (12) (12)TTWO Reported Sales 217 63 280

Console Royalties 0 (14) (14)Digital Distribution Fee (65) (65)

Marketing (10)Development (30)

Internal Royalties (68)Taxes (20)

Total Profit Contribution 73shares (fully diluted) 115per share $0.63

GTA V Downloadable Content (DLC) Opportunity

Between the earnings contribution from both the new-gen and PC versions as well as the prior-gen version of GTAV , as well as GTADLC, and GTA Online microtransactions, we believe there is still substantial earnings power.

TTWO Beats 1Q15 Estimates

On Tuesday, TTWO reported a 1Q15 (June-quarter) non-GAAP loss of $0.14 per share, which is $0.13 and $0.12 ahead of our estimateand the Street consensus, respectively. This is also $0.11 ahead of the highpoint of the guided range of a loss of $0.25-$0.35 per share.

TTWO generated non- GAAP sales of $152M, up 5% from last years $144M, 13 -27% better than the guided range of $120-$135M, 13%better than the Street consensus of $135M, and 19% better than our estimate of $128M. The largest contributors to the top line were

Grand Theft Auto V and Grand Theft Auto Online . Digital receipts, which were up 43% to $106M in the quarter, continue to make up agrowing piece of the overall revenue.

Full-year 2015 EPS guidance was maintained at a range of $0.80-$1.05, compared to the Street consensus of $1.03 and our previousestimate of $1.16. Full-year revenue guidance remains at a range of $1.35-1.45B, compared with the Street estimate of $1.43B.Guidance for 2Q15 was initiated at a non-GAAP loss of $0.70-0.60 on revenues of $95-110M, both meaningfully worse than the Streetconsensus EPS of $0.01 on sales of $274M.


11/14

TTWO shares were down ~6% on Wednesday, most likely a result of the weak 2Q15 guidance and the surprise delay of Evolve s releasfrom October to February 10, 2015. While the Street was previously at the high end of this full-year guidance, one only has to look at thepast year in which TTWO beat consensus in every quarter to see that the company has a history of conservative guidance.

Management noted that GTA V has sold-in more than 34 million units globally since its launch now nearly a year ago. The opportunityrepresented by the monetization of the massive GTA Online ecosystem remains at the forefront of the conversation when trying todetermine the long- term impact of this game on TTWOs bottom line.

While GTA V DLC is long overdue compared to prior GTA titles, rumors of coming paid updates seem to be more credible than ever and alaunch may be on the horizon. However, management was clear that the FY15 guidance does not include any contribution from suchcontent, stating that 1) guidance only includes titles that have already been announced and 2) the company has not announced any GV DLC.

The front line titles for FY2015 that have been announced include NBA 2K15 (10/7/14), Borderlands: The Pre-Sequel (10/14/14Civilization: Beyond Earth (10/24/14) , WWE 2K15 (10/28/14), Grand Theft Auto V on PS4, XB1, and PC (Fall 2014), and the now delayedEvolve (2/10/15). Of all revenue, the Company expects 40% to be generated by Rockstar (of which most will be GTA V on next gen) and60% to come from 2K.

ACTIVISION BLIZZARD

Destiny Takes Over Top Spot

Overall, the most positive data point coming out of our survey for Activision was with regards to Destiny , which placed #1 on our mostwanted games list. While this was somewhat expected given the #2 placement in our prior (Spring) survey behind Watch Dogs (whihas since been released), the magnitude of Destinys dominance, ~18% ahead of the #2 most wanted game ( Batman: Arkham Knight was fairly striking. We take this as the best indicator yet that Destiny can provide ATVI with more than enough contribution tocompensate for declines in its other franchises.

Another indication of just how excited gamers are for Destiny was their response to our question of If you could only own one gamthis year, where 23 % of gamers chose Destiny , well ahead of the #2 title ( Halo: Master Chief Collection at 14%). This speaks to themagnitude of excitement surrounding next months Destiny release.

This is particularly compelling in that it has traditionally been understood that new IP is extremely limited with respect to the potentialof its first iteration. Our biggest take-away from the early success of games like Titanfall and Watch Dogs in conjunction with our currentsurvey results is the fact that publishers have more tools at their disposal than ever before with which to rally support for a newfranchise, and that these new franchises can very quickly become among the industrys most bankable brands.


12/14

Digging Deeper Destiny

Borderlands: Pre-Sequel

Sunset Overdrive

The Last of Us Remastered

GTA V Next Gen

Far Cry 4

Dragon Age: Inquisition

Assassin's Creed: Unity

Super Smash Bros.

Halo: MC Collection

Destiny

0% 5% 10% 15% 20% 25%

If You Could Only Buy One Title Between Now and The End of TheYear, What Would it Be?

We estimate that each incremental 1M units of Destiny sales equates to ~$0.04 of incremental EPS during the back half of the year oncethe considerable development costs ($500M) are amortized. Although it is somewhat unclear what management has baked into itsshipment assumptions, based on what appears to be somewhat conservative top-line guidance for 3Q, we believe it unlikely that thereis much more than 7-8M units built into 3Q and 2-3M units built into 4Q, or a total of 10-11M units for the remainder of the year.Ultimately, we believe this number is more likely to be in the 15M unit range, with the majority (12M) being shipped in the Septemberquarter. This is based on our retail assumptions of 9M, 12M, and 15M life-to-date units through one month (3Q), four months (4Q), andone year on the market.

Struggling Call of Duty Franchise Getting Breath of Fresh Air in 2014

We have made it no secret that we believe the Call of Duty franchises best days are in the rear -view mirror, a notion that appeared tobe confirmed by a sizeable (26% per NPD) decline in life-to-date Call of Duty: Ghosts sales (2013) versus 2012s Black Ops II . We believthat this decline overstated the issue somewhat, however, given (1) poor game quality, (2) a brutal set of competition and (3) adislocated and cash-strapped consumer base given a console transition that kicked off the same month as the Ghosts release.

As we investigate these various factors for the upcoming Call of Duty: Advanced Warfare release, we see a much more favorablebackdrop.

With respect to the release slate, last years Ghosts had to not only face ongoing sales of Grand Theft Auto V (the fastest selling gameever) but also those of Battlefield 4 (Arguably CoDs most direct competitor) not to mention Assassins Creed IV: Black Flag and Batman

Arkham Origins. This year, on the other hand, we believe that CoDs biggest competitor will come in the form of Destiny (released twmonths prior), and to a lesser degree games like Borderlands: The Pre-Sequel (10/14), Assassins Creed Unity (10/28), Halo: The MasterChief Collection (11/11), Far Cry 4 (11/18) as well as the new-gen/PC version GTA V (TBA). In fact, games like Batman: Arkham Knight (initially 10/14), Evolve (initially 10/21), and Battlefield: Hardline (initially 10/21) have all been pushed back to 2015. As a result, whilethe video game industry will have plenty of games over the final four months of the year, it seems increasingly apparent that the twobiggest games over this span will be ATVIs Destiny and Call of Duty: Advanced Warfare.


13/14

With respect to game quality, it is always difficult to have any real confidence until a game is released. We are encouraged by a numberof factors, however. For starters, whereas last years CoD, developed by Infinity Ward, effectively had a development window of a yeand a half (given Infinity Ward developed 2011s Modern Warfare 3, and then spent the subsequent ~6 mon ths developing digita

content) this edition will benefit from nearly three years of development under Sledgehammer Games. For what its worth, we wealso impressed with what we saw out of the game at E3, in that it appears to successfully toe the line of adding significant new features(futuristic gameplay is at the heart of Advanced Warfare ) while maintaining the spirit of the dominant Call of Duty franchise. It alsdoesnt hurt that Advanced Warfare will feature an eerily accurate digital rendering of Kevin Spacey, who appears to play the primaryantagonist in the story mode of the game.

We also believe that the November 5 th launch of Call of Duty: Ghosts was negatively affected by the launch of the PS4 on November 14and the launch of the Xbox One on November 22 nd. Not only were many gamers saving up to buy their next-gen consoles when Ghoswas released, but we believe that the multiplayer community was somewhat affected by uncertainty as to whether they would beplaying on prior-gen or next gen platforms. None of this should be an issue this year, and the game should generally benefit from, at aminimum, a better defined industry than what was the case a year ago.

As we look to our video game consumer survey, the announcement of Advanced Warfare has helped the Call of Duty franchise reversewhat had been a very troubling trend. From 2009 (when we started the survey) to 2011, Call of Duty games dominated the #1 ranking,but have subsequently seen purchase intentions wane. Advanced Warfare has snapped back in our most recent consumer survey (from#42 to #26), and while this is short of where Ghosts was a year ago (#18), we would expect this sequential ascension to continue into theNovember release of the game.

Historical Purchase Intentions for Call of Duty Games by Survey Ranking

ModernWarfare 2, #1

Black Ops, #1 ModernWarfare 3, #1

ModernWarfare 3, #1

Black Ops 2,#11

Black Ops 2,#9

Ghosts , #11 Ghosts , #18 Ghosts , #19 AdvancedWarfare, #42

AdvancedWarfare, #26

Fall 2009 Fall 2010 Spring 2011 Fall 2011 Summer 2012 Fall 2012 Spring 2013 Summer 2013 Fall 2013 Spring 2014 Summer 2014

M o s t - W a n t e d R a n k

To be clear, our survey is heavily weighted with responses from hardcore gamers who tend to stay away from annualized titles, so there

is no chance that this years iteration of Call of Duty will be the 26th best selling title this year. In fact, we would be shocked if the gamewas not again one of the best selling games of the year, if not the #1 selling game this holiday.

All told, we are modeling flattish sales of Call of Duty this year, with the likely range of outcomes a small decline to a small increase insales. We feel confident in saying, however, that we will not see the freefall in sales that plagued last years release. T his may not seemlike much, but in the context of our broader thesis on Activision, and in the face of declining World of Warcraft subscriptions andSkylanders sales, it is important that much of the incremental contribution made by the likes of Destiny , Hearthstone , and Heroes of theStorm is not offset by sizeable Call of Duty declines.


14/14

Disney Infinitys Outsells Skylanders in Debut Year; Competition Only Getting Stronger in Holiday 2014Although Skylanders: Trap Team was way down the list, this is hardly a survey to capture the potential of a game like Skylanders , whiis clearly targeted towards young children (of which there were very few among our respondent group). However, based on what wesaw at E3, we believe Skylanders will come under even more competitive pressure this year, with Disneys Infinity adding the popularMarvel characters to the game, and Nintendo launching Amiibo , a similar toy/video game hybrid based on its popular IP (Mario, Zelda,Donkey Kong, Metroid, etc.)

Prior to the launch of Disney Infinity in August of 2013, ATVIs Skylanders franch ise had the analog/digital crossover category effectivelyto itself and grew into one of ATVIs tent -pole properties. When Disney entered the space with its Infinity collection of games and actionfigures, Skylanders took an immediate hit as starter pack sales have declined 16% y/y compared with the 2012 edition. Perhaps morediscouraging, according to NPD, new entrant Disney Infinity s starter pack sales have topped Skylanders Swap Force starter pack sales by11% life-to-date across all platforms.

Disney Infinity has Outsold Skylanders Swap Force by 11% Life-to-Date

-

500

1,000

1,500

2,000

2,500

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

T h o u s a n d s o f U n i t s S o l d

Skylanders vs. Disney Infinity - Cumulative Monthly Software Sales

Infinity Launch8/8/13

Skylanders:Sw ap ForceLaunch

10/13/13

Skylanders: Giants Launch10/17/12

Prospects for the 2014 Skylanders iteration, called Trap Team , are not very encouraging due to even tougher competition coming in thecategory. Despite the fact that Trap Team does have some innovative features compared to prior versions, it faces both a ramped upDisney Infinity 2.0 and Nintendos new entry to the space deemed Amiibo .

Disney Infinity 2.0: Marvel Super Heroes (coming 9/23) will feature the extremely popular Marvel IP that Disney purchased in 2009.Considering the success seen by Marvels Disney -powered films in recent years, Infinity 2.0 could be set up for significant growth overthe first iteration, leaving less of the pie for Skylanders . To compound matters, Nintendo is entering the analog/digital play space with its

Amiibo toys, which follow the Skylanders model with the benefit of the iconic Nintendo IP. For example a gamer can purchase a Mariofigure that will pair with the anticipated Super Smash Brothers coming this holiday season for Wii U.

We are modeling a 16% decline in Skylanders games sales this year, compounded by a much more dramatic $100M reduction in toysales for the franchise versus a year ago. Thankfully, we anticipate these declines being dwarfed by the revenue contribution from otherfranchises such as Destiny and Hearthstone .

2014 summer video game consumer survey (8!7!14) - edit

Documents