WEEKEND EDITION: Video-game Wars Heat Up With Explosive 2008 Titles

SAN FRANCISCO (Dow Jones) - Video-game players who are accustomed to waiting for the holiday season to see the hottest new releases will get an early dose of yuletide joy this year -- in late April, to be exact.

That's when "Grand Theft Auto IV" will hit store shelves -- likely on its way to racking up sales of 10 million units or more by the end of the year, according to most estimates.

But game fanatics worried about spoiling their Christmas by mid-spring needn't worry. Compared to last year, 2008 will see a large slate of popular video game franchises spread throughout the year, along with some highly anticipated new properties that are designed to finally showcase the full capabilities of next- generation consoles such as the PlayStation 3, Xbox 360 and Nintendo Wii.

The strong slate of releases should cool worries that the video game sector set its own bar too high in 2007, which racked up a record $8.6 billion in game software sales in the U.S. alone -- a 34% gain from the previous year, according to data from the NPD Group.

Strong demand for video games is also fueling a surge of deal making in the sector. Activision (ATVI) is in the process of merging with Blizzard Entertainment -- the video game arm of Vivendi and maker of the mega-popular " World of Warcraft" online game. Electronic Arts (ERTS) has unveiled a $2 billion cash tender offer for "Grand Theft Auto" publisher Take-Two Interactive (TTWO), which has rejected the offer under the belief that it is worth much more.

Cutting-edge games slated for release this year are also expected to fuel the long-running war between next-generation consoles -- primarily between Sony's PS3 and Microsoft's Xbox 360. These companies are competing heavily for the hearts of hardcore gamers, who will sometimes spend large portions of their incomes on the latest shoot-'em-ups and fantasy titles.

"I think we're going to see 20% sales growth this year. But more important than software [game] sales is that we haven't really seen big hardware sales yet," said Michael Pachter , video game analyst with the brokerage Wedbush Morgan Securities.

Pachter says that this year is still relatively early in the next-generation console cycle. The PlayStation 3 and Nintendo Wii hit the market in November 2006 , while the Xbox 360 arrived the year before.

"This year is going to be huge, but not as big as 2009, and probably not as big as 2010," he said.

Higher quality, lower prices?

Though the next-generation consoles deliver the highest quality gaming experience yet, pressure continues on hardware makers to lower their prices.

Sony has felt this in particular. The PlayStation 3 launched with a $600 price tag and has already shaved off $200 . But at $399 , the console is still the most expensive on the market, though the Xbox 360 is not far behind at $350 for its mid-range unit. The Wii still carries its original $250 price tag.

Analysts widely expect console makers to cut their prices again this year, at least on the PS3 and 360. Pachter said consoles will have to get closer to the $ 199 price point to really gain mass market adoption.

But Sony (SNE) is already seeing sales accelerate. After being outsold by all the next-generation consoles since its launch, the PlayStation 3 has seen significant pickup, selling more than half a million units in the first two months of 2008 and overtaking the Xbox 360 for the time since its launch, according to NPD data.

Microsoft (MSFT) is not doing too badly either. The Xbox 360 sold about 4.6 million units in the U.S. last year -- about 80% more than the PS3 did in the same timeframe.

Last year's star, however, was the Nintendo Wii, which sold about 6.3 million units and has moved another 706,000 in the first two months of this year. The console remains virtually sold out at most retailers more than a year after its launch, and analysts expect the shortage will continue through much of this year.

"I anticipate the Wii hardware system will be supply constrained going into the holiday season," said Jesse Divnich, analyst for the simExchange, an online prediction market focused on the video game business.

A Grand Theft kick-off

March has already seen some big releases. French game publisher Ubisoft released "Tom Clancy's Rainbow Six: Vegas 2" earlier this month.

A big release came from Nintendo with "Super Smash Bros. Brawl" -- an exclusive title for the Wii. Despite a release date delayed by a month, the game sold more and 1.4 million units in the U.S. in its first week, setting a new record for Nintendo, according to the company.

However, the big kick-off title for the year will be "Grand Theft Auto IV," developed by Take-Two's Rockstar Games unit. The latest version in the popular urban shooter franchise will be the first developed for next-gen consoles such as the PS3 and 360 and is expected to offer top-of-the-line effects and features that can take advantage of those systems' capabilities.

"I don't think there's any question that 'Grand Theft Auto IV' will be big," said Doug Creutz of Cowen & Co.

Optimizing the game took longer than Take-Two expected. GTA IV was originally slated for release during last year's holiday season, but the company delayed the launch after finding that "certain elements of development proved to be more time-intensive than expected."

A lot is riding on the release. Primarily, the management of Take-Two is hoping strong sales of the game can help it squeeze a higher price out of its suitor EA. Take-Two has rejected EA's previous bids, stating that it will not negotiate a deal before the April 29 launch of "Grand Theft." The company's stock has been trading around the $26 bid price for the last month -- up more than 50% from its levels before the merger offer became public.

The game is also expected to be a major hardware seller for both the PS3 and the Xbox 360. No version is expected for the Nintendo Wii. As an urban-based shooter game, it faces little direct competition until the fall release of " Saints Row 2" from THQ Inc. (THQI), though a firm release data for that title has not yet been announced.

The Force gets 'Unleashed'

Big summer titles will include a highly anticipated release from the "Star Wars" franchise. Dubbed "Star Wars: The Force Unleashed," the storyline of the game covers the period between the original movie trilogy and the three prequels -- a period that has so far been off limits to books, TV shows and other games controlled by creator George Lucas .

In the game, players assume the role of a secret apprentice to Darth Vader, who ends up fighting both good guys and villains from the "Star Wars" universe. Developers at Lucas' video game unit -- LucasArts -- say the game advances the " Star Wars" story in a far more significant way than previous game titles from the series.

Haden Blackman, head of the development team for "The Force Unleashed," drew an overflow crowd at the recent Game Developers Conference in San Francisco last month when he oversaw what was billed as the first live demo of the game.

Among other features, "The Force Unleashed" employs an artificial intelligence system called Euphoria, which is designed to simulate a character's central nervous system to make reactions within the game more realistic.

The game will also serve as a showcase for the capabilities of next-generation platforms like the PlayStation 3 and the Xbox 360, Blackman said.

"Graphically, the game looks like you're in a Star Wars movie," Blackman said in an interview. "It's the first time I think people are really going to feel immersed in a Star Wars film, and that's really due in a lot of ways to the power of these platforms."

See video preview of "The Force Unleashed."

"The Force Unleashed" will also be available for the Wii as well as for hand- held devices from Nintendo and Sony , but developing for all the major platforms was a challenge. Work on the game began before the launch of the PlayStation 3 and Nintendo Wii, so Blackman's team had to begin on the Xbox 360 and then learn the new systems on the fly. Adapting the game for the Wii was particularly tricky, as the console features a unique motion-sensor control but lacks the graphical capabilities of the PS3 and 360.

"As the game platforms get more advanced, the development cycle is going to get tougher," Blackman said.

Ratings from game critics may make a big difference for the game. Several previous "Star Wars" releases have averaged scores in the low 80's from the site Metacritic, which compiles game reviews from different publications. The highest rated Star Wars game is a title called "Knights of the Old Republic" for the original Xbox, which garnered a Metacritic score of 94.

Besides "Star Wars," Lucas Arts is planning an "Indiana Jones" version of its popular Lego character games timed for the release of the next "Indiana Jones" movie this summer.

Building your own game

At least two major releases this year will offer game users more than just a chance to play. "Spore" from EA and "Little Big Planet" from Sony are both built around the concept of allowing players to design their own games and create their own environments.

EA has been working on "Spore" with Maxis, the studio behind the mega-popular "Sims" franchise. The game allows players to create their own personal universe and populate it with creatures -- also player-created -- who then evolve to different stages of life.

The game also brings a social-networking element to gaming. Though not a massive multi-player game like "World of Warcraft," players of "Spore" can move through worlds created by other players. The game has a heavy online element, which is why the first version being launched in September will be limited to the PC rather than the next-generation consoles.

"What we've done here is we've created a social network within a game," said Lucy Bradshaw , executive producer for "Spore."

The title will also be available for Nintendo's handheld DS console, and Bradshaw added that it will eventually migrate onto other platforms as well. " We'll evolve it into different territories. I would look at this as first version," she said.

Another game aimed at the user-generated crowd is "Little Big Planet," a title from British studio Media Molecule being developed exclusively for the PlayStation 3. Players can use their characters to create their environments.

Early previews of the game have generated significant buzz in the gaming community. The title is also slated for release in early September.

"Little Big Planet to me is huge. Hardcore gamers will like it, but it also has a big mass-market appeal," said Billy Pidgeon , gaming analyst for International Data Group. "This could be a big system seller."

Shooting to win

The key category for appealing to the core gamer audience is the first-person shooter, and 2008 will see plenty of big releases -- though none may end up matching "Halo 3" from Microsoft last year, which has sold 7.3 million units to date, according to the company.

For Sony , the console maker is banking heavy on "Metal Gear Solid 4: Guns of the Patriots." Developed by Konami exclusively for the PlayStation family, the " Metal Gear" series has been a big seller on the platform, moving more than 7 million units in its lifetime, according to Sony . "Metal Gear Solid 4" will be launched in mid-June.

Microsoft will answer with a sequel to it mega-popular "Gears of War" game, which saw its first iteration sell more than 6 million units. "Gears of War 2" is slated for a November launch.

LucasArts is also planning for an autumn launch of an original title called " Fracture," which is set in a period in the future when the United States has broken up into two warring factions. The game employs a technology called " terrain deformation" to allow players to alter the terrain of the environment to gain a tactical advantage over their opponents. "Fracture" will be launched for both the PS3 and the Xbox 360.

Wii keeping the pace

While much of the focus on game titles for the year centers around the PlayStation 3 and Xbox 360, analysts caution that Nintendo will remain a major force. The Wii has handily outsold the other next-generation consoles since its launch, and the device remains hard to find in U.S. retail outlets.

To address the shortage, Nintendo (NTDOY) has nearly doubled its production run of the machines since the launch. The company now manufacturers about 1.8 million units per month, though supply remains tight. Nintendo spokesman Marc Franklin would not comment on whether the company plans further production increases.

"We increased our production twice last year," Franklin said. "But never before has a system sold as much in a short period of time."

Besides "Super Smash Bros. Brawl," which has gotten the Wii off to s strong start for the year, a likely popular title will be a version of the racing game "Mario Kart" for the Wii. This game will make use of the Wii Wheel, a steering wheel-shaped wireless controller that works with the Wii's motion-sensor control system.

Analysts are particularly interested in "Wii Fit," which hits stores in mid- May. This game makes use of the Wii Board, a platform that hooks up to the system and allows players to control the game through running, jumping and other physical activities. The game itself will feature activities such as yoga and skiing.

"Don't overlook the Wii this year," said IDC analyst Pidgeon. "Because the graphics are lower resolution than the other systems, developers have to make games that are great to play. It's something you can't get from the competition."