Electronic Arts Plays Catch-Up After Shrug-Off of Wii (Update1)

By Michael White

April 9 (Bloomberg) -- Video-game designer Nick Earl spent eight months holed up with his development team rushing to adapt ``The Godfather'' for Nintendo Co.'s Wii.

The reason for the long hours: Earl's employer, Electronic Arts Inc., like some of its competitors, underestimated demand for the Wii, whose motion-activated wand lets players wield a virtual sword, mimic real golf swings or strangle a victim. Instead, game makers put most of their resources into Sony Corp.'s PlayStation 3, which was released two days earlier in November with a more conventional hand controller.

Now, publishers are scrambling to get titles to the 3.56 million U.S. and Japanese Wii owners who have made the machine the top-selling game console this year.

``Those companies are backtracking,'' said Anthony Gikas, an analyst at Piper Jaffray & Co. in Minneapolis. ``They're going to need to get their best-branded product on that platform. That will take a good nine to 12 months.''

A shortage of Wii games contributed to a 25 percent drop in sales in February from a year earlier at Redwood City, California-based Electronic Arts, the world's largest video-game publisher, said Todd Greenwald, an analyst at Nollenberger Capital Partners in San Francisco. Industry sales in February rose 28 percent.

Shares of Electronic Arts have risen 2.3 percent this year, the smallest gain among the three biggest publishers.

Top Games

U.S. and Japanese sales of Wii players totaled 1.47 million in January and February, said market researchers NPD Group Inc. and Enterbrain. PlayStation 3 tallied 604,331, while stores sold 584,329 of Microsoft Corp.'s Xbox 360 consoles. Wii is also leading in Europe, said London-based researcher Screen Digest.

Wii games, all produced by Kyoto, Japan-based Nintendo, took three of the top 10 sales spots in the U.S. in February, said NPD, based in Port Washington, New York. Not a single U.S. publisher had a Wii game in the top 20 in February.

Nintendo's lead will widen, pressuring companies even more. Researcher IDC predicts Nintendo will ship 16.1 million players this year, outpacing Microsoft's 9.87 million Xbox 360s and Sony's 9.1 million PlayStation 3s. Wii game sales will total $2.2 billion, trailing only Xbox 360, said IDC, based in Framingham, Massachusetts.

Electronic Arts wasn't the only publisher slow to see Wii's appeal. New York-based Take-Two Interactive Software Inc., maker of ``Grand Theft Auto'' games, had no Wii titles when the player was released and now plans to have three this year, said spokesman Jim Ankner.

Activision Inc., based in Santa Monica, California, plans to release six Wii games this year, giving the second-largest publisher a total of 11, said spokeswoman Maryanne Lataif.

Miscalculation

Game companies had expected PlayStation 3 to dominate based on the success of PlayStation 2, said John Taylor, an analyst with Arcadia Investment Corp. in Portland, Oregon. Sony has sold more than 100 million PlayStation 2s since 2001, including 37.7 million in the U.S., making it the top-seller. Nintendo's previous console, GameCube, sold 11.7 million units in the U.S.

Perceptions changed when Nintendo unveiled Wii last May in Los Angeles. Demonstration consoles attracted long lines of developers waiting to swing a virtual tennis racquet.

``People got their hands on that controller and started playing games and said, `This is fun, this is going to do better than we expected,''' Electronic Arts Chief Executive Officer Lawrence Probst said at a Morgan Stanley conference on March 5.

With six months to go before Wii's release and games requiring a year or more to develop, publishers knew they were in trouble.

Redeploying

Electronic Arts bought Bountiful, Utah-based Headgate Studios Inc. in November to bolster Wii development. With ``Godfather Black Hand Edition'' and ``Tiger Woods Golf 07'' in stores, Electronic Arts has six Wii titles and plans to have about a dozen in total this year.

``We came back and redeployed a lot of our resources,'' said Earl, who heads Electronic Arts' Redwood Shores studio.

The results are seen in ``Godfather,'' where players use their hands to shake the wand and an attachment, dubbed a nunchuk, back and forth as if strangling or jostling someone. The wand also can be used to punch or shoot victims.

``You really feel like you grab someone,'' Earl said.

The Wii may prove to be a windfall, since games cost just $2 million to $5 million to create, a fraction of the $20 million to $30 million spent on PlayStation 3 or Xbox 360 titles, analyst Taylor said. In addition, Wii appears to be expanding the market, rather than stealing sales from rivals, he said.

Ubisoft

Ubisoft Entertainment SA, maker of ``Rayman'' and ``Tom Clancy'' games, was the quickest to recognize Wii's appeal and is reaping the rewards.

Wii games helped increase sales for the December quarter by 24 percent to $405 million. In January, the company raised its 2007 forecast for revenue growth to 16 percent from 10 percent to 12 percent previously.

Ubisoft, based in the Paris suburb of Montreuil-Sous-Bois, had seven Wii games out by December and plans six more by June, said Tony Key, vice president of marketing.

``It's not really a bet anymore,'' he said. ``It's a viable system that's going to make us money.''

To contact the reporter on this story: Michael White in Los Angeles at Mwhite8@bloomberg.net

Last Updated: April 9, 2007 16:18 EDT

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