Although music games may see moderate decreases in sales this year, the genre is "here to stay," according to Cowen Group analyst Doug Creutz -- and he's betting on Activision and Guitar Hero as the category's ultimate leader.
Band games, in attracting new audiences, have created a permanent market position, says Creutz. And as the industry is challenged to post year-over-year growth in the current climate, he expects Activision's music games will be up "modestly," or .7 percent year over year.
"We believe music genre sales for the company will be driven by an expansion of the release slate in 2009, which should broaden sales to core consumers," says Creutz.
Plus, Activision Blizzard's expected to pull ahead in the genre competition, says the analyst: "We also believe that Guitar Hero is likely to face less competition from Rock Band this year, driving a gain in market share for Activision Blizzard."
It's doubtful, according to Creutz, that the upcoming Beatles-themed Rock Band release will make the same kind of impact as another major franchise release. And the high price point -- $250 -- of the special edition "could put a cap on peripheral sales."
If anything, Rock Band can benefit from Activision's upcoming DJ Hero release, which Creutz believes will once again expand consumer willingness to buy new peripherals -- a reversal of the fashion in which Rock Band's successful band kit paved the way for Guitar Hero to move beyond guitars.
"New product innovations, such as the upcoming DJ Hero, should keep the franchise fresh, possibly supporting another strong surge of peripheral sales," he says."
That doesn't mean the road ahead is easy. Creutz forecasts that this holiday's Guitar Hero release will actually see a 21 percent year-over-year sales decline in the U.S., weighing down the rest of the portfolio.
But the company has room to grow in other markets: "We think that Activision Blizzard will benefit from more significant growth for the Guitar Hero franchise in Europe where sales and supply have thus far lagged the U.S," Creutz explains.
The analyst says that concerns about genre decline, or assertions from other analysts that music games are a "fad," are overall unwarranted. "Our expectation is that given the wide consumer acceptance of music and rhythm video games, the category is unlikely to collapse back down to a significantly smaller percentage of total video game sales," says Creutz.
"Although some casual gamers who purchased music games over the past few years may drop out of the market, we believe that the genre is now firmly established as one of the major categories of interactive entertainment and will likely see continued strong and expanding sales to its core base."