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Analyst Urges Activision to Charge for Call of Duty Online

As news of a 15-percent decline in software sales for the month of June begins to sink in, analysts are looking for ways to buoy the sagging video game industry. One analyst, Michael Pachter for Wedbush Morgan Securities, is suggesting that part of the cause for the industry’s four consecutive months of decline might be because of the rise of online gaming. And his solution is to change online gaming to a subscription-based model.

“We think that the overall decline was due to a very large number of people playing multiplayer online games for free on PlayStation Network, and for an annual fee with unlimited game play on Xbox Live,” Pachter told Industry Gamers. “We estimate that a total of 12 million consumers are playing Call of Duty: Modern Warfare 2 for an average of 10 hours per week on the two platforms’ respective networks, and the continued enjoyment of this game (along with an estimated 6 million Halo online players, 3 million EA Sports players, and 5 million players playing other games, such as Battlefield, Red Dead Redemption, Left 4 Dead and Grand Theft Auto) has sucked the available time away from what otherwise would be spent playing newly purchased games.”

Pachter also blamed Nintendo’s bundles (that sell two games but only count as one in terms of sales), as well as consumers buying clearance and used software. But the real problem, according to Pachter, is the increased value of online gaming that encourages a longer lifespan for the games which discourages gamers from buying new games.

As the Call of Duty series is far and away the online leader for consoles, Pachter recommends that Activision lead by example and begin to charge for online gaming. Activision CEO Bobby Kotick has already stated that he would like to take the Call of Duty franchise in the direction of a subscription model, and he – somewhat bewilderingly- thinks that gamers are excited by the prospect t0o.

“I think our audiences are clamoring for it. If you look at what they’re playing on Xbox Live today, we’ve had 1.7 billion hours of multiplayer play on Live,” Kotick told the Wall Street Journal “I think we could do a lot more to really satisfy the interests of the customers. I think we could create so many things, and make the game even more fun to play. We haven’t really had a chance to do that yet.”

Whether or not the fans are “clamoring for it” or not, the Call of Duty franchise seems to be unstoppable for now, as the next game in the franchise, Call of Duty: Black Ops, has already seen more pre-orders than its record breaking predecessor, Call of Duty: Modern Warfare 2. Black Ops is due November 9.

“We think that it is incumbent upon Activision, with the most popular multiplayer game, to take the first step to address monetization of multiplayer. It is too early to tell whether that will be a monthly subscription, tournament entry fees, microtransaction fees, or a combination of all three, but we expect to see the company take some action by year-end, when Call of Duty Black Ops launches,” Pachter said.

Despite the sales numbers, the outlook might not be as bleak as it seems for the industry. Software sales are sagging, but hardware has actually seen an increase, and some analysts – including the NPD Group’s Anita Frazier – believe that sales should rebound by the end of the year.

“Looking at historical seasonality for the industry, total year U.S. revenues (of new physical sales) could come in anywhere between $18 and $21 billion,” Frazier said. “Given the strong slate of content still to come, and the release of the Move and Kinect controllers, which I believe will spark additional interest in gaming, I think we could see the total year new physical retail sales come in at $20B. We’ll also be reporting consumer reported sales of digitally distributed, rental and used games content to provide insight into those non-POS sources of game sales.”

As of now, this is still all speculation, but if Kotick has his way and Activision does begin to charge for its online gaming in order to make up for lost revenue from declining software sales, expect others to follow suit.

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