Video game sales are to movie box office as house sales are to pet adoptions

In a culture that has become obsessed intrigued by movies' openings at the box office, it's no surprise that other products, particularly in the world of entertainment, want to compare their launches to those of the biggest films.

There's a danger, however, in comparing apples to kumquats.

Today Activision Blizzard Inc. revealed that its hugely anticipated video game, Call of Duty: Modern Warfare 2, generated $550 million in worldwide sales during its first five days. As the publisher trumpeted in a press release, that's substantially higher than the biggest five-day worldwide box office launch, a record held by "Harry Potter and the Half-Blood Prince." That's correct.

But that doesn't mean Modern Warfare 2 has been enjoyed by as many people or that it will be as profitable. The video game costs $60 to buy, after all ($150 for the "prestige edition," which includes an art book and night vision goggles), whereas movie tickets cost less than $10 on average (shocking as that may be to Los Angeles residents). More important, movies make the majority of their revenue when they're done playing in theaters, from DVD, pay television and other markets. Video games make virtually all of their money from retail sales. With the exception of the relatively tiny market for add-on digital content, they're done once they leave stores.

We're not saying the launch of Modern Warfare 2 isn't impressive. As a story in today's Times explains, it's a new record, a much-needed shot in the arm for the industry, and a reflection of careful planning and a massive $200-million investment by Activision Blizzard.

Just don't believe the hype that video games are now bigger than movies. Hollywood can rest easy. For now, anyway.

-- Ben Fritz

Photo: A scene from Call of Duty: Modern Warfare 2. Credit: Activision Blizzard Inc.

Electronic Arts shutting down Pandemic Studios in Westwood

Electronic Arts' ongoing cutbacks are hitting L.A. hard, as the struggling video game publisher has decided to shutter its Westwood-based developer, Pandemic Studios.

An EA spokesperson said that a "core team" from Pandemic will be integrated into the publisher's other Los Angeles studio, located in Playa Vista, and will continue working under the Pandemic brand name.

EA acquired Pandemic, along with sibling development studio Bioware, in 2007 for a then-record-setting $860 million. Its decision to close Pandemic just two years later is a stark demonstration of the publisher's financial difficulties, which led it last week to announce a cut of 1,500 jobs, 16% of its workforce, after reporting a net loss of $391 million last quarter and a 13.5% drop in revenue.

Pandemic employed approximately 200 people in Westwood, the majority of whom will lose their jobs. In an internal memo posted on the news blog Kotaku, Nick Earl, senior vice president of the EA Games label, said Pandemic is being shuttered to "improve our cost structure, ensure quality and build schedule integrity for this studio."

Pandemic's co-founders and top executives Andrew Goldman and Josh Resnick are leaving as part of the shift.

Next month, EA will release the last game developed by Pandemic in Westwood, a World War II action thriller called "The Saboteur." Other games it has made that may be see sequels made by the team moving to Playa Vista include the over-the-top action series "Mercenaries" and "Destroy All Humans," a comedy about an alien visitor to Earth.

Update (7 PM): For more details, see the story in tomorrow's Times.

-- Ben Fritz

Photo: A scene from Pandemic's upcoming game "The Saboteur." Credit: Electronic Arts and Pandemic Studios.

Activision and video game industry aiming for huge Modern Warfare 2 launch

Late Monday night in West Hollywood, two lines snaked down La Brea Avenue just south of Santa Monica Boulevard.

One was outside Best Buy and the other GameStop. What was all the hubbub? The video game Call of Duty: Modern Warfare 2 officially went on sale at midnight.

Late-night lines for new video games are rare, but Modern Warfare 2 is much more than your average release. It's certain to be the biggest video game -- and arguably one of the biggest entertainment launches -- of 2009.

Analyst Michael Pachter of Wedbush Morgan Securities has predicted the game will generate more than $500 million in revenue during its first week, which would represent more than 6 million units sold around the world. That could match or break the $500-million video game sales record set by "Grand Theft Auto IV" in May 2008.

While it may seem natural to compare a new video game's sale to a movie opening. It's apples to oranges. Movie tickets cost under $10 on average (once you get out of Los Angeles and New York), compared with $60 for a video game, and earn more revenue after they hit theaters from DVD, television and other outlets. Video games make nearly all of their money from retail sales, which are usually front-loaded.

Nonetheless, producing a massive, hugely hyped launch has been a goal for Activision Blizzard all year. Early this summer, it charged ad agency TBWA/Chiat/Day to help it create "the biggest entertainment launch of all time," according to a June report in Ad Age.

Beatles not putting Viacom's Rock Band in the black

It may be a long and winding road to profitability for The Beatles: Rock Band.

On a conference call with analysts today following its quarterly earnings report, Viacom executives said that their Rock Band video game franchise, whose only new product last quarter was the Beatles version, is losing money, as it has for the past two years.

"Rock Band was a negative contributor to margins in the third quarter," said Chief Financial Officer Tom Dooley. "We expect it to break even or be slightly profitable in the fourth quarter from a margin point of view. It really depends on how many units we sell in the holiday season."

Losses on Rock Band brought down the operating margin of Viacom's media networks group, which encompasses its cable channels and related products, from 40% to 36%.

Chief executive Philippe Daumann said that Beatles: Rock Band had a "great launch" but also noted that "the economics of our Rock Band franchise are improving, though not as quickly as we'd like."

The game sold 595,000 units during September in the U.S. International sales data hasn't been released, and Viacom didn't provide any specific updates today.

In the past, Rock Band games have lost money for Viacom primarily because of the high cost of manufacturing instrument controllers. For the Beatles game, the company significantly raised the price of a version with instruments and encouraged consumers to buy the software, which is more profitable, and play it with older Rock Band controllers or those from Activision's competing Guitar Hero titles.

-- Ben Fritz

Photo: The Beatles: Rock Band on sale at a Best Buy in New York City. Credit: Daniel Acker/Bloomberg.

The Beatles: Rock Band debuts to solid but not stellar sales

Apparently, love isn't all you need.

The Beatles: Rock Band, Viacom Inc.'s highly anticipated and pricey video game based on the music of the biggest-selling rock band of all time, drew a healthy but hardly standing-room-only crowd.

In September, its first month in release, the game sold 595,000 units in the U.S., according to the NPD Group.

That's bigger than the first month sales of either 2007's Rock Band or 2008's Rock Band 2, but far below the best launches in the genre and some analysts' estimates.

2007's Guitar Hero III, for instance, sold 1.4 million units in its first six days on sale in October 2007.

Analyst Michael Pachter of Wedbush Morgan Securities had estimated that The Beatles: Rock Band would sell 1.3 million units last month. Jesse Divnich, director of analyst services for Electronic Entertainment Design and Research (EEDAR), estimated the game would sell 1 million units.

But Anita Frazier, an analyst at NPD, said initial sales for The Beatles: Rock Band were "very strong."

Although it's difficult to know what Viacom's expectations for the game were, initial sales didn't demonstrate that it had reached a wide range of gamers or Beatles fans. The month's top-selling game, Halo 3: ODST, sold 1.5 million units, nearly three times as many as The Beatles: Rock Band.

However, Guitar Hero 5 came in a little behind the Beatles game, selling 499,000 units, according to NPD. Publisher Activision Blizzard Inc. had offered a free copy of December's Guitar Hero: Van Halen to those who bought Guitar Hero 5 in its first month in an apparently unsuccessful attempt to boost interest.

Both games' far-from-stellar sales were undoubtedly affected by continued sluggishness in the video game industry. With a number of big new releases and an easy comparison with 2008, EEDAR had projected that U.S. video game software sales would rise 16% last month. Wedbush Morgan had projected 21%. NPD reported, though, that they actually grew just 5%.

Viacom guaranteed at least $10 million to the various rights holders to the Beatles' music and likenesses in exchange for all of the rights associated with the game, according to people familiar with the deal terms. Several people involved expected royalties to ultimately reach $40 million or more.

Despite the sizable royalty payments, Viacom has been counting on the Beatles game to turn around the significant losses it has experienced from its investments in the first two Rock Band video games.

The company is also counting on revenue from track downloads to improve the Beatles game's overall profitability. MTV Games, the Viacom division that publishes Rock Band titles, said the first Beatles song available for download, "All You Need Is Love," had sold more than 100,000 copies so far.

Update (5:02 PM): For a more detailed analysis of the overall video game industry performance in September, check out the Times' technology blog.

Update (12:26 AM, Oct. 20): For more, see the story in today's Times.

-- Ben Fritz

Related: Viacom hoping the Beatles will change its money-losing ways in video games

New Batman video game a major hit, G.I. Joe game disappoints

Warner Bros. may not have a new Batman movie this year, but the Caped Crusader is turning out to be the biggest thing in Hollywood-licensed video games.

Batman: Arkham Asylum sold 593,000 units in August according to NPD Group, which tracks industry sales. It's the biggest first-month sales for any video game this year based on a Hollywood property and particularly impressive given that Arkham Asylum was released Aug. 25, meaning NPD only tracked its sales for five days.

Warner said last week that Arkham Asylum, which received stellar reviews, had sold nearly 2 million units worldwide through Sept. 8, a very strong launch for a video game.

Though Warner Bros. didn't publish the game, it will benefit financially from Arkham Asylum in two ways. As the licenser to publisher Eidos, it receives royalties on game sales. In addition, Warner Bros. Interactive Entertainment, the studio's video game publishing unit, handled sales and marketing in the United States on behalf of Eidos and gets a percentage of the game's domestic revenue for those services.

Some in the video game industry criticized Warner Bros. last year for failing to release a video game alongside the hugely successful "The Dark Knight." Electronic Arts had started development on a Dark Knight game but scrapped it because of production problems. However, Arkham Asylum, which features an original story in which Batman is trapped in the prison that houses many of his most dangerous foes, has been extremely well received by reviewers and seems to have benefited from a release in the historically barren month of August, when an annual sequel to Madden NFL usually scares off all potential competitors.

G.I. Joe: The Rise of Cobra, the only other major video game based on a Hollywood property to be released in August, was a flop. Electronic Arts' adaptation of the Paramount film sold just 136,000 units all month despite being released Aug. 3. Hasbro, maker of the G.I. Joe toys, was the primary licenser to EA, though Paramount had an interest in the video game and other related merchandise.

-- Ben Fritz

Photo: A scene from Batman: Arkham Asylum. Credit: Eidos.

Universal scales back its video game ambitions

Universal Pictures' hopes of becoming a major video game publisher have been put on hold in the face of a bad economy and a major flop.

According to three people familiar with the studio's video game operations, it is no longer actively financing production of games based on its movies after its first such effort, "Wanted: Weapons of Fate," sold poorly when released in March.

Based on the 2008 movie of the same name starring Angelina Jolie, "Wanted" sold only 100,000 units in the U.S. in its first month, generating under $6 million in retail revenue. High-quality games like "Wanted" typically cost $20 million or more to produce, before marketing costs. Universal probably wants to be cautious about money-losing ancillary ventures in a year when its movies generally have performed poorly at the box office.

"Weapons of Fate" was hurt by production delays that saw it come out nine months after the movie hit theaters and three months after the movie was released on DVD. That meant it wasn't able to benefit from the studio's substantial marketing campaign for the film.

One person familiar with the studio's plans said that although Universal hasn't given up on the idea of investing in video games, the studio is being very conservative following the performance of "Wanted" and the overall slowdown in video game sales recently.

Last summer, when "Wanted" was first announced, Bill Kispert, vice president of Universal's Digital Platforms Group, said the studio was running a "hybrid model" whereby some games based on its movies would be licensed to other game publishers like Electronic Arts and Activision, while others would be produced internally. To further that effort, Universal brought on experienced video game producer Pete Wanat to oversee internal productions.

Those ambitions have clearly been scaled back, however. All of Universal's movies with video game potential are now being licensed to other publishers, though one source said the studio was considering some original projects in the early stages of development as video games. Wanat left Universal when his contract expired earlier this year.

Other studios are taking differing approaches to video games. While Fox continues to license all of its properties to other publishers, Paramount released a downloadable game based on "Star Trek" in May and has ones based on "The Warriors," "Top Gun" and "Days of Thunder" in production. Walt Disney Co. and Warner Bros. are producing a variety of games based on movies and TV shows and, in select cases, original ideas.

-- Ben Fritz

Photo: A scene from "Wanted: Weapons of Fate." Credit: Warner Bros. Interactive Entertainment.

Disney hires Halo studio founder, buys company, to beef up video game operation

The Walt Disney Co. is continuing to bring in creative talent from the outside, hiring the co-founder of the company behind the hit video game series Halo as the new head of creative for its video game division.

Along with tapping Alex Seropian, Disney is also buying the game development studio he currently runs, Wideload Games.

The deal comes just a week after Disney bought Marvel Entertainment for $4 billion. While the Wideload acquisition is substantially smaller -- so much so that the value isn't being disclosed -- it further illustrates how the media conglomerate is making strategic purchases to expand its creative capabilities.

Seropian was a founder and the first chief executive of Bungie Studios, which created and produced Halo. Bungie was acquired by Microsoft, which published the Halo games, in 2000. In 2003, he left to head up Chicago-based Wideload.

In his new role of vice president of creative at Disney Interactive Studios, Seropian will coordinate production at all of Disney's eight internally owned video game development studios.

"Currently our creative team doesn't have central leadership," said Graham Hopper, general manager for Disney Interactive. "He'll be working with our studios to make their work better outside of the normal review process. There are a whole suite of things we want Alex to do for us."

Viacom hoping the Beatles will change its money-losing ways in video games

After spending over $325 million, Viacom is ready to start making money on video games.

That's exactly what the conglomerate will start doing, executives say, with this fall's the Beatles: Rock Band, a pricey and high-profile addition to the genre dominated by Activision's Guitar Hero.

As a story in today's Times explains, Viacom has guaranteed the various Beatles rights holders around $10 million and will likely dish out $40 million or more in rights payments. That's not even counting the tens of millions spent to produce the game. It's a costly gambit, right in the middle of a recession, that the biggest rock band in history will draw new players to a genre that has been declining this year.

Viacom bought Harmonix Music Systems, the developers of Rock Band games who originally created Guitar Hero, for $175 million in 2006. This year it awarded the studio's owners an additional $150 million in bonus payments. That's a huge amount of money, particularly given that the Rock Band games have lost money and been a consistent drag on the earnings of Viacom's MTV Networks.

But the conglomerate has a new approach to the Beatles: Rock Band that focuses on more profitable software and music downloads over instrument controllers and is confident its marketing blitz, as well as the publicity around a newly remastered reissue of the band's music, will draw both avid video game players and casual Beatles fans.

By the fourth quarter, MTV Games General Manager Scott Guthrie told The Times, Viacom's video games operation should finally start making money.

To find out how, and just what's at stake in the Beatles Rock Band and the highly competitive music video games space this fall, read the story in today's Times.

-- Ben Fritz

Photo: Image from the Beatles: Rock Band. Credit: MTV Games.

Sony repositioning PlayStation 3 as all-in-one entertainment device

Nearly three years after the device launched and quickly fell behind its two major competitors, Sony is attempting to reposition its Playstation 3 video game console as an all-in-one entertainment device.

The Japanese electronics giant is launching a new advertising campaign for the crucial fall and holiday season that places less emphasis on its video game capabilities and more on its ability to play high-definition Blu-ray DVDs and to download movies from the Internet.

One of the ads, showed to The Times by Sony in advance of airing, touts the PS3 as "the greatest gaming, Blu-ray playing, movie downloading system around." Another features a teenager complaining that his grandmother is using the console to watch Blu-ray movies, preventing him from playing video games.

After years of charging more than its competitors, Sony last week cut the price of the PS3 to $299, putting it in line with Microsoft's Xbox 360, which has various models that cost $199 to $299, and the Nintendo Wii, which costs $249.

The device's high price and complex set of features have been cited by many in the industry as key reasons for its slow sales. According to NPD group, consumers in the U.S. have bought just over 8 million PS3s through the end of July, compared with more than 15 million Xbox 360s and over 20 million units of the Nintendo Wii.

That has been a source of particular frustration to Hollywood studios, which have been counting on the PS3 to boost sales of Blu-ray discs, which haven't grown fast enough to make up for an ongoing decline in DVD sales.

"We have been a game company for years and we would never walk away from that, but research confirmed there is a larger proposition under our nose," said Peter Dille, senior vice president of marketing for Sony Computer Entertainment America. "We wanted to reposition as a total entertainment solution. We felt like we can really own entertainment."