The Global Interactive Entertainment Report - June 2005

Strong secular growth should also help to mitigate industry cyclicality
We estimate the industry’s 5-year trough-to-peak revenue CAGR will be 10% globally, as the next console cycles get underway, and that the industry leaders will grow faster than the overall market, with the potential for upside to our assumptions. This report follows our Electronic Arts and Activision initiations of coverage.

Only segment of US consumer media with a significant acceleration in spending
Gaming continues to increase share of consumer dollars and time, particularly in comparison to other offline media, such as broadcast TV, newspapers and books. Over the next 5 years, we anticipate 10% compound global revenue growth (trough-to-peak), though we expect the leaders in the space to grow in excess of this rate.

New areas of growth may help smooth volatility of the business over time
We believe that the financial performance of the publishers should become less sensitive to the hardware cycle over time, due to expanding gamer demographics and geographies, increasing broadband penetration, rising usage of handheld/mobile devices, secular online gaming shifts and the emergence of robust in-game advertising opportunities. Publishers also continue to refine their operating and management philosophies, in addition to reaping the benefits of economies of scale.

MSFT’s push to dominate the next-generation console should benefit publishers
We believe that Microsoft has the most consistent and unified strategy going into the next generation at this point, and the Xbox 360 could take significant share in the next console cycle, at least in North America and Europe. We believe that strong competition among the console makers should continue to benefit the industry as a whole and the third-party publishers in particular, by providing more favorable royalty terms.

We remain Overweight ERTS and ATVI, the industry leaders
We believe that owning shares of ERTS provides the best exposure to the secular media growth opportunities of the industry. Activision, which is less than half the size of Electronic Arts in terms of revenue, should have greater opportunities to expand its market share and margins, if the company executes.

We view US Interactive Entertainment (Video Game) industry as Attractive
With a new hardware product cycle about to start, we believe the stocks have started to adjust for the cycle trough. The near term could still prove rocky, but we see strong drivers for Interactive Entertainment to expand its share of a growing overall entertainment industry pie. Leading publishers and companies with unified online strategies should benefit disproportionately from the slow, steady emergence of online-enabled game play.

Please find the complementary slide presentation summarizing the report below
Additionally this presentation is include in the back of the report

Report:
The Global Interactive Entertainment Report (172 pages, 14 Megabytes)


Complementary Summary Presentations:
The Global Interactive Entertainment Report Summary Presentation (51 pages, no video embedded, 2 Megabytes)

The Global Interactive Entertainment Report Summary Presentation (51 pages, video embedded, 69 Megabytes)