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World of Warcraft Crushes Star Wars: The Old Republic

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The Force is with Activision's beloved MMO. Sadly, the same cannot be said for EA and Star Wars: The Old Republic.

Electronic Arts (NASDAQ: EA) had high hopes for its long-awaited Star Wars MMO, touting it as the next great game in the only genre that has successfully persuaded consumers to pay a monthly fee to play online. It is through those monthly fees that Activision Blizzard (NASDAQ: ATVI), which has taken a loss on the decline of several major franchises (including Guitar Hero and Tony Hawk's Pro Skater), has managed to maintain its status as one of the world's largest video game publishers.

EA was hoping to get a piece of the MMO pie. But with a subscriber base of just 1.3 million (down from 1.7 million), the future of Star Wars: The Old Republic is anything but certain.

"Management attempted to send the analyst community (and queued in shareholders) off the trail of underperformance by stressing more people are paying on a sequential basis," Brian Sozzi, the Chief Equities Analyst for Nothing But Gold Productions, wrote on Benzinga this morning. "Umm, come on guys. What happened is that casual gamers, fans of Star Wars, and hardcore picky gamers did not fork over the credit card once their trial subscription ended, likely as the content didn't really bite enough. Electronic Arts had to grow the subscriber count (non-paying first) to Star Wars prior to a second half of the year offering from a competitor and in the face of Street expectations, and has failed to bring that front and center."

Considering the millions of dollars EA poured into the game, Sozzi does not believe that Star Wars: The Old Republic is getting he job done "from a returns perspective."

EA's Future: Good or Bad?

While Sozzi is unsatisfied with EA's results, Arvind Bhatia, an interactive entertainment analyst with Sterne Agee, told Benzinga that his view is "quite a bit different."

"We thought that the guidance for fiscal 13 was actually better than what we were thinking," Bhatia told Benzinga today. "Our expectation [was] that Star Wars was gonna be in the 1.25 to 1.5 million subscriber base. [Thus], we thought they weren't going to give very strong guidance."

With regard to EA's conference call, Bhatia said that the company "clearly highlighted the physical growth they've had."

"They bought back a lot of stock to put their money where their mouth is," said Bhatia. "And, again, the talk of the next-generation console cycle was also exciting to me because I felt like, typically, that gets investors excited in these stocks. That's what sort of helps get a better valuation."

Ultimately, Bhatia said that Sterne Agee is "not as pessimistic as the market is on EA."

"The multiple that the stock has today of less than 10 times earnings….to me signals a point of maximum pessimism," Bhatia explained. "While the stock isn't getting any respect today, I would think that there could potentially be new money that could come in and take advantage of the low price. This is a multi-year low for EA today."

Star Wars: The Dying Republic

"I think the 2.4 million copies that they've sold, clearly there was, perhaps, more expectations," Bhatia admitted. "We definitely thought, originally, that they would have more sustainable subscribers. From that standpoint it is disappointing. Hopefully they can keep these customers that they have today and hopefully expand the customer base with more expansion packs and what have you."

Still, Bhatia does not think that investors should underestimate the game's remaining subscriber base of 1.3 million users. "If they have regular, paying subscribers at that level, they should be able to make 10 to 15 cents a share on an ongoing basis," said Bhatia. "Not as good as what we were expecting; before we were thinking 20 to 25 cents. But still, it's a profitable business for them on an ongoing basis, and hopefully they can grow the subscriber base."

A "Casual" Loss?

With regard to EA's excuse that casual gamers are the ones who abandoned Star Wars: The Old Republic, Bhatia said that he'll "give them the benefit of the doubt since we don't know the details on who left and who didn't."

"I guess as the company starts to advertise beyond the customers that they have, we'll have to see what that does," he said. "I still think that if they can keep these customers over the next 12 months, that's still sort of a mini victory."

What Consumers Think

On Twitter, Benzinga reached out to the gaming community to see what everyday consumers think of Star Wars: The Old Republic.

"It's fun, though I can see how people might not like it," said @unluckynumber11. "Takes patience and work to get to the higher levels. Plus not that many people playing so it's hard to group up."

"I cancelled my sub this weekend," said @fallenwiccan. "I think that says it all. Subbed from launch day, barely played it and I used to play WoW for over 40 hours a week at my peak."

When I tweeted @NicoleWakelin, AKA Total Fan Girl (and a big Star Wars: The Old Republic supporter), she replied with an entire blog post.

"It's not a good thing that people have left the game, but I think it was something that was absolutely going to happen, especially with this title for a couple of reasons," she wrote. "Even World of Warcraft, the granddaddy of them all, has been losing players."

In her story, Wakelin linked to a Massively report detailing the 1.1 million players who walked away from World of Warcraft. Last November, PCWorld reported that World of Warcraft lost two million subscribers in one year.

And yet it is still crushing Star Wars: The Old Republic.

Follow me @LouisBedigianBZ

Posted-In: Activision Arvind Bhatia Brian Sozzi EA electronic artsAnalyst Color Analyst Ratings Tech


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