Market Overview

Call of Duty Breaks New Record, So Why Isn't Activision Trading Higher?


Call of Duty: Modern Warfare 3 is now the fastest-selling game of all time. But investors don't seem to care – why?

With average review scores near 90%, investors couldn't be as frustrated with Activision (NASDAQ: ATVI) as they were with THQ (NASDAQ: THQI) following the release of Homefront. Homefront's critical scores were nothing to write home about; the game barely achieved an average of 70%. Despite the bad reviews, Homefront went on to sell 375,000 copies on its first day of release. But after endless hype from THQ (and talk of the game selling millions of units), investors were not amused.

Activision's story is a bit different. Not only is Call of Duty: Modern Warfare 3 doing well with critics, but it just broke a record without selling a version of the game that retails for $150. Whereas the last two Call of Duty games were sold in special bundles with RC cars and night vision goggles, Call of Duty: Modern Warfare 3's most expensive edition topped out at $100. This means that the game's success is even more impressive than before, because it had to sell more units just to make as much as last year's release. With more than 6.5 million copies sold in one day (across the U.S. and U.K.), Activision will have some serious bragging rights for years to come.

At $400 million in 24 hours, Call of Duty: Modern Warfare 3 has made more money faster than any one item in entertainment history. While critics will be quick to point out that video games cost a bit more than movies (rare exceptions excluded), the truth is that anyone and everyone can see a film. You don't need a game console to see the latest Paranormal Activity – you can simply drive to the nearest theater, buy a $10 ticket, and watch the movie.

Movies also have the mainstream advantage. While video games have only been popular since the late ‘70s/early ‘80s, movies have been a big part of our culture for more than 60 years. Everyone – from five-year-old girls to 80-year-old men – watches movies. The same cannot be said for video games, which is still a fairly young industry.

Video games also last a bit longer than movies, and their replay value is much greater. Whereas the average film is two hours long, the average game offers a campaign with more than six hours of gameplay. With multiplayer included, the average (decent quality) game will provide its user with more than 30 hours of entertainment. A game like Call of Duty could provide several times that amount.

So why isn't it fair to compare a $60 copy of Modern Warfare 3 to a movie ticket for Avatar that costs $10 (regular) or $13 (to see it in 3D)?

Investors don't really care about this particular argument. Rather, this is the kind of battle that bloggers like to jump on.

However, investors might be wary of the critical outcry that has followed Modern Warfare 3's release, in which everyday gamers – not paid game reviewers – are complaining about the similarities between the latest and previous Call of Duty games.

But should investors really care? Is this something that should keep the stock from rising at a time when Activision has something to brag about? It seem so strange that today, of all days, this company is trading down.



If you think that sales figures hold more weight than critical acclaim, consider these trades:

  • Obviously Activision has a lot to brag about today.
  • Battlefield 3 may not have sold as many copies as Modern Warfare 3, but Electronic Arts (NASDAQ: ERTS) is still doing phenomenally well.


Concerned about the future of Call of Duty? Wonder if it will go the way of Guitar Hero, Tony Hawk, and other (formerly huge) Activision franchises? Then consider this alternative:

  • Majesco (NASDAQ: COOL) is more of a casual game company that does not rely on annual sequels and critical hype to make a buck. Over the past six weeks, Majesco shares have been on the rise, going from $2 on September 30 to $3.28 on November 10.

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