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November Review Report

Jesse Divnich
December 14, 2007

Key Points

Introduction

This report is intended to aid industry professionals and the press in drawing insight and discovering trends occurring in the video game industry through the use of the simExchange video game prediction market (www.thesimexchange.com), a data aggregation system in which gamers, developers, and industry investors trade virtual video game stocks and futures to predict how video game products will sell and how they will be critically received.

Results based on NPD data have consistently shown that The simExchange prediction market can predict results not only more accurately than traditional models and surveys, but also more quickly adjust forecasts based on industry and product news.

Hardware Market Share

Hardware market share rankings in November came in-line with expectations, but unit sales results were all well above the market’s expectations. The only exception was the Nintendo Wii, which missed the 1,060,000 units forecasts by the prediction market. Nintendo’s claims of supply constraints likely played a bigger role in hindering sales than originally expected.

The PS3 sold better than expected against its closest rival, the Xbox 360, which only outsold it by 1.6-to-1 from an expected 1.8-to-1. Sony’s recent price cut and introduction of a cheaper 40GB model played a significant role in closing the gap between its console and the Xbox 360.

Record Software Sales

November’s software sales rang in an amazing $1.3 billion dollars, a 62% increase year-over-year, which set an industry record for software sales in November. December is still expected by the prediction market to amount to $2.4 billion in software sales, another record-breaking month. Given the NPD Group’s October and November data and the simExchange’s December projections, retailers are expected to bring in $4.2 billion in software sales this quarter, a 44% increase year-over-year--also an industry record for software sales.

Many industry observers were concerned that the slowing US economy and slower Holiday shopping this year would dampen game sales, which explains conservative forecasts across the board. Data released by the NPD Group indicates that the pessimism was unwarranted. These results will have a positive impact on retailers like GameStop whose revenue depends heavily on the video game sector.

Call of Duty 4 – #1 in November

Originally, Super Mario Galaxy was expected to be the number one selling SKU in November at 1.2 million units. However, to the market’s surprise, Call of Duty 4 for the Xbox 360 reigned king at over 1.5 million units sold in November versus Super Mario Galaxy’s 1.1 million units. Call of Duty’s success was driven not by its single player but likely by its addicting online play, which mashes the First-Person-Shooter modern war style of play with a deep RPG and stat tracking element—clearly a recipe for success.

Rock Band Carries a Tune

Rock Band, up against an improperly executed marketing campaign, supply constraints, and hardware bugs, still managed to beat market expectations by ringing in 311,909 units sold in November, well above the market’s expectation of 152,000 units. We consider this a significant achievement for Harmonix, which despite large barriers managed to break into the music peripheral genre under a new intellectual property, which clearly could have been marketed better to consumers.

Assassin’s Creed Smashes Expectations

Despite mixed reviews and some early controversy, Ubisoft was able to overcome these barriers by executing a fantastic marketing campaign that drove unit sales well above market expectations at 980,000 and 376,483 units for the Xbox 360 and the PS3, respectively. This proves once again that marketing, advertising, and public relations play the biggest factor to any new intellectual property.

Manhunt 2 Misses its Mark

Manhunt 2 was released to the market with great concerns over its content as activist groups and parents claimed the Wii remote control added too much realism to an already violent game. These concerns with Take-Two, the ESRB, and retailers have proven to be unnecessary as sales were a depressing 18,494 units sold in November—making little impact on the industry. This should not be considered a victory for those groups who protested its release, but rather a victory for industry and gamers who did not fall for the market hype of what can only be described as a poorly executed title.

Crysis trumps Unreal Tournament 3

Originally, the market expected Unreal Tournament 3 to surpass Crysis; however, this was proven to be false as Crysis triumphed over Unreal with 86,633 to 33,995 units, respectively. It should be noted that even though Crysis beat market expectations, it is far from being called a success, and still suggests that the best PC titles are those that can be readily available to a wider market by having lower hardware requirements.



Publishers, Retailers, and Investors

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Interview Requests

Both Jesse Divnich and Brian Shiau are available for interviews and direct comments from the media or the investment community. Please see this reports footnote for their contact information.

Media

This report and all forecasts on the simExchange Web site are available for your use. Please provide your readers context on the nature of these forecasts, for example: "The simExchange is an online virtual stock market in gamers, developers, and investors trade stock to predict how games will sell."

Jesse and Brian will offer quotes and/or analysis for your articles or any current event pertaining to the video game industry upon request. Any request should be made using the Contact Us form.

About The simExchange

The simExchange (www.thesimexchange.com) is the online prediction market for video games. Launched in November 2006, The simExchange allows thousands of gamers, developers, and industry watchers to forecast the video game industry. Participating in The simExchange is completely free and no real money is involved.

About Jesse Divnich

Jesse Divnich has been working in the video game industry for over 10 years. During that time he has assumed many professional roles including: beta tester, programmer, publisher analyst, and for the last 6 years, a private analyst and consultant for buy-side investment firms. Jesse Divnich has received many awards for his work in the private investment sector as an analyst covering publicly traded video game companies. Currently, Jesse Divnich has switched from the private sector to the public sector as an Analyst for The simExchange where he writes analytical articles on various industry topics.

Copyright and reprinting

The simExchange, LLC retains the right to the content of this article but permits the reprinting of this article with proper credit to The simExchange and Jesse Divnich.



The simExchange, LLC does not issue any investment ratings or investment recommendations for any publicly traded company. The accuracy of the opinions or data in this report is not a guarantee.

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