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October Review Report

Jesse Divnich
November 15, 2007

Key Points

  • Hardware market share is consistent with previous forecast
  • 40GB PS3 Model expected to increase sales in November and December
  • Software sales expectations
  • Activision's success and self-cannibalization
  • Sony continues to struggle with its PS3 exclusives
  • Assassin's Creed impacted by mixed reviews

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 sales were in line with market expectations with total unit sales just 0.57% above market expectations. As predicted, the Wii took back the top spot, which it lost to the Xbox 360 last month due to the Halo 3 launch. The market share break down for consoles matched previous market predictions. Most notably for hardware sales, the PS3 continues to lag the home console sector with only 121,000 units in October, 19% below market expectations.

The prediction market is forecasting the current market share break down to persist in November and December. Nintendo Wii will continue to lead the home console category; Nintendo DS the portable category. Listed below are the hardware expectations for November and December:





PS3 40GB Model

Sony recently announced a successful launch of its new PS3 40GB model. The prediction market reacted quickly to this news and continued to increase its expectations for the PS3 in November to 458,000 units from a prior 292,000 units before the new model announcement.

Although the grass may look greener on the other side, the market still questions Sonyís ability to generate strong first-party salesóa key factor to any consoleís success. Ratchet & Clank Future only sold 74,500 units in October, well below an already low market expectation of 129,000 units. Sony does have one last chance to prove itself in 2007 with its first-party titles with Uncharted: Drakeís Fortune, which the prediction market expects 286,000 units sold in December.

Software Sales

Software sales came under expectations at $513.9 million units but still an outstanding 39% increase over last year. The prediction market has demonstrated great accuracy in software sale estimates, expecting just a 7% difference in October. The market is expecting November and December to produce $1.05 billion and $2.19 billion in sales, a 31% and 27% increase year-over-year, respectively. Both November and December estimates would both be industry records.

Activision Success and Cannibalization

Activision had one of its strongest Octobers on record, with Guitar Hero III as the number one selling multi-platform game in October. We expect this trend with another Activision multi-platform title, Call Of Duty 4, to achieve the number one spot in November. Currently, for November, the prediction market expects 733,000 units for the Xbox 360 version in November.

However, the strong success of Call of Duty 4 has had a toll on another Activision title, Enemy Territory: Quake Wars, which only sold a disheartening 18,600 units on the PC in October. It is without a doubt that Activision is not disappointed that Call of Duty 4 reigned supreme; however, it still is worth noting and bothersome that a publisher would set one of its own properties up for failure. This might be one title that might have actually been more successful if delayed until after the holidays.

Assassinís Creed

Assassinís Creed was released on Tuesday and a wide barrage of reviews have been published. Although many reviewers lauded the game, others heavily criticized it. The prediction market was expecting a flawless game, with the Metacritic Futures predicting a score around 95. As preliminary reviews pointed to a Metascore in the 80s, the sales forecasts for the game plummeted. Assassinís Creed for the Xbox 360 fell from a lofty 2.85 million unit sales forecast down to as low as 1.84 million units. The PS3 version also saw its sales forecast drop, falling from 1.48 million copies to 1.38 million copies. The below-expected ratings do not appear to affect the PS3 version as much, indicating the prediction market expects the PS3 version to remain nearly as appealing to customers as it was before. The Xbox 360 version may be more susceptible to competition as it faces many heavy hitters on the platform.

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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."

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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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