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Industry Analysts Talk Activision's  Guitar Hero  Shutdown

Industry Analysts Talk Activision's Guitar Hero Shutdown

February 11, 2011 | By Chris Morris

February 11, 2011 | By Chris Morris
More: Console/PC

[Gamasutra editor-at-large Chris Morris analyzes the sudden dissolution of the Guitar Hero music franchise at Activision, with input from multiple financial sector analysts, who discuss how the company has "pretty much driven the franchise into the ground".]

Players might still be reeling from the news that Activision is pulling the plug on Guitar Hero, but Wall Street is giving the fat lady a standing ovation.

It's no secret that the franchise has been in considerable decline for the past couple of years. And while it seems like it was only yesterday that the games were pulling in $1 billion, analysts say the publisher made a hard choice that will likely serve it well over the long term.

"It had a great run, but it also had a steep fall and the customer demand just isn't there," says Eric Handler of MKM Partners. "That money can be spent on something that has better returns. I don't disagree with the decision."

Handler's hardly alone. Wedbush Securities Michael Pachter called the move "prudent". And M2 Research senior analyst Billy Pidgeon told Gamasutra that Activision has "pretty much driven the franchise into the ground with title after title after title."

While gamers were caught off guard by the decision, Wall Street has quietly wondered when the company would make the move for some time. The tepid results of last year's Guitar Hero: Warriors of Rock may well have been the final nail in the series' coffin, though.

"Declining sales as well as a less appealing profitability profile owing to the inclusion of a lower-margin peripheral hastened the decision to cancel the project," Edward Williams of BMO Capital Markets told us.

Of course, it's not just the retail side of Guitar Hero that's being shuttered. Activision, in a statement on the official DJ Hero website also indicated that DLC for that game (as well as Guitar Hero) will end as well.

"We will release the previously announced DLC track and mix packs for February, but - unfortunately, we will not be able to release new DLC packs beyond what we already have," says an answer on the FAQs.

The reason for that is pretty simple: There's not a lot of incentive for Activision to support a franchise it's walking away from. (And, admittedly, yes, it's possible the company will attempt to revive it a few years " but that gets into a realm of speculative thinking that's fruitless for fans and painful for those who have lost their jobs because of this action.)

And even if Activision had decided to keep selling DLC, it probably wouldn't have lasted very long.

"I can see them thinking it doesn't make sense to sell digital content for a title they're no longer producing, because the law of diminishing returns comes into play," says Pidgeon.

Handler agrees. "Even if you made it just a digital business, the return on investment with that is so small that it makes more sense to spend the capital elsewhere," he says.

While there's plenty of talk about how wildly popular the Guitar Hero franchise is, the hard truth is that its so-called passionate fan base simply wasn't buying the games anymore. Last year's Guitar Hero: Warriors of Rock sold fewer than 261,000 copies in the U.S., according to sources with access to NPD data - with nine different SKUs on the market.

"It's just not a category that's getting consumers enthusiastic right now," Activision CEO Bobby Kotick told CNBC Thursday. "I think you need to focus your resources on the things that get consumers really excited."

At the moment, that's Call of Duty and Blizzard's titles. And to capitalize on that, the publisher has launched a new Call of Duty-focused development studio known as "Beachhead," through which it plans to build a digital platform for the franchise's community, offer exclusive content and other services.

Skeptics wonder if it's history repeating itself. Will Activision over saturate the market with CoD games as it did with Guitar Hero? Analysts acknowledge it's possible, but think the company learned a lesson from 2009's onslaught, when eight music games hit the market.

"I tend to believe they're looking at it cautiously," says Pidgeon.

While the loss of Guitar Hero is a sad one for gamers who don't care about the bottom line, ultimately, say analysts, it was simply something that made good business sense.

"Mid-level titles are just getting killed in the marketplace," says Eric Handler of MKM Partners. "Would you rather spend an extra $10 or $20 million on something that's not going to be a hit or on a Call of Duty or World of Warcraft?"

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