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Analyst issues discount price warning

Colin Sebastian concerned by the risk of lower pricing heading into 2009

Lazard Capital senior analyst Colin Sebastian has issued a warning about triple A product discounting over the Christmas and New Year period, on fears that it could lead to a general trend in a difficult economy and subsequently lower publisher revenues.

He voiced his concerns in a recent analyst note looking at Activision Blizzard's move to knock USD 10 off the price of Call of Duty: World at War, bringing the US retail price point down to USD 49 - a move that follows price reductions on Guitar Hero: World Tour, and other cuts from Electronic Arts and Ubisoft.

"Retail checks indicate that Activision is now offering key holiday title Call of Duty: World at War at a discounted price of USD 49 (versus USD 59)," he wrote. "While the move may be part of an annual promotion, we believe a USD 10 discount on one of the industry’s top holiday releases highlights the risk of lower software pricing moving into the New Year."

As a result Sebastian is cutting his earnings estimate for the publisher to USD 5.07 billion, down from USD 5.2 billion, although the Activision Blizzard revision isn't as steep as some others.

"To put our new estimates into perspective, the combined change to EPS from our two recent revisions is -10 per cent, compared to a -40 per cent revision in estimates for Electronic Arts and THQ, and consensus estimates for Take Two declining by more than 90 per cent last week.

"Risks include the performance of key franchises, World of Warcraft subscriber trends, software pricing, and overall industry sales trends. Activision Blizzard remains our top pick in the sector, with industry leading operating margins, a diverse revenue base, and several of the strongest video game franchises."

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