Event:

Electronic Arts held its E3 press conference on Monday. EA’s press conference had a few minor announcements that are of note.

Conclusion:

Modest positive for ERTS. EA announced solid sales of EA Sports Active and announced a few new titles that should have a modest positive benefit to upcoming quarters although neither of these things move our estimates in the near-term

Negative for THQI. Electronic Arts announced it is creating a mixed martial arts (MMA) game, which will compete with THQ’s recently-launched UFC game. It will likely impact THQ’s game in F2011 and make it more expensive to retain the license in F2011. The UFC game is the most exciting thing THQ has going right now.

Details:

EA Sports Active has sold through 600K units in 2 weeks. Our estimate is for 1M units in the June quarter, which we will stick with given this announcement and since there is a month left of sales. This is reinforced by the comment that sales were as large in week two as week one, which should provide for a nice tail that is consistent with more casual games. 600K units in 2 weeks usually is not something to write home about (or save for an E3 announcement) but since this is a Wii-only game this level of sales put it in rare company for a third-party game: the potential 1M unit seller. The only downside of this performance is that EA had hyped the Street to expect this level of sales, so it will not have much impact on the near-term performance of ERTS.

EA announces an MMA game that will go head-to-head with THQI. EA announced two things that are going to negatively impact THQI. First it announced it moved Fight Night Round 4 up a week to June 25th. It did not say why it did this but it is likely because the game is competitive with THQI’s UFC mixed martial arts game and an earlier release may limit UFCs tail. Second, and more importantly, EA announced an MMA game of its own without a license.

MMA has been in development at Tiburon for some time and had been a rumor that we had heard repeatedly. However, we did not expect the game so soon as the team is apparently still small and the game is without a license or a formal release date. EA is clearly getting its game out just as THQ is having success with UFC in order to try and make a splash using the new interest in MMA games. It likely will not do much good given the high quality of UFC 2009, but it certainly shows that EA’s gloves are off. Games like SKATE and MMA probably are not going to create huge profits for EA, but they clearly show that it is willing to swing its weight around.

THQI has a big advantage with the UFC game because of (1) Yukes’ (the external developer of UFC) experience with fighting games and (2) the UFC license, which is really the only big license that matters in MMA. Given the limited information we have on EA’s game it only makes sense to assume that THQ’s game will outsell it next year and remain the king of the sport. However, EA’s game will certainly limit the success of THQ’s at least in a minor way, although we doubt it will impact it much overall.

However, for THQI the biggest risk becomes the future of the franchise beyond 2010 as it is clear that EA will try and compete for the UFC franchise license in 2011, which it will either be successful at or make it much more expensive for THQ. Either way this will make THQ’s new savior franchise a much less profitable one and something that investors will be less excited about.

As expected the Rock Band franchise is going to have a down year. During the MSFT press conference Rock Band Beatles was unveiled and demo’d for the first time. The art direction and content look very good but probably caters to Beatles fans more than rhythm games. Since Beatles and Lego Rock Band are the two innovations in the Rock Band franchise this year it has become clear that Activision is in a great position to further expand its lead in the music genre.  The introduction of Guitar Hero 5 (although not much of an innovation), Band Hero, Guitar Hero Metallica and especially DJ Hero, makes the Guitar Hero franchise a likely share-gainer this holiday.