Equity Research United States

Research Brief Leisure

June 7, 2002
Video Game Industry Update
2002: The Year of Software
The focus of the video game industry has shifted to software in 2002. Video game hardware dominated the spotlight in 2001. This year video game software has come into the limelight. This report attempts to provide some clarity to the video game software market. The market for next generation titles will be crowded this holiday. Between the PS-2, GameCube and Xbox there will be over 750 next generation titles by the end of this year vs. 270 last year. The competition will be tough in many genres, including action and traditional sports, shooters, and fighting. Sony continues to dominate the video game market in 2002. In addition to its large installed base of hardware (30 million units shipped worldwide), Sony will have a number of important exclusive titles this year, including Take-Twos GTA: Vice City, EAs Medal of Honor and Sonys The Getaway. Nintendo will bring out its big guns later this year. Nintendo will release three of its biggest franchises for the GameCube later this year and next year: Mario Sunshine (August), Metroid Prime (November), and The Legend of Zelda (February 2003). Microsoft lacks a compelling line-up of first party software. While some of Microsofts titles, including Blinx and MechAssault, appear to be promising, we believe that Microsofts line-up may have difficulty squaring off with strong line-ups from Sony and Nintendo in the 2002 holiday season. Sega is back. By all accounts, Sega presented an impressive line-up of software at E3, including Shinobi, Super Monkey Ball, Fantasy Star Online, and Panzer Dragoon. We further believe that Sega Sports will be EA Sports primary competition in the sports genre. EA presented the largest and most diverse portfolio of titles at E3. EAs line-up includes its EA Sports titles, Lord of the Rings, Harry Potter, Medal of Honor, Need for Speed, Bond, Sim City 4, and The Sims Online.

Gary L. Cooper

Eric K. Brown
Banc of America Securities
2002 will be the largest year of software growth during the current video game cycle.
The focus of the video game industry has shifted from hardware to software in 2002. Video game hardware dominated the spotlight in 2001, highlighted by the launches of Microsofts Xbox and Nintendos Game Boy Advance and GameCube. This year buoyed by a rapidly expanding installed base of hardware video game software has come into the limelight. 2002 will be the year of software. 2002 also should represent the largest year of growth of video game software sales during the current video game cycle (30%+). By the end of this year, the number of available PS-2 titles in the U.S. will nearly double to 400 from the end of last year, while the number of Xbox and GameCube titles combined will likely increase five times this year to about 300 titles. In this report we attempt to provide some clarity to the crowded market of video game software. We have analyzed the software markets in the following sections:
Timeline of title releases and earnings releases. We present a one-page table of the major title releases of the second half of 2002. In the table, we have also included the earnings releases of third party video game publishers. We then provide a discussion of the important title releases within the table. Software titles by genre. After discussing the major titles chronologically, we break down video game software by genre (e.g. sports, fighting, shooters, etc.). By analyzing the upcoming titles by genre, we believe it is possible to gain an understanding about the relative competition and potential for software performance within each genre. Software titles by first and third party publishers. We discuss the major first party software releases from Sony, Microsoft, and Nintendo, followed by a review of the upcoming releases from Activision, EA, Take-Two, THQ and Sega. Online video games. Finally, we provide a short discussion on the present state and potential for online video games.

2002 Timeline

The timeline below lists the major title releases and earnings announcements of U.S. video game publishers for the remainder of 2002.
Important Upcoming Releases & Events 2002
Date June: Title / Event Medal of Honor Frontline Neverwinter Nights WWE Wrestlemania X8 Neverwinter Nights TTWO reports 2Q02 July: Warcraft III Blizzard x Publisher EA Infogrames THQ Infogrames x x x Platform PS-2 Xbox GC GBA x x PC PS-1
ATVI and EA report 1Q03, THQ reports 2Q02 August: Madden NFL 2003 NFL 2K3 Super Mario Sunshine Turok: Evolution September: Animal Crossing Mortal Kombat: Deadly Alliance Need for Speed Hot Pursuit 2 Tekken 4 TTWO reports 3Q02 October: Blinx Grand Theft Auto: Vice City Kingdom Hearts Red Faction 2 Vexx Microsoft Take-Two Square EA THQ Acclaim x x x x x x x x EA Sega Nintendo Acclaim Nintendo Midway EA Namco x x x x x x x x x x x x x x x x x x x x x x x
ATVI and EA report 2Q03, THQ reports 3Q02 November: The Getaway Harry Potter James Bond 007: Nightfire Metroid Fusion Shinobi Sim City 4 The Sims The Sims Online Tony Hawks Pro Skater 4 WWE Smackdown! Shut Your Mouth December: Doom III The Lord of the Rings, The Two Towers TTWO reports 4Q02
Source: Company reports, www.ebgames.com, www.gamerankings.com, www.gamespot.com, BAS estimates.
Sony EA EA Nintendo Sega EA EA EA Activision THQ Activision EA
x x x x x x x x x x x x x x x x x x x x x x x
2002 Major Title Releases
Electronic Arts released Medal of Honor Frontline on June 1 exclusively for the PS2 to coincide with the anniversary of D-Day. The original Medal of Honor (released th in November 1999) sold 1.1 million units at retail and is EAs 11 top selling console SKU of all time in the U.S. On its Q1 earnings call, Electronics Boutique said that it expects Medal of Honor to be one of its top titles for Q2. In fact, the initial shipment of Medal of Honor was sold out at Electronic Boutique locations that we contacted. THQ launches its WWE Wrestlemania X8 title on the GameCube in June. Through April, WWF has sold over 680,000 units on the PS-2 in the U.S. since it was released in November and 190,000 units on the Xbox since it was released in February. We believe WWE may be one of the top selling games on the GameCube upon release. The company will follow up with PS-2, GBA, and PC WWE titles this fall. Retailers and game reviewers are hailing Infogrames Neverwinter Nights for the PC as one of the top hits of the summer. Neverwinter Nights is scheduled for release in the second half of June.

According to the management of Electronics Boutique, GameStop, and video game industry insiders, Blizzards Warcraft III: Reign of Chaos will likely be the biggest PC title of the summer and may eventually sell more units than any other PC title in history. Warcraft II, released in 1995, sold over one million units on the PC. Blizzard (Vivendi/Universal) has developed the popular and highly rated Starcraft and Diablo PC series.

August

This fall there will be 4 NFL football titles for the PS-2 and Xbox, and 3 football titles for the GameCube.
August marks the beginning of the football wars between publishers. EA will release its franchise title, Madden NFL 2003, for the PS-2, Xbox, GC, PS-1, GBA, and PC. EAs biggest competitor in the football genre, Sega, will also release its NFL 2K3 in August on the PS-2, Xbox, and GC. Last year Sega released NFL 2K2 on the PS-2 in November, three months after Madden NFL 2002 was released. Madden NFL 2002 went on to sell nearly two million units on the PS-2 in the U.S. (the top selling Madden SKU ever released), outselling Segas NFL 2K2 over 7-to-1. Game reviewers are split over which company showed the better title at this years E3, but we believe EA has an inherent edge with its EA Sports and Madden brands. In total, there are scheduled to be four NFL football titles for the PS-2 and Xbox, and three NFL football titles for the GameCube this fall. Nintendos franchise property, Mario, will make its debut for the GameCube in August with the release of Super Mario Sunshine. Super Mario Sunshine will likely be the first major exclusive title for the GameCube, and will likely drive GameCube hardware installed base in the second half of 2002. Acclaims Turok: Evolution is due to ship at the end of August for the PS-2, Xbox, and GC. Acclaim has stated that it spent roughly $8 million (across three platofrms) and three years developing Turok, and will likely budget a similar amount supporting the title with an extensive marketing campaign. Acclaim will formally kick off the marketing campaign with a Turok Tuesday in early September. We believe that Turok is the make-or-break title for Acclaim this year. Unless Turok is a big hit for
We believe that Turok is the make-or-break title for Acclaim this year.
Acclaim (>1 million units in worldwide sales), the company may not meet its financial guidance. We believe that Turok alone should account for roughly 40-50% of Acclaims Q4 (August) revenue guidance of $90 million.

September

We believe Midways Mortal Kombat will face competition from Namcos Tekken and Segas Shinobi.
Midway will release Mortal Kombat: Deadly Alliance in September on the PS-2, Xbox, and GC. Mortal Kombat is Midways largest product launch of the year. We expect that Mortal Kombat shipments account for roughly 40-50% of the Q3 consensus revenue estimate of $96 million for Midway. We believe Mortal Kombat will face competition from Segas Virtua Fighter 4 (released in March) and Namcos Tekken 4 (September). Segas Virtua Fighter 4, which received very solid reviews from game reviewers, has sold roughly 275,000 units in the U.S. through April on the PS-2. We also expect Segas Shinobi, a ninja fighting game which received strong reviews at E3, to compete with Mortal Kombat. Shinobi will be released exclusively for the PS-2 in November. Namcos Tekken Tag Tournament, released in October 2000, has been the top selling title in the Fight/Head to Head genre on the PS-2, recording U.S. retail sales of 680,000 units. EA will release Need for Speed: Hot Pursuit 2 for the PS-2, Xbox, GC, and GBA in September. EAs popular Need for Speed titles have produced a number of hits including Need for Speed III and Need for Speed for Speed: High Stakes for the PS-1 and PC, each of which sold in excess of one million units in the U.S. Animal Crossing, a Sims-like title slated for the GameCube, will be released by Nintendo in September. While Nintendos more well known brands, including Mario, Zelda, and Metroid, received the lions share of attention at E3, several reviewers have rated Animal Crossing above Nintendos franchise properties.

We believe The Sims Online may become the most important and profitable online PC game ever released.
Hawk 4 should account for 35-40% of our ATVI Q2 (December) publishing revenue estimate of $300 million.
EAs last Harry Potter title has shipped over 7 million units worldwide since November.
EAs Harry Potter and the Chamber of Secrets is scheduled for release on the PS-2, PS-1, Xbox, GameCube, Game Boy Advance, Game Boy Color and PC in conjunction with the release of the movie in November. EAs Harry Potter and the Sorcerers Stone, which was released in November 2001 at the same time as the first Harry Potter movie, is EAs most successful single title of all time in terms of unit shipments. The success of the title is impressive, even though it was shipped for the PS-1, Game Boy Advance, Game Boy Color and PC, but for no next generation consoles. On its 4Q02 conference call, EA stated that it had shipped seven million units (about 10% of total FY02 revenue) of Harry Potter and the Sorcerers Stone across all platforms worldwide. We expect that Harry Potter and the Chamber of Secrets should be able to achieve similar or greater success, contingent on the success of the motion picture. EAs next edition of its Bond franchise, James Bond 007: Nightfire, is due for release on the PS-2, Xbox, GameCube and PC in November. EAs last Bond title, Agent Under Fire, has sold through 780,000 units on the PS-2, 150,000 units on the GameCube, and 125,000 units on the Xbox in U.S. retail sales through April. THQ will release the next edition of its popular wrestling series, WWE Smackdown! Shut Your Mouth, for the PS-2 this fall. Although no specific release date has been set within Q4, we believe the title may be shipped in November (as it was last year). THQs most recent PS-2 edition of its wrestling game, WWF Smackdown! Just Bring It, has sold through about 680,000 units on the PS-2 through April, although it has been discounted recently. THQ will also ship a new WWE combat driving title, WWE Crush Hour, on the PS-2, Xbox and GameCube in 1Q03 (January-March 2003).

December

EAs The Lord of the Rings will be released in conjunction with the movie in December on the PS-2. EA will likely port the title to the Xbox and GameCube, with shipments probably at the beginning of 2003. EAs titles will compete with Lord of the Rings titles from Infogrames, which has the license for The Lord of the Rings books. We do not believe that the title will cannibalize sales of EAs Harry Potter, since Potter titles target a much younger audience than Lord of the Rings. One of the most highly reviewed PC titles at E3, Activisions Doom III, is scheduled for release in December. First released in 1993, Doom is recognized as the catalyst for the first-person action genre. Since its release, the franchise has been one of the industry's best-selling PC series. An estimated 15 million copies of Doom have been downloaded around the world, passed by floppy disk or online networks. In 1994, Doom was awarded Game of the Year by the magazines PC Gamer and Computer Gaming World. In 1994, Doom II: Hell on Earth was released, selling more than two million copies to date. Many gamers waited for hours at E3 for a chance to see Doom III, which is being developed by id Software. IGN named Doom III its E3 PC Game of the Year. We expect Activision to ship over one million units of Doom III in Q3 and Q4. Activision will also release ids popular PC title, Return to Castle Wolfenstein, for the PS-2. The PC title of Wolfenstein, which is very popular overseas, has sold roughly 325,000 units in the U.S.

We expect Activision to ship over one million units of Doom III in Q3 and Q4.

Title Releases by Genre

In the following sections, we analyze the outlook for video game titles for the remainder of 2002 by genre. The first table in each section details the top 15 tiles from 1995-April 2002 in each genre. From these tables, we believe that it is possible to establish the relative size of each genre and the potential for hit titles within the genres. Note that PC titles have been excluded for this data, since NPD currently only provides PC data from the beginning of 1999. The second table in each of the following sections lists the upcoming releases by genre. For some perspective, the two charts below show the relative market shares of video game software by genre. As the charts demonstrate, the genre breakdown is very different between PCs and consoles and handheld software.
Video Game Software Market Share by Genre Consoles and Handhelds

U.S. Retail Sales

2001-April 2002
Other 12% Shooter 5% Adventure 6%

Sports 24%

Fighting 6% RPG 9% Racing 17%

Action 21%

Source: NPD.
Video Game Software Market Share by Genre PC
Other 14% Sports Games 6% Simulation 6% Strategy 31%
Family Entertainment 7% Role Playing 11% Shooter 12%

Childrens 13%

Action Sports
The action sports genre will become crowded this year, largely due to the success of Activisions Tony Hawk.
The action sports subgenre, dominated by Activisions Tony Hawk franchise, is now the largest component of the entire sports genre. Action sports titles represented 34% of the total sports genre in 2001 and have accounted for 25% of the sports genre for the year-to-date through April. Action sports also accounted for 8% of total console and handheld video game U.S. retail sales in 2001, and represented 6% of the market year-todate through April. Activisions Tony Hawk franchise has dominated this subgenre, representing the top three action sports titles of all time and seven of the top 15. While Tony Hawk 3 did not sell as well as its predecessors, we believe this is primarily due to the much smaller installed base of the PS-2 hardware at the end of 2001 (7.4 million) as compared to the large installed base of PS-1 (24 million at the end of 2000) and N64 consoles (17 million) in 1999 and 2000.

1995-April 2002

Rank 15
Title TONY HAWKS PRO SKATR2 TONY HAWKS PRO SKATER TONY HAWKS PRO SKATER COOL BOARDERS 3 COOL BOARDERS 2 TONY HAWKS PRO SKATRSNOWBOARDING 2XTREME TONY HAWKS PRO SKATER TONY HAWKS PRO SKATR3 DAVE MIRRA BMX TONY HAWKS PRO SKATR2 TONY HAWKS PRO SKATR2 SSX COOL BOARDERS 4

Nintendo

We believe the GameCube will outsell the Xbox in 2002 due to the releases of Mario and Metroid.
Nintendos first party GameCube software line-up will become very strong. At its press conference, Nintendo demonstrated three of its biggest franchises, which will be released for the GameCube later this year and next year: Mario Sunshine (August), Metroid Prime (November), and The Legend of Zelda (February 2003). Nintendo also announced that the next iteration of Capcoms Resident Evil will be an exclusive title for the GameCube and will ship in November. The current iteration of Resident Evil, released in May, is the #1 title on the GameCube. The table below lists Nintendos upcoming first party titles for the GameCube.
Nintendo First Party GameCube Releases
Title Eternal Darkness: Sanitys Requiem Super Mario Sunshine Disneys Magical Mirror Animal Crossing Star Fox Adventures Mario Party 4 Metroid Prime Wario World The Legend of Zelda White Storm
Release Date June 2002 August 2002 August 2002 September 2002 September 2002 October 2002 November 2003 November 2002 February 2003 Spring 2003
We expect that the installed base of GameCube hardware will surpass that of the Xbox in the U.S. by the end of 2002. The GameCube sold through a respectable 1.2 million hardware units in the U.S. in 2001. Through April, the GameCube has an installed base approaching of 1.6 million units, trailing the Xbox by about 334,000 units. We believe that GameCube sales were lower than Xbox sales last year partially due to the fact that GameCube hardware was supply constrained during the 2001 holiday season. Furthermore, Nintendo did not release any of its superstar franchises Mario, Zelda and Pokemon. The table below, which lists the top 10 all-time console and handheld titles from 1995-2002, demonstrates the popularity of these Nintendo franchises. Mario, Zelda and Pokemon account for eight of the top 10 titles during this time period.
Top 10 Console and Handheld Titles 1995-2002

Units and Dollars in Millions
Title Super Mario Brothers Pokemon Yellow Goldeneye 007 Pokemon Blue Pokemon Red Mario Kart 64 Pokemon Silver Pokemon Gold Legend of Zelda: Ocarina of Time Grand Theft Auto 3
Platform Nintendo 64 Game Boy Nintendo 64 Game Boy Game Boy Nintendo 64 Game Boy Color Game Boy Color Nintendo 64 PlayStation 2
Publisher Nintendo Nintendo Nintendo Nintendo Nintendo Nintendo Nintendo Nintendo Nintendo Take-Two
Date of Release SEP96 OCT99 AUG97 SEP98 SEP98 FEB97 OCT00 OCT00 NOV98 OCT01
Units 5.9 5.1 5.0 5.0 4.8 4.8 3.8 3.7 3.5 3.3
Dollars $307.2 128.5 250.6 134.3 128.9 237.3 105.0 102.1 194.2 167.3
Driven by the hardware price cut (to $149), a solid line-up of titles, and increased third party publisher support, we believe that the GameCube will have a very strong year in 2002.
Nintendo has a strong line-up of first party Game Boy Advance titles, but no Pokemon until 2003. As the chart below demonstrates, Nintendo will release Mario, Zelda, and Metroid titles for the Game Boy Advance this year. However, the franchise that drove Game Boy and Game Boy Color hardware and software in 1998-2000 was Pokemon. Nintendo does not plan to ship a Pokemon GBA title in the U.S. until 2003.
Nintendo First Party Game Boy Advance Releases
Title Disneys Magical Quest Yopshis Island: Super Mario Advance 3 Metroid Fusion The Legend of Zelda Donkey Kong Plus Game & Watch Gallery 4 Golden Sun: The Lost Age Pokemon
Release Date August 2002 September 2002 November 2002 December 2002 Spring 2003 Spring 2003 Spring 2003 Spring 2003
Nintendos GBA royalty reduction should reduce retail prices of GBA software and benefit third party publishers including THQ, Activision and EA. In an effort to drive the sluggish Game Boy Advance software market, Nintendo cut the Game Boy Advance royalty payment by about $3 to $7-$11 (depending on memory requirements of the cartridge). We believe the reduction to the royalty rate was primarily an effort by Nintendo to drive down the retail price of Game Boy Advance software to boost hardware and software sales. The average price of GBA software has declined from $35 when the GBA was launched in June 2001 to $31 in April 2002. THQ and Activision are the #2 and #3 publishers on the GBA year-to-date. We estimate that GBA revenue should account for about 25% of THQs FY02 publishing revenue and about 11% of Activisions FY03 publishing revenue. We further believe that the GBA reduction will be beneficial to EA, which has historically not developed many titles for the GBA due to their lower margins. However, EA will publish another iteration of its Harry Potter license for the GBA this fall. EAs Harry Potter titles for the GBA and GBC were both top titles on their respective platforms last holiday season.

Activision

Activision will release 4 new titles under its Activision O2 brand this year.
Action sports titles lead Activisions line-up. As expected, Activisions E3 booth was dominated by its action sports titles, which will be marketed under the companys Activision O2 umbrella brand. Activisions action sports titles were again led by the companys franchise title, Tony Hawks Pro Skater 4. Other action sports titles to be released this year include Mat Hoffmans Pro BMX 2, Kelly Slaters Pro Surfer, and Shaun Murrays Pro Wakeboarder.

Activision O2 Releases

Title Mat Hoffmans Pro BMX 2 Kelly Slaters Pro Surfer Tony Hawks Pro Skater 4 Platforms PS-2, Xbox, GBA PS-2, Xbox, GC, GBA PS-2, Xbox, GC, GBA Release Date August 2002 September 2002 November 2002 December 2002
Shaun Murrays Pro Wakeboarder PS-2, Xbox, GC, GBA
Source: Company reports, www.ebgames.com, www.gamerankings.com.
Superheroes and driving titles, as well as Doom III lead Activisions non-action sports titles. In the wake of the success of Spider-man, Activision will release X-Men: Next Dimension this fall, X-Men: Wolverines Revenge next spring and Blade 2 this fall. Activisions upcoming driving titles include Wreckless for the PS-2 (fall 2002), True Crime: Streets of LA (spring 2003) for the PS-2 and Xbox, and Rally Fusion: Race of Champions (release date TBD) for the PS-2, Xbox and GameCube. Wreckless was released in February for the Xbox, and has sold through 185,000 units through April. Finally, id Softwares Doom III was one of the most popular attractions at E3.

Activisions E3 Line-Up

Title Stuart Little 2 Mat Hoffmans Pro BMX Medieval: Total War Street Hoops Kelly Slaters Pro Surfer Wreckless Blade 2 Star Trek Elite Force II X-Men: Next Dimension Tony Hawks Pro Skater 4 Minority Report Doom III Return to Castle Wolfenstein Tarzan: Return to the Jungle Tenchu 3: Wrath of Heaven X-Men: Wolverines Revenge True Crime: Streets of LA Rally Fusion: Race of Champions Star Trek Star Fleet Command III Platforms GBA PS-2, Xbox, GBA PC PS-2, Xbox PS-2, Xbox, GC, GBA PS-2 PS-2, Xbox PC PS-2, Xbox, GC PS-2, Xbox, GC, GBA PS-2, Xbox, GC, GBA PC PS-2 GBA PS-2 PS-2, Xbox, GC, GBA PS-2, Xbox PS-2, Xbox, GC PC Release Date July 2002 August 2002 August 2002 August 2002 September 2002 September 2002 October 2002 October 2002 October 2002 November 2002 November 2002 December 2002 December 2002 December 2002 December 2002 December 2002 March 2003 April 2003 TBD TBD

Electronic Arts E3 Line-Up
Title 2002 FIFA World Cup FFreekstyle Medal of Honor Frontline Earth & Beyond Buffy the Vampire Slayer (1) NCAA Football 2003 Disney Golf (2) Madden NFL 2003 The Simpsons Skateboarding (1) Bionicle: Matoran Adventures (3) Sim City 4 Ty the Tasmanian Tiger Battlefield 1492 NASCAR Thunder 2003 Need for Speed Hot Pursuit 2 NHL 2003 Knockout Kings 2003 Command & Conquer Generals Platforms Release Date
PS-2, Xbox, GC, GBA, PC April 2002 PS-2, GC, PC PS-2, GC PS-2 PC/Online Xbox PS-2, Xbox, GC PS-2 PS-2, PS-1, Xbox, GC, GBA, PC PS-2 GBA PC PS-2, GC PC, Xbox PS-2, Xbox, GC, PC PS-2, Xbox, GC, PC PS-2, Xbox, GC, PC GC PC June 2002 June, August 2002 June 2002 Summer 2002 July 2002 July 2002 August 2002 August 2002 August 2002 Fall 2002 Fall 2002 Fall, Winter 2002 September 2002 September 2002 September 2002 September 2002 October 2002 November 2002 November 2002, Spring 2003 November 2002 November 2002 November 2002 November 2002 November 2002 Winter 2002 Winter 2002 December 2002 December 2002
Galidor: Defenders of the Outer Dimension (3) GBA, PS-2, GC, PC PS-2, PS-1, Xbox, GC, Harry Potter and the Chamber of Secrets GBA, GBC, PC James Bond 007: Nightfire Mace Griffin Bounty Hunter (4) The Sims The Sims Online 1503 A.D. - The New World Tiger Woods PGA Tour 2003 Drome Racers (3) The Lord of the Rings, The Two Towers
(1) Co-published by EA and Fox Interactive. (2) Co-published by EA and Disney Interactive. (3) Co-published by EA and LEGO. (4) Co-published by EA and Crave. Source: Company reports, www.ebgames.com, www.gamerankings.com.
PS-2, Xbox, GC, PC PC PS-2 PC/Online PC PS-2, Xbox, GC, PC PS-2, PC PS-2
EA will enable Madden NFL 2003 with online capabilities for the PS-2, but EA has not yet reached an agreement with Xbox Live. Madden NFL 2003 for the PS-2 will allow gamers to challenge opponents on the Internet, chat, and download up-to-the-minute player statistics and trades, team rosters and information on injuries and position changes. However, due to Microsofts control over the customer, EA (which has its own servers as part of its EA.com division) has not agreed to develop games for Xbox Live thus far under the present terms.

Take-Two

Take-Two management has stated it will produce fewer, higher quality games than in the past.
Take-Two presented few new titles at E3. Take-Twos booth at E3 largely consisted of older titles and GTA3 for the PC, which was released in May. Take-Two management stated that it did not want to display early versions of GTA3: Vice City for competitive reasons. Management also stated its intention to produce fewer, higher quality games than in the past. We believe this strategy places significant importance on the companys ability to release GTA: Vice City on October 22, which is at the end of Take-Twos FY02. Take-Two announced that it will release Grand Theft Auto: Vice City for the PS-2 in October 2002. GTA: Vice City is the follow-up to the companys blockbuster, GTA3, which has shipped 5.7 million units worldwide. GTA: Vice City will be published exclusively for the PS-2. In exchange for exclusivity, we believe Sony is giving TakeTwo a reduced (by $1-2) royalty rate for GTA3 and GTA: Vice City, and is providing significant advertising support for the titles.
As the #party publisher on the GBA, THQ should benefit from Nintendos recent GBA royalty reduction.
THQs E3 line-up was dominated by GBA releases. THQs E3 titles included a number of GBA titles, many of which will be published under license of Nickelodeon or Sega. As mentioned previously, Nintendo cut the Game Boy Advance royalty payment during E3 by about $3 to $7-$11 (depending on memory requirements of the cartridge). THQ is the #1 third party publisher for the GBA with a 22% retail market share through April. Furthermore, we estimate that GBA revenue should account for about 25% of THQs FY02 publishing revenue. The table below lists THQs upcoming GBA titles, which were displayed at E3.
THQs Game Boy Advance Releases
Title Hey Arnold! The Movie* GT Advance 2: Rally Racing Scooby-Doo! The Movie Spirit: Stallion of the Cimarron Star Wars Episode II: Attack of the Clones The Pinball of the Dead** Sega Smash Pack** Power Rangers Wild Force Rocket Power: Bach Bandits* Fairly OddParents (working title)* The Revenge of Shinobi** Jimmy Neutron vs. Jimmy Negatron* Matchbox Cross Town Heroes The Ripping Friends Hot Wheels Velocity X Rugrats: I Gotta Go Party* The Wild Thornberrys Movie* Virtua Tennis** Altered Beast: Guardian of the Realms** Star Wars Episode II: The New Droid Army Phantasy Star Collection** Super Monkey Ball**
*Nickelodeon licensed titles. **Sega licensed titles. Source: Company reports, www.ebgames.com, www.gamerankings.com.
Release Date May 2002 June 2002 June 2002 June 2002 June 2002 June 2002 July 2002 August 2002 August 2002 Fall 2002 Fall 2002 September 2002 September 2002 September 2002 October 2002 October 2002 October 2002 November 2002 Winter 2002 Winter 2002 Early 2003 Early 2003

SpongeBob SquarePants: Revenge of the Flying Dutchman* November 2002
Nickelodeon licensed titles and WWE titles led THQs non-GBA E3 line-up. As the chart below details, THQ will release a number of titles under its Nickelodeon license in FY02 and FY03. We believe these titles will benefit from hardware price cuts, as the mass market audience (which purchases new hardware and software after price reductions) tends to represent a younger demographic.

THQs E3 Line-Up

Title Britneys Dance Beat MotoGP MX Superfly Tetris Worlds WWE Wrestlemania X8 Jimmy Neutron Boy Genius* Pride FC Rocket Power: Bach Bandits* Bob the Builder: Bob Builds a Park Platforms GBA, PS-2, PC Xbox GC, PS-2, Xbox GC, Xbox GC GC PS-2 PS-2, GC PC Release Date March, May, June 2002 March, May 2002 June, June, December 2002 June, August 2002 June 2002 Summer 2002 July 2002 August 2002 August 2002 Fall 2002 Fall 2002 Fall 2002 September 2002 September 2002 September 2002 September 2002 October 2002 October 2002 October 2002 October 2002 October 2002 November 2002 November 2002 November 2002 February 2003 March 2003
Rugrats: Munchin Land (working title)* PC
Hot Wheels Bash Arena PC SpongeBob SquarePants: Employee of the Month* PC Jimmy Neutron vs. Jimmy Negatron* Matchbox Cross Town Heroes Scooby-Doo! Night of 100 Frights Summoner 2 Hot Wheels Velocity X Monsters Inc. Scream Arena Red Faction 2 Rugrats: Royal Ransom* The Wild Thornberrys Movie* BattleBots SpongeBob SquarePants: Revenge of the Flying Dutchman* Toxic Grind Evil Dead: A Fistful of Broomstick Alter Echo
*Nickelodeon licensed products. Source: Company reports, www.ebgames.com, www.gamerankings.com.
PC PC PS-2, GC PS-2 PS-2, GC, PC GC PS-2 PS-2, GC PC PS-2, GC PS-2, GC Xbox, GC PS-2, Xbox PS-2, Xbox
THQ will release its WWE Wrestlemania X8 for the GameCube in June. The company is expected to ship the next iteration of WWE for the PS-2, PC and GBA in Q4.
Sega has eclipsed Sonys 989 Sports brand as EAs #1 competitor in the sports genre.
Sega is back. By all accounts, Sega presented an impressive line-up of software at E3. Highlights of Segas E3 titles included the companys Sega Sports titles for all next generation platforms, Shinobi (Ninja title) for the PS-2, Super Monkey Ball and Fantasy Star Online for the GameCube, and Panzer Dragoon (aerial combat) for the Xbox. The table below lists Segas E3 line-up of titles.

* Banc of America Securities LLC currently maintains a market in ATVI, ERTS, THQI and TTWO security.
This report is issued in the U.S. by Banc of America Securities LLC, member NYSE, NASD and SIPC; in Europe by Banc of America Securities Limited; and in Asia by BA Asia Limited (referred to herein, collectively as Banc of America Securities). This report has been prepared by Banc of America Securities as part of its research activity and not in connection with any proposed offering of securities or as agent of the issuer of any securities. This report has been prepared independently of any issuer of securities mentioned herein. Neither Banc of America Securities nor its analysts have any authority whatsoever to make any representation or warranty on behalf of the issuer(s). This report is provided for information purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument. 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Annual 2001 Video Game Best-Selling Titles
TOP 20 BEST SELLING VIDEO GAME TITLES RANKED ON UNITS SOLD ANNUAL 2001 RANK TITLE PLATFORM PUBLISHER RELEASE DATE OCT'01 AUG'01 JUL'01 NOV'01 JUN'01 JUL'01 OCT'01 SEP'00 OCT'00 NOV'00 OCT'00 MAR'01 DEC'99 NOV'01 NOV'01 DEC'01 AUG'01 OCT'01 DEC'01 MAY'01 AVERAGE RETAIL PRICE $50 $50 $29 $49 $30 $50 $48 $29 $29 $30 $29 $60 $20 $49 $40 $51 $30 $39 $50 $31
GRAND THEFT AUTO 3 MADDEN NFL 2002 POKEMON CRYSTAL METAL GEAR SOLID 2 SUPER MARIO ADVANCE GRAN TURISMO 3:A-SPEC TONY HAWKS PRO SKATR3 TONY HAWKS PRO SKATR2 POKEMON SILVER DRIVER 2 POKEMON GOLD POKEMON STADIUM 2 GRAN TURISMO 2 HALO HARRY POTTER:SORCERER FINAL FANTASY X MARIO KART: CIRCUIT TONY HAWKS PRO SKATR3 SUPER SMASH BRO MELEE ZELDA: ORACLE AGES
PS2 PS2 GBC PS2 GBA PS2 PS2 PSX GBC PSX GBC N64 PSX XBX PSX PS2 GBA PSX GCN GBC
ROCKSTAR GAMES ELECTRONIC ARTS NINTENDO OF AMERICA KONAMI OF AMERICA NINTENDO OF AMERICA SONY COMPUTER ENT. ACTIVISION ACTIVISION NINTENDO OF AMERICA INFOGRAMES NINTENDO OF AMERICA NINTENDO OF AMERICA SONY COMPUTER ENT. MICROSOFT ELECTRONIC ARTS SQUARE EA NINTENDO OF AMERICA ACTIVISION NINTENDO OF AMERICA NINTENDO OF AMERICA
Source: NPDFunworldSM TRSTS Service