The Much-Hyped PlayStation 2

by Chris Connor

Brimming With Potential

If Sony {SNE} had played its cards right, the PlayStation2 would definitely be in the driver's seat as the Xbox and GameCube are set for release in the fall.  The dominant leadership in consoles and the chance to grab a substantially large user base for a full year was right there for the taking, giving SNE distinct advantage in the upcoming next-generation console wars. Certainly the PlayStation2 had a lot going for it: it is the sequel to the best-selling console of all-time, its graphics are at least four times better than its predecessor (128 bit versus 32 bit), it took advantage of the DVD player finally hitting the mainstream, game companies were lining up in droves to develop games for it, and Sega's {SEGNY} Dreamcast was not a real competitive threat. 

Ball Dropped

Although the PlayStation2 has sold about 10 million units world-wide thus far and enjoyed the biggest launch of any console ever in the U.S., it could be said that Sony has dropped the ball and left the door wide open for the upcoming Xbox and GameCube.   For starters, SNE was forced to slash the size of the initial PlayStation2 launch due to parts shortages, which created multiple frenzies at electronics retailers.  Everybody seemed to want a PlayStation but there was no way to get one unless you wanted to pay outrageous prices on eBay {EBAY}.  Six months later, prices for the PlayStation2 have dropped considerably on eBay, but it is still nearly impossible to the console at the nearest electronics retailer.  There has also been ample criticism over the quality of the console's 26 launch titles.  Industry insiders feel that the games were rushed to meet the launch date.  Finally, rumblings that Sony has irritated game developers (making games for the PlayStation2 is reportedly a major challenge and Sony has been less than helpful to developers), publishers (lower than expected operating results because not enough PlayStation2 consoles have hit the market yet), and electronics retailers (Sony has allegedly threatened various major game retailers with less unit shipments if those retailers don't remove Xbox ads from their stores)  have been surfacing.  

Combined, these factors threaten Sony's reign, especially if Nintendo {NTDOY} or Microsoft {MSFT} do a better job in execution.  That said, the SNE should get its act together with the Playstation2 once it can ship more units.  In addition, the quality of games for the market-leading console are already improving significantly with such leading titles as the Bouncer, Onimusha (the first million seller for the system), Gran Turismo 3: A-Spec, Dark Cloud, and Twisted Metal: Black.

Which Game Makers Will Benefit the Most from the PlayStation2?

So far, Activision {ATVI} has been the most prudent game maker and posted the best operating results, because it has seriously limited its PlayStation2 exposure from the start.  Nevertheless, don't expect that the PlayStation2's struggles will last forever.  If the PlayStation2 juggernaut ever does get finally rolling, several of the key game makers with large PlayStation2 exposure should reap rich rewards given the build up in demand for the console and quality games (see table below for the breakdown of PlayStation2 exposure of several publicly-traded game makers) . 

Surprisingly, two out of the three game makers with the biggest PlayStation2 exposure, Interplay {IPLY} and 3DO {THDO}, are trading under $2 per share. IPLY appears to have at least two mega-hits on its hands: Run Like Hell and Baldur's Gate: Dark Alliance.  Run like Hell intends to generate substantial unit sales by scaring gamers silly as they must constantly run from ultra-intelligent, relentless aliens seeking to kill them.  If Interplay can capture the same success that the Baldur's Gate series has accomplished on the PC for the PlayStation2, it will definitely have a blockbuster on its hands and the top role playing game on the PlayStation2.  3DO will look for similar cross-platform success with its ongoing Army Men franchise and High Heat Baseball 2002, which are also big hits on the PC.  High Heat Baseball 2002 stands a good chance of being the top baseball title on the PlayStation2.

The other game maker with the most PlayStation2 exposure is of course Electronic Arts {ERTS}.  As can be expected, Sony has given EA special treatment because the company is the largest independent game maker in the world.  SNE also does not want Electronic Arts to have a major presence on the Xbox, so it will try to make the game developer as happy as possible.  The big blockbusters on the way from Electronic Arts are expected to be Sled Storm 2 and Medal of Honor Frontline (the original was the best-selling 3D shooter on the first PlayStation). 

The other game makers may not have as many major PlayStation 2 games as the aforementioned companies, but Take Two {TTWO}, Eidos {EIDSY}, and Infogrames {IFGM} are worth watching.  Take-Two should attract controversy again with its latest installment of the notorious Grand Theft Auto series.  In the latest installment, crimes will be substantially more realistic because of the quantum leap in graphics for the game.  Infogrames will go after the top spot in vehicular combat, but this genre will be flooded with new titles in the near future.  Eidos' Project Eden and Herdy Gerdy are two ambitious games in development that eventually become monster hits; however, the company has a reputation for not delivering the goods due to past disappointments such as Daiktana, Omikron, and Urban Chaos.  THQ {THQI} also should be watched for future WWF {WWF} wrestling titles.  Currently, THQ is focusing all of its PlayStation2 efforts on Red Faction, while its bread and butter has always been wrestling games.  Red Faction will likely be a hit, but the company is creating significant risk by placing all of its eggs in one basket. 

Stock Exposure Breakdown for the PlayStation2