SUMMER 2013 CONSUMER VIDEO GAME SURVEY

We recently conducted a survey of over 1,500 gamers in an attempt to gauge awareness and purchase intentions for hardware, software, and peripherals through 2013 and into the release of next-gen consoles. If our previous surveys are any indication, the responses from our participants are a strong directional indicator of upcoming trends within the video game space. Whereas this report focuses on video game publishers and the positioning of software titles in the wake of E3, we also asked our respondents a series of bigger picture questions related to next-gen preferences, digital downloads, etc., the results of which we will publish at a later date.

Consumer Awareness of Upcoming Software Titles

A lot has changed since our last survey which was conducted in mid-March, namely the official announcement of some widely-expected but yet-unannounced sequels such Call of Duty: Ghosts and Battlefield 4, as well as first looks at some compelling new IP such as EAs Star Wars Battlefront and Titanfall and ATVIs Destiny. Our first question was an attempt to gauge consumer awareness of nearly 70 upcoming video games expected in 2013/2014. We simply asked consumers to identify which games they had previously heard of. Top Fifteen Upcoming Games Consumer Awareness
100% 90% 80% 70%

Top Twenty Upcoming Games - Consumer Awareness

(% respondents)

60% 50% 40%

Batman: Arkham Origins

Super Smash Bros. Wii U

Plants vs. Zombies: Garden Warfare

Assassin's Creed IV: Black Flag

Star Wars: Battlefront

Infamous: Second Son

Call of Duty: Ghosts

Elder Scrolls Online

Grand Theft Auto V

30% 20% 10% 0%

Topping our list of games from an awareness perspective are the latest iterations of four of the industrys most successful and high-profile franchises: Activisions Call of Duty: Ghosts, Ubisofts Assassins Creed IV: Black Flag, EAs Battlefield 4, and Take-Twos Grand Theft Auto V, all registering around 92% awareness among our survey respondents. Whereas sequels to the two mega-blockbuster shooters Call of Duty and Battlefield were no brainers for 2013, they were not yet announced as of our last survey, and therefore placed #13 and #8, respectively in terms of awareness. The two games placed #1 and #3, respectively, in our current survey, evidence of the level of marketing support that these two games bring to the table. Interestingly enough, we would argue that Grand Theft Auto V has actually seen less marketing support at this point than the three games ahead of it on the list, with more of a guerrilla marketing campaign thus far as opposed to a mass media strategy being employed by industry giants Activision, Ubisoft, and Electronic Arts. Amazingly

Forza Motorsport 5

Kingdom Hearts III

Saints Row IV

Mirror's Edge 2

Battlefield 4

Watch Dogs

Dead Rising 3

Dark Souls II

Destiny

Halo 5

FIFA 14

enough, Grand Theft Auto had almost no presence at last months Electronic Entertainment Expo (E3), with TTWO management not even meeting with investors at the show. We would expect a more widespread marketing effort for GTA V to be employed as we work our way toward the September 17 launch date. That said, the sheer magnitude of this release has put it squarely on the radar of most hardcore gamers, and so incremental marketing will likely focus on the more casual consumer, which GTA V will clearly need to win over to reach its potential. As always, the responses underscore the importance of sequels in the video game market, although new IP represented three of the top twenty. While Ubisofts new IP Watchdogs (#12 with 76% awareness) has made the most progress of the three, it has also been around for the longest. Similarly, Activisions Destiny (#16 with 71% awareness) is outdueling EAs Titanfall (#26 with 61% awareness) on this metric, although Titanfall was officially announced for the first time at Microsofts E3 event (June 10th) whereas we got our first look at Destiny much earlier at the February 20th unveiling of the PS4.

Upcoming Software Purchase Intentions

Our second question asked consumers which of the same ~70 games they planned to own, on a scale of one (would most like to own) to five (would like to own, but lowest priority), respondents were also given the option of answering N/A if they were unaware of a game or had no interest in owning it. The chart below illustrates which games ranked highest based on our weighted scoring system, in which we awarded games five points for each response of most like to own and one fewer point for each progressively lower response (ie. four points for a response of two, three points for a response of three, etc.). Top 15 Purchase Intentions
3500

"Weighted Score" of Most Desired Games

3000

2500

2000 (points)

1500

Metal Gear Solid V: The Phantom Pain

Assassin's Creed IV: Black Flag

Grand Theft Auto V

Elder Scrolls Online

Mirror's Edge 2

Saints Row IV

500

Watch Dogs

Mario Kart 8

Battlefield 4

Call of Duty: Ghosts

1000

Star Wars: Battlefront

South Park: The Stick of Truth

Tom Clancy's: The Division

Batman: Arkham Origins

Infamous: Second Son

Kingdom Hearts III

Super Smash Bros. Wii U

Titanfall

Destiny

Halo 5

For the second straight survey, TTWOs Grand Theft Auto V finds itself at the top of the heap in terms of most wanted games, successfully translating a high level of awareness into real purchase intentions. We believe this to be a resounding answer to two questions we have continually gotten with regard to Grand Theft Auto in recent months and over the years: (1) whether or not the five year layoff has had an impact on the appeal of Grand Theft Auto and the draw of the brand, and (2) whether or not the recent attention paid to violent video games in the wake of the Sandy Hook tragedy has suppressed interest in a game like GTA V. In both cases, the above results suggest that the answer to both questions is a resounding no. Ubisofts Watch Dogs took the second spot on our list, which is an impressive feat for an all new IP. With many parallels being drawn to Grand Theft Auto, Similar to Grand Theft Auto, Watch Dogs is an open world action adventure game being developed by Ubisoft and being released this November. Coming in at #3 on our list was EAs Star Wars Battlefront, the first game expected from the recently signed agreement with Disney for EA to develop a series of Star Wars games concurrent with (although not directly based on) the theatrical release of the next Star Wars trilogy. This was a big surprise given the fact that the only details currently available on the game are its name and one very brief trailer. Activisions Destiny came in at #5, an extremely impressive feat for a new IP, especially one (unlike Battlefront) that has no name brand recognition and was only recognized by 71% of our respondent group. Conversely, EAs Titanfall came in at #20, a solid showing for IP less than a month following its introduction but nonetheless pointing to the substantial work ahead of EA to make up for lost ground. As we will discuss, we believe that Titanfall, as an Xbox exclusive, is also suffering from the negative fallout from Microsofts recent missteps. EAs Battlefield 4 came in at #6 on the list, a notable 12 spots ahead of Call of Duty: Ghosts, the game against which Battlefield will be most closely compared. It is important to note that neither of these games is likely to finish outside of the top four, with Call of Duty the odds on favorite to again lead the pack. However, it is clear that Battlefield has overtaken Call of Duty among the avid gaming community, likely due at least in part to the annual release of Call of Duty. And while both games will rely heavily on mass-market gamers to reach their full potential (15+ million units each), Call of Dutys precipitous decline among these avid gamers (more on this in the Activision section) is nonetheless concerning. While many of the highly-anticipated games on our list arent expected out until 2014 (and in some instances 2015), we believe that this is arguably the most impressive holiday lineup ever. Following a string of annual sports titles (NCAA Football in July, Madden in August, FIFA in September) an unprecedented holiday slate of blockbusters begins with Grand Theft Auto V in September, and is followed by Battlefield 4, Batman: Arkham Origins, and Assassins Creed IV: Black Flag in October, followed by Call of Duty: Ghosts and Watch Dogs in November. Each of these games has aspirations of selling at least five million copies, with some (Call of Duty, Grand Theft Auto, and maybe even Battlefield) having goals of topping 15 or even 20 million units sold. And while any publisher that has paid attention to seasonal trends over the past few years would have to be hesitant to put a major game out during the first (calendar) quarter of the year, the spring of 2014 (presumably 2Q) promises to deliver two of the most highly anticipated games (so far) of the next generation: Destiny and Titanfall. When we look at these results through the lens of our covered publishers, we believe there are (sometimes isolated) reasons for optimism for each of the publishers, although we believe the data is most positive for TakeTwo and EA. While TTWO boasts the clear cut #1 most wanted game in Grand Theft Auto V, Electronic Arts has three of the top ten and four of the top twenty most wanted games on the list.

Publisher
Activision Activision Activision Activision Electronic Arts Electronic Arts Electronic Arts Electronic Arts Electronic Arts Electronic Arts Electronic Arts Electronic Arts Electronic Arts Electronic Arts Electronic Arts Electronic Arts Electronic Arts Take-Two Take-Two Take-Two Take-Two Take-Two

Consumer Survey Results: Most Desired Upcoming Games by Publisher Title Release Date % Aware
Destiny Call of Duty: Ghosts Teenage Mutant Ninja Turtles: Out of the Shadows Skylanders Swap Force Star Wars: Battlefront Battlefield 4 Mirror's Edge 2 Titanfall Plants vs. Zombies Garden Warfare Dragon Age III: Inquisition Need for Speed: Rivals Madden NFL 25 FIFA 14 NHL 14 NCAA Football 14 UFC 14 NBA Live 14 Grand Theft Auto V The Bureau: XCOM Declassified NBA 2K14 Agent WWE 2K14 6/30/2014 11/5/2013 Q3 2013 10/13/2013 TBA 10/29/2013 TBA Spring 2014 Spring 2014 Q3 2014 11/19/2013 8/27/2013 9/24/2013 9/10/2013 7/9/2013 Spring 2014 TBA 9/17/2013 8/20/2013 10/1/2013 TBA 10/29/2013 71% 92% 21% 22% 78% 92% 75% 61% 68% 54% 42% 54% 69% 42% 40% 30% 39% 92% 32% 48% 15% 23%

Plans to Buy Rank

5 18 58 66 3 6 8 20 27 28 45 47 50 56 60 64 65 1 48 57 63 67

Electronic Arts
Whereas TTWO unsurprisingly took the top spot with Grand Theft Auto V, we would argue that Electronic Arts was the winner of our post-E3 survey with three games in the top ten and four in the top twenty. Arguably the shocker of the survey was the fact that EAs Star Wars Battlefront took the third spot on our most wanted list. Despite cant miss games like Battlefield 4 and FIFA 14 as well as the significant potential represented by Titanfall, by far the most excitement generated at EAs E3 media event was with regard to a 29 second trailer (the vast majority of which was just snow) that teased Star Wars: Battlefront, the first game expected from the recently signed agreement with Disney for EA to develop a series of Star Wars games concurrent with (although not directly based on) the theatrical release of the next Star Wars trilogy. Being developed by EAs Dice studio (the makers of Battlefield), EA appears to be putting its best talent on this deal, which also includes games being developed by Visceral (Dead Space) and Bioware (Mass Effect, Star Wars the Old Republic). Although we do not yet have much of a timeline with regard to when the first of these games should be released, the first of the new Star Wars movies is expected in the Summer of 2015, although EA could certainly use some help during holiday 2014 given the difficult comp that will be created by this years Battlefield release, assuming EA does not opt to convert Battlefield into an annualized title. Coming in at #6 on the survey is Battlefield 4, down one spot from its #5 placement on our winter survey but nonetheless twelve spots ahead of its closest competitor, Call of Duty: Ghosts. Though unlikely at this point, it is possible that Battlefield 4 could give Call of Duty a run for its money this holiday. Two years ago, Battlefield 3 proved to be one of the most successful titles in EA history, selling a combined total of ~15M units during FY12, shattering all expectations. Although historical patterns are never any guarantee of the future, it is worth noting that the release of Battlefield 3 in October 2011 was the primary driver behind the best holiday quarter that EA has ever had and a nice run in EA shares.

We would expect to see Battlefield climb the list as we get closer to its October release date and further from the excitement generated by this years E3, which has clearly helped to elevate games like Star Wars: Battlefront and Destiny ahead of where theyre realistically likely to finish. Either way, Battlefield appears to be in a peer group that is going to do exceedingly well all told, and this is one of the most important catalysts for investors in EA shares. Coming in at #8 on our plans to buy list was Mirrors Edge 2, a sequel to the 2007 game that was a cult favorite but never really achieved much commercial success. In our opinion, it is unlikely that this game will ever live up to the company it finds itself amidst on our survey, even assuming a material increase relative to the disappointing 2.5M units sold by the original game. Given the surprisingly high finish in our survey, however, this is a title that we will continue to watch closely. Rounding out the top twenty most wanted games on our list was Titanfall, the long-awaited game from Respawn Entertainment (a studio run by departed heads of Infinity Ward, who spearheaded the Call of Duty: Modern Warfare series). While ATVIs next best bet for the next generation, Destiny, place much higher on our list, it is worth noting that Titanfall was for the first time announced at last months E3, whereas Destiny was first unveiled at the PS4 launch event all the way back in February. Along with the unveiling of Titanfall, EA announced at E3 that the game would be a Microsoft exclusive (both Xbox 360 and Xbox One) at launch with other platform availability likely to follow after a set amount of time. While going this route would seem to have been a safe bet just a few short weeks prior to E3, gamers and investors cant help but question this decision in the wake of the severe negligence with which the Xbox One launch was handled. To that end, given the degree to which gamers have placed Microsoft in the penalty box, we believe that Titanfall is also being punished with respect to the purchase intentions of our survey respondents. In stark contrast, it is important to note that Titanfall was the undisputed winner of E3 in terms of critical reception. Each year, we compile a list of E3 awards from major publications, which this year included Game Critics Awards, IGN, Game Informer, Digital Trends, Machinima, GameSpot, and EGM. As shown in the following graphs, Titanfall won a whopping twenty awards in total, five times that of any other game. Equally impressive, of these seven publications, five chose Titanfall as their best in show (or some comparable award) with the remaining two awards going to Battlefield 4 and Sony (based on its decisive PR wins over Microsoft). Largely due to the dominance of Titanfall, EA picked up a total of 32 awards among these seven publications, nearly three times Ubisoft and Sony, which tied for number two with 13 awards each.

EA Dominates E3 Award Count on the Strength of Titanfall Performance

E3 Award Count (By Publisher)

35
6

E3 'Best In Show' Awards

30

25
4

20
3

15
2

10

0 Electronic Arts Ubisoft Sony Nintendo SEGA CD Projekt Bethesda Warner Bros. Softworks Disney
0 Titanfall Battlefield 4 Sony

The biggest variable driving whether or not EA misses, meets, or exceeds this years guidance is the performance of Battlefield 4, with the current assumption being that the game will sell on par with Battlefield 3 (two years ago) in terms of units sold this fiscal year (15M units). Based on the quality of gameplay, a 25% larger console installed base, and a plugged in base of millions of Battlefield premium players, we would think that Battlefield 4 is destined to materially outsell Battlefield 3. However, when we look at what appears to be an unprecedented slate of holiday titles, there is likely to be some limit to how much aggregate purchasing power video game consumers possess, which would seem to suggest that one or more of these extremely highly-anticipated titles will ultimately disappoint.

Take-Two Interactive
Once again, Take-Two Grand Theft Auto V was the most wanted game among our survey respondents, with a comfortable lead over every other game on the list. This despite the fact that GTA V was only the fourth highest game in terms of awareness, which we attribute to a much more understated marketing campaign thus far relative to some of the games ahead of it on the list (Call of Duty, Assassins Creed, and Battlefield). With highly successful titles Bioshock: Infinite (#2 in plans to buy in each of our previous two surveys survey ahead of its March release) and Borderlands 2 (#4 in our Summer-12 survey ahead of its September release) now in the rearview mirror for Take-Two, Grand Theft Auto becomes the primary focus of the company and investors alike. For quite some time, there have been concerns that the extended wait for Grand Theft Auto V (GTA IV came out in April of 2008) may have dampened the interest in this franchise, once arguably the biggest in the video game world. GTA IV broke all sorts of launch records in 2008, although all of these records have since been topped by multiple Call of Duty games. If our survey results are any indication, GTAs absence has only made gamers more excited to get their hands on the game. The Grand Theft Auto franchise is remarkable in its ability to not only open at a record level, but also its ability to sell millions of units years after its initial launch. Each of the past two titles, Grand Theft Auto San Andreas (October, 2004) and Grand Theft Auto IV (April, 2008) have sold north of 25M units to date (27.5M reported for San Andreas as of late 2011; 25M reported for GTA IV as of late 2012). GTA IV got off to a much quicker start, however, despite utilizing an installed base that was dramatically smaller. After initially being pegged for an October 2007 release, GTA IV was released on April 29, 2008. The game posted the best single-day and seven-day sales totals for a video game, with more than 3.6M units sold on day one and more than 6M sold during week one, the equivalent of $500M. By the end of May, GTA IV had sold 8.5M copies, a total that would reach 10M by mid-August, 13M by the end of Jan-09, and 15M by March-09. This performance was all the more impressive when we consider the fact that as of April 2008, the combined installed base of Xbox 360 and PS3 was just 30M. Hence, within four months of its release, nearly one in every three owners of an Xbox 360 or PS3 had bought a copy of GTA IV. When we consider a worldwide installed base today that is 5x as large (north of 140M) the opportunity for GTA V seems nearly limitless, even after factoring in what will inevitably be a much lower tie ratio (the number of software units sold per owned hardware unit), and a much more competitive slate of games (GTA IV had the spring of 2008 nearly to itself, whereas GTA V is being released just ahead of arguably the most impressive holiday slate ever). Take-Two management has yet to confirm whether or not GTA V will be made available on next generation platforms. While we believe the game will inevitably be on both the PS4 and the Xbox One, it does TTWO little good to announce such an intention and give gamers any incentive to hold off on their purchase of the game. While the late release of GTA V could suffer from some level of consumers amassing their funds ahead of a new console purchase, it is also possible that some consumers will ultimately pay for two separate versions of the game (before and after the next gen consoles are released). The recent gameplay trailer of the game showed just a glimpse of what appeared to be an expansive online player mode, and while it is unclear whether there will be any sort of fee associated with this mode, it seems likely that TTWO will somehow expand its revenue opportunities given the thousands of hours that must have been involved in this game mode. In-game purchases seem to be a cant miss way to grow the revenue per user (RPU) for GTA V. Whats more, if the recent Borderlands and Bioshock releases are any indication, Take-Two will look to bundle its downloadable content in some sort of a season pass, which we believe is likely to be immensely popular given prior DLC for GTA IV. We believe that the Street is likely underestimating the revenue opportunity of such addons, although the timing, pricing, and overall specifics have yet to be announced. We have long since liked the Take-Two story in large part because the company was in the process of diversifying beyond the huge contribution represented by the Grand Theft Auto franchise. As we sit here just a matter of weeks ahead of the Grand Theft Auto release and with both Borderlands 2 and Bioshock: Infinite now in the rearview mirror, the focus is undeniably on GTA.

Activision
In what appears to be a growing trend, Call of Duty continues to fall further and further down our list of most wanted games after holding an untouchable grip on the #1 spot for three straight years. This time, Call of Duty came in at #18, worse than the #11 spot during our spring survey, the #9 spot in our Fall 2012 survey, and the #11 spot in our Summer 2012 survey. In each of the four surveys prior to that, Call of Duty (Modern Warfare 2, Black Ops, and Modern Warfare 3 twice) held the top spot, usually by a comfortable margin. To be clear, there is no chance that this years iteration of Call of Duty will be the eighteenth best selling title this year. In fact, we would be shocked if the game was not among the best selling games of the year (although both GTA V and Battlefield 4 could give CoD a run for its money for the first time in a long time). However, given a fall from #1 in most previous surveys to #18 in this survey is likely an indication of some level of Call of Duty fatigue, making it increasingly difficult for this years game to set all-time opening-day and opening-week records. This is especially true given a particularly challenging slate of competitive releases this year. The release of new consoles could prove to be a challenge for this franchise and others as they balance targeting the large installed base of current-gen consoles while not forgetting about next-gen console early adopters expecting a superior version of the game. More important, in 2012 Call of Duty: Black Ops II went up against Halo IV and Assassins Creed III, but was spared having to face a truly competitive military FPS as it saw in 2011s Battlefield 3. This years competition could prove to be its most difficult to date with Battlefield 4 set to be released, not to mention the first Grand Theft Auto title in five years, Assassins Creed IV: Black Flag and next-gen titles such as Watch Dogs and ATVIs own Destiny.

Historical Purchase Intentions for Call of Duty Games by Survey Ranking

20 18 16 14 12 10 8 6 4 2 0

Destiny may have had the most impressive results among ATVIs titles, placing fifth on the plans to buy list after debuting at #8 on our prior survey. This is even more impressive when we put it in the context of the games awareness, which was #16 overall with just 71% of our respondents aware of the game. This implies that of those

that do know about the game, an exceedingly high portion of them have interest in owning the game. Once awareness of the title grows the game would seem to have the potential to climb the list even further. This should be no surprise as it is being developed as the first installment of a trilogy by Bungie, the development team behind all but the most recent Halo titles. If the success of the Xbox-exclusive Halo is anything to go by, a multi-platform trilogy from the same developers has huge potential. Although Skylanders: SWAP Force was way down the list, this is hardly a survey to capture the potential of a game like Skylanders, which is clearly targeted toward young children (of which there were very few among our respondent group). However, this will be the first year a Skylanders game will have competition in the toy/interactive video game market that it pioneered. Disney is set to release its figurine/video game franchise, Disney Infinity, on August 18. This would be about two months prior to the expected release date of Skylanders: SWAP Force and would feature much more recognizable characters and brands from the vast Disney universe. In addition, there has been controversy surrounding this years Skylanders game as it is not compatible with the portals (the peripheral required to read data from the figurines) of the previous two installments, requiring players to buy the more expensive ($15 more) starter pack. Overall, the most positive surprise coming out of our survey for Activision was with regard to Destiny, and so we will continue to closely watch the progress of this game with the hopes that it can provide ATVI with the type of contribution needed to plug the gap coming from accelerating declines in its World of Warcraft business. While the Call of Duty juggernaut has shown no signs of slowing year to date, the growing enthusiasm gap among avid gamers in our survey is at best a yellow flag and at worst a sign that this games dominance is waning.