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Game Makers Expect to Ring in Holidays With Strong Digital Sales

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The Electronic Arts gaming area during the Gamescom industry event in Germany in August. EA is among the game makers that have raised their year-end guidance for revenue and net bookings.


Photo:

Krisztian Bocsi/Bloomberg News

Videogame companies aim to lean further on high-margin digital sales this holiday season, as more consumers ditch discs for downloads and publishers find creative ways to generate revenue from their biggest hits long after release.

Activision Blizzard Inc.,

Take-Two Interactive Software Inc.

and

Electronic Arts Inc.

all raised their end-of-year guidance for revenue and net bookings in recent weeks, citing robust consumer spending. The December quarter, which is typically the best revenue-generating period for these companies, is expected to show sustained demand for digitally delivered content.

Game makers are organizing special events inside their blockbusters and adding new features to keep players engaged. For example, Electronic Arts late last month brought new factions, maps, weapons and vehicles to “Battlefield V,” the most recent installment of the company’s nearly two-decade-old war franchise.

“Our communities will all have new content and new experiences to dive into during the holiday quarter,” Electronic Arts Chief Executive Officer Andrew Wilson said on last week’s earnings call. The company forecast the holiday quarter to be one of its biggest for net bookings, an important measurement of industry revenue.

Take-Two expects revenue to fall from year-earlier levels due to a lighter release slate. But it forecast continued growth in spending inside its existing hits such as “Grand Theft Auto Online” and “NBA 2K20.”

“The business as a whole is overperforming,” Take-Two CEO

Strauss Zelnick

said in an interview.

In the latest quarter, digital sales made up roughly three-quarters of net bookings for Take-Two and Activision Blizzard, both companies said Thursday. In the prior week, Electronic Arts said more than 60% of its net bookings came from digital purchases.

“This is a trend we’ve seen happening for the last several years,” Stephens analyst

Jeff Cohen

said. “It’s having a positive impact on margins.”

Investors also want to see these companies boost margins. Share-price growth in all three companies has lagged behind the broader Nasdaq Composite Index this year, in part because analysts have raised concerns about the game makers’ ability to lift profits.

This year, the major publishers are again serving up just a handful of mostly sequels and spinoffs for the holidays, continuing a decadeslong pattern that analysts attribute to rising development costs. They say publishers are investing in more advanced technology and talent to create beefier and higher-quality games.

With tentpole games now commanding budgets of around $100 million or more, up from single-digit millions in the 1980s, analysts say big publishers view original properties as a major risk, just as for movies in sequel-heavy Hollywood. “Franchises have built-in audiences with proven customer loyalty,” said Jefferies analyst

Alexander Giaimo.

“They’re a much safer play.”

For those big-budget holiday releases, Take-Two introduced a sequel to its decade-old Borderlands franchise in September while Activision Blizzard put out a new installment of its 16-year-old Call of Duty franchise last month. In the coming week, Electronic Arts is expected to launch its latest Star Wars-themed game, a franchise that has already been licensed for dozens of games over the last four decades.

The major game publishers are also pursuing opportunities to boost revenue through new channels, such as Stadia, a cloud-gaming platform launching later this month from

Alphabet Inc.

’s Google.

Electronic Arts also said it is building up its digital subscription business. The company ended the quarter with about 5 million subscribers on EA Access, a service that allows people to play a collection of games through

Microsoft Corp.

’s Xbox One and

Sony Corp.

’s PlayStation 4, up from 3.5 million in July. The service is also expected to launch on the popular game-download store Steam in the spring, Electronic Arts said.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

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