Tuesday was quite the day for video game maker Activision --the stock ended the day up nearly 14 percent. Wall Street was jazzed by the gamemaker's forecasts, which were so hot, they far exceeded even the most optimistic analysts estimates.
And early game sales were so positive recently, it bodes very well for the holiday shopping season. Two big franchises are expected to be top sellers this holiday season.
The first is Call of Duty 4, which is expected to be huge, largely because of the games high ratings (in the 90% range). And yes, like movie reviews, game reviews do matter. The other is Guitar Hero 3, which was so huge out of the gate-- bringing in more than $115 million in sales in its first WEEK on the market--it'll likely continue to deliver. Think about how big an opening week that is: $115 million is more than a third of the company's second quarter revenue it just reported.
Another factor making investors happy--these franchise games don't have any licensing fees attached, so they not only build top line, they grow margins.
The stock performance tells me that no one's that worried about a federal lawsuit filed yesterday. The group, "The Romantics" are suing Activision for ripping off its "What I Like About You" hit. The song appears in "Guitar Hero Encore, Rock the 80s," which came out this summer.
Activision licensed the rights to do a cover of the song, but the music group says it doesn't sound like a cover, it sounds like a copy. This isn't typical piracy or copyright infringement, it's more about "off trademark" or "unfair competition". And it's fairly easy to settle--they simply have to pay a fee for each game sold, and next time they make sure the song sounds different enough or they license the entire song, not just the lyrics and music.
Now the real threat is that "The Romantics" are demanding an injunction to force the games be pulled off shelves (awful timing considering it's prime shopping season.) But I bet it's worth paying the group enough so they leave the games alone. Activision is likely to show the most growth of any video game maker this holiday season. And that's the line Activision CEO Robert Kotick is taking--Tuesday night he told "Fast Money" that the suit wasn't a threat.