Microsoft Looks to ‘Halo’ Once More for Profits

When Microsoft released “Halo 3” a little shy of two years ago, it was a certifiable entertainment event. The conclusion of the hit franchise’s trilogy would ultimately sell 5.9 million copies, making it one of the top selling games of this generation of video game systems.

Source: Microsoft

On Tuesday, “Halo 3: ODST,” a standalone expansion to the game, hits store shelves. It’s expected to be one of the year’s best selling titles – but investors looking for a repeat of the success of “Halo 3” are in for a disappointment.

“ODST” is, in many ways, an expansion pack for “Halo 3” – centered on a new character instead of the heroic Master Chief. The single player campaign is shorter and many of the multiplayer maps are already available to players. Analysts expect the game will only sell roughly 3 million copies.

It is, for lack of a better word, a placeholder for the series. The next full installment – dubbed “Halo: Reach” - is due next year. But by releasing “ODST” this year, Microsoft has a guaranteed hit that is exclusive to the Xbox 360.

“I think that having these ‘filler’ games is a very good idea,” says Colin Sebastian, an analyst with Lazard Capital Markets. “It helps extend the brand and keeps the user base satisfied. People need to have smaller expectations for the game, but other than that, it kind of quenches the thirst. … I don’t know if it will be in the top 5 selling games of the year, but it will definitely be in the top 10.”

Microsoft could use the boost as it goes into the holiday season. Arch-rival Sony is on a hot streak with the recently redesigned (and cheaper) PlayStation 3. Demand for the PS3 has been so strong that there is speculation the system will be hard to find in November and December.

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Since the launch of this generation of game machines, Microsoft has held a strong sales lead over Sony. To remain competitive, it recently cut the price of its top-line model to match that of the PS3, but few people expect that will have much impact.

One analyst believes the company is willing to cede the holiday battle to Sony, only to kick off a new price war early next year – when a slew of highly anticipated titles are due.

“Sony’s going to outsell them this holiday; there’s nothing you can do about it,” says Michael Pachter, managing director of equity research at Wedbush Morgan Securities.

“I think Microsoft is ok with Sony outselling them for a few months - then they’ll seize the momentum with another price cut, probably of $50 or so, in early 2010 and retake the lead," says Pachter. "I wouldn’t be surprised if they went to a 250 GB hard drive (from the current 120 GB) with the lower price at that time as well.”

While sales numbers from “ODST” will almost certainly be lower than previous installments in the game, that doesn’t mean the “Halo” franchise is losing steam. It is, however, facing stronger competition from third party publishers, such as Activision.

“Halo 3,” until recently, was the king of the online gaming hill Xbox Live. In recent months, though, Activision’s “Call of Duty 4” has topped the charts. And the company’s upcoming “Modern Warfare 2” will give “ODST” a run for its money as well.

Next year’s “Halo: Reach,” which is expected to be the final game by the franchise’s creators Bungie Software, did not cause the breathless hysterics that previous major “Halo” announcements have previously. That could be because the game is still a year away, because very little is known about it or because players are lukewarm on the title.

But, as the pre-orders for “ODST” have shown, once Microsoft puts its full marketing muscle behind a “Halo” game, it’s a good idea to step out of the way.

“A recognizable franchise with a good critical rating and a good marketing campaign pretty much ensures that a game is going to sell well,” says Pachter.