'Sims' sums: Spending real dollars to push virtual folks is EA's bottom line
EmptyIf you didn't know that "The Sims 3" hits stores Tuesday, you haven't been paying attention. Electronic Arts has pulled out all the marketing stops to advertise the newest iteration of the world's most popular PC-game franchise.
Since the launch nine years ago of "Sims," which lets users direct the lives of simulated people, the franchise has sold 100 million copies worldwide. That not only makes it the best-selling PC game but also the third-most-popular video game worldwide (fifth in the U.S.), regardless of platform. "Sims" is available in 22 languages.
"Sims 3" not only allows users to customize looks and other superficialities but also gives Sim characters personalities and goals: a brave, clumsy, hydrophobic snob striving for a career as a broadcaster, for example.
EA's media blitz for "Sims 3" has included TV commercials on the season finales of "American Idol" and "One Tree Hill." An outdoor advertising campaign includes seven billboards in Times Square.
EA senior director of marketing John Buchanan says the push for "Sims 3" is 150% bigger than the one that accompanied the 2004 launch of "Sims 2."
The Internet, naturally, will play a key role. On launch day, much of YouTube will be taken over by Sims, as will four Viacom Web sites: MTV.com, VH1.com, ComedyCentral.com and AddictingGames.com. And surfers have been snapping photos of "Sims 3" billboards and posting them to Facebook, Twitter and MySpace.
"We're witnessing traditional media being turned into new media," Buchanan says. "We have a very passionate fan base."
A central component of EA's innovative marketing campaign is trial experiences at TheSims3.com. SimSidekick, for example, allows users to choose a Sim character that will follow them to many sites, usually popping up in the upper-left corner and behaving differently at each URL visited. At Google, the character might appear to be searching for something.
Whether the hype surrounding "Sims 3" will translate into a higher stock price for EA, though, is debatable.
"It's tough to move the needle because it's really a predictable franchise," Wedbush Morgan analyst Michael Pachter says. "It's unlikely that it will sell 20% more or 20% less than expected."
Pachter figures "Sims 3" sales will exceed 3 million units this year and earn about $130 million in revenue. All that fancy marketing will cost about $18 million, he estimates, and it's money well spent. He especially liked the "Idol" commercial.
"That was big," he says. "And it was a good ad."
Pachter rates EA a "buy" with a $27 price target on the stock, which closed Tuesday at $22.44.
More germane to EA's share price than "Sims 3," in Pachter's opinion, is how well the company inserts itself into Nintendo's Wii console. In that regard, it recently launched "EA Sports Active," a Wii workout game targeting women and partially designed by Oprah Winfrey's fitness expert, Bob Greene. Plus, EA's "Tiger Woods PGA Tour 10" will be the first game in the U.S. bundled with MotionPlus, an anticipated add-on to the Wii controller that hits retail June 8.
On the other hand, Todd Mitchell of Kaufman Bros. says "Sims 3" is "very material — their cash cow," which will bring "hundreds of millions of dollars in revenue, all at a very-high-margin contribution."
Mitchell calls "Sims" a "virtual dollhouse that will especially pop with a female demographic." He also has a "buy" recommendation on EA stock and a $25 target.
"The success of 'Sims' is crucial for EA's quarter because 'Godfather 2' sales are looking like they will be embarrassing," says Perry Rod, a money manager who focuses on digital-media investments.
"PC sales provide publishers with the best margins, so there will be considerable upside for the stock if it were to outperform expectations," he adds.
Colin Sebastian of Lazard Capital Markets, who rates EA stock a "hold," notes that "Sims 3" plays a key part in EA's turnaround plan. "It's probably fair to say that a lot is riding on the launch as EA seeks to build back credibility among gamers and investors," he says.
That lost credibility, brought about by a recent inability to control expenses while releasing unimpressive game titles, has led to the stock price being cut in half the past eight months.
" 'Sims' is the most profitable video game that EA owns," Sebastian says. "The third installment is not only important for the bottom line but also in maintaining and hopefully building on the popularity of the franchise."
No wonder EA's "Sims" marketing team is working overtime.
Paul Bond can be reached at paul.bond@THR.com.