What Killed ‘Guitar Hero’

Michael Buckner/Getty Images for Activision

THE REPORT: How Activision’s once highflying video game franchise lost its groove.

Only a few years ago, Guitar Hero was being hailed as a cultural phenomenon. The first version of the interactive video game, launched late in 2005, became a surprise hit and was seen as a shot in the arm to the gaming and music industries. Activision Blizzard CEO Bobby Kotick soon boasted about $200 million in sales for Guitar Hero II and $1 billion for Guitar Hero III, helping the game become the third-best-selling franchise in history behind Mario and Madden NFL. Nevertheless, Activision said Feb. 9 that it is basically abandoning Guitar Hero because it’s not profitable. How did this happen?

According to research firm NPD, the entire music gaming genre has taken a hit recently. Even when music games are combined with the more trendy dance games, sales in the genre were down 46 percent in 2009 and 34 percent in 2010 after peaking at $2 billion in 2008. The introduction of more games in the genre, including the popular Rock Band, spread revenue more thinly, even though Guitar Hero has accounted for 47 percent of the $5.3 billion in U.S. sales of music-dance games during the past five years.

Beyond slumping sales, Activision also must share its Guitar Hero wealth with artists and labels for the privilege of using songs and, in some cases, images. Another problem: early versions of Guitar Hero were so good that many consumers didn’t feel the need to shell out more dough for sequels or equipment like drums or turntables.

“Most games had 60 to 80 songs, so it was tough to justify buying another game when you still had 40 songs you hadn’t tried on last year’s version,” Wedbush Securities analyst Michael Pachter says.

Activision was hoping that the most recent iteration, Guitar Hero: Warriors of Rock, would save the day. But even with a story-based format and Gene Simmons as narrator, the October launch was called “fairly dreadful” by Cowen & Co. analyst Doug Creutz. It sold a measly 86,000 units during its first five days as critics said it was difficult to play.

But rest assured, with Rock Band, Dance Dance Revolution, Michael Jackson: The Experience and others in development, the music genre isn’t going away.

Guitar Hero and Rock Band were the party games of choice, and the novelty has worn off somewhat,” Pachter says. “But there will always be some demand.”