Genius Products Inc. (GNPR)

[fredman]

Simply put, sales of music-based games have peaked. Activision's "Guitar Hero World Tour" and MTV Games' "Rock Band 2" sold considerably fewer units than the previous installments of both franchises. The plateau comes at a time when overall game sales in March fell 17% from the same time last year, on the heels of a 2.7% dip in February. That's not to say that music-oriented titles won't keep generating significant revenue, but it does highlight the need to expand to other genres and attract new fans.

The "Guitar Hero" and "Rock Band" franchises are driven primarily by rock, specifically classic rock. To date, expansions of either franchise have focused on their existing audience, with music that takes advantage of the games' plastic guitar and drum controllers. The "Guitar Hero" games dedicated to Aerosmith and Metallica are variations of the same theme, as is the Beatles game that Harmonix is preparing for release in September.

By contrast, "DJ Hero" and "Scratch" will focus on electronica and, most important, hip-hop. Activision hasn't yet revealed what songs will be included in "DJ Hero," but "Scratch" will have about 60 licensed tracks from the likes of Kanye West, the Black Eyed Peas and Run-D.M.C. The Beastie Boys' Mix Master Mike serves as a creative consultant to the game and is adding his own content as well.

"It's a really important category, and they want to figure out how to exploit it among people who are into the [music-game] thing," says Wedbush Morgan gaming analyst Michael Pachter. "My guess is a big chunk of the interest in 'DJ Hero,' probably disproportionate to the population, is African-American."

African-Americans are considered a particularly underserved demographic for videogames, despite research showing that African-American youth spend more time playing videogames than their white peers. Pachter also believes the new games will attract younger players than "Guitar Hero" and "Rock Band" have.

According to market research from Activision's Red Octane subsidiary, which oversees "Guitar Hero," more than half of consumers expressing interest in buying "DJ Hero" don't own any "Guitar Hero" titles, suggesting that the focus on new music may bear fruit.

Taken as a whole, it's understandable that Activision wanted to have this particular market to itself, or at least come to market first. But don't expect either "DJ Hero" or "Scratch" to immediately generate a spike in music-game sales. Pachter projects that Activision will have only 500,000 to 1 million units available for the fall launch of "DJ Hero." If it sells out, there could be a few months of delays as the company ramps up production in the new year.

As for the lawsuit, it's probably not the last. The music-game genre has proved to be a magnet for litigation, with Gibson Guitars and Konami both targeting the "Rock Band" and "Guitar Hero" franchises.

"It's less related to the genre and more related to the success they've had," Pachter says. "The more successful the business, the more it's going to attract people making claims against one another."

Source: http://www.billboard.com/bbcom/news/dj-hero-vs-scratch-as-music-game-makers-1003968846.story