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Two analysts and top management from seven sector firms examine the leisure & entertainment sector in this special 46-page Leisure & Entertainment issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info466.htm.

TWST: How well have the interactive entertainment stocks held up in 2001?

Mr. Iribarren: This has been a very good year for entertainment software publishers. These stocks really started to move in the last few months of 2000 and they’ve been marching up since then. We did have a bit of a dip on the back of the September 11th tragedy, but we’ve recovered nicely since then and we’re pretty much right back at the year’s highs.

TWST: Have reported earnings been in line with your expectations?

Mr. Iribarren: For the most part yes. Several publishers in the sector have actually outperformed expectations through the year, although some of the smaller publishers have really struggled. During 2001, we were in the last throes of the console transition, and the smaller players really had the hardest time with that, having less diverse revenues and earnings. We’ve seen a couple of those companies find the going tough. But for the most part, these companies, particularly the larger ones, have exceeded analyst expectations.

TWST: What are some of the trends that you’re seeing in interactive entertainment, and which companies are benefiting from them or are poised to benefit from them?

Mr. Iribarren: Obviously we’re seeing a lot of growth in this industry and we believe much of this growth is coming from older gamers who are remaining customers and staying in the market. We believe that is the primary demographic driver that is allowing this industry to out-pace most other entertainment sectors in terms of growth and we think companies that recognize this trend can directly benefit from it. The entertainment software business has been growing at about 20% per year on average over the last 10 years, and we expect that to continue for another five to 10 years. The main underlying driver for that is simply the fact that video gamers are refusing to grow up. Unlike the toy industry, where kids drop out of that target demographic audience and stop using toys after a certain age, in the video game industry we see gamers continue to play games well into their 20s and now into their 30s. The increasing technology and more compelling game content, as well as the availability of more games targeted at adults, are keeping those gamers around. Every year we add new kids into the video game pipeline as new consumers, but at the other end of the pipe we’re actually extending it and keeping the adults around longer and longer. So that dynamic has produced a major trend toward more and more adult-oriented games, and the companies that have been able to recognize that dynamic and target their games for that sector have seen some of the best growth in the industry.

TWST: What should investors be doing with Midway, Interplay Entertainment and the 3DO Company?

Mr. Iribarren: I think Midway (NYSE:MWY) is a successful turnaround story. Interplay (Nasdaq:IPLY) and 3DO (Nasdaq:THDO) are two companies that are still having some troubles with the console transition. Interplay’s biggest problem was capitalization. They never really had enough money to invest in new product development for the new consoles, and they were caught a little bit short. Their primary strategic investor, Titus Interactive, has effectively taken over control of the company’s operations. We believe Interplay is really in a wait-and-see mode at this point.

1) Leisure & Entertainment Stocks - In an in-depth (4,200 words) Analyst Interview, Jill S. Krutick, Managing Director at Salomon Smith Barney, examines the outlook for the sector and shares specific stock recommendations.

2) Interactive Entertainment - In an in-depth (4,000 words) Analyst Interview, Miguel Iribarren, Research Analyst at Wedbush Morgan Securities, examines the outlook for the sector and shares specific stock recommendations.

3) CEO interviews (average 2,500 words). Top management of seven sector firms examine the outlook for their firm and the sector.