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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: 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: Miguel, what are the risks that investors should be aware of that relate to this sector?

Mr. Iribarren: There are some general risks to investing in software publishers, primarily dealing with companies that are producing creative content. By that I mean that these companies are coming up with products that have to appeal to fickle consumer interests, and that can be a difficult process to manage and very difficult to predict. I do think these software publishers have improved in terms of managing the creative process and becoming more consistent in their product releases and much more predictable over the years. But overall, when you look at these companies and their product pipelines, you’re still trying to gauge how successful a particular game is going to be with users, and that’s a hard thing to get your hands around.

TWST: You mentioned Take-Two Interactive Software (Nasdaq:TTWO) as a new player on the scene.

Mr. Iribarren: Yes, that is a new player. Although it has been around for several years it’s a new player in what we call the major publishing market. Take-Two for a long time has been a publisher of value software, and just in the last couple of years, they’ve had several big hits and are now, in terms of size, competing with some of the bigger companies. We look at Take-Two as a stock with a greater risk/greater return profile. The company has some balance sheet issues that concern investors; they’re not nearly as well capitalized as an Activision (Nasdaq:ATVI) or a THQ (Nasdaq:THQI). At the same time, however, they’re selling at a much, much lower multiple of earnings. And although we believe that they will have slightly lower growth than an Activision or THQ, we think their current valuation multiple definitely warrants consideration. They’re trading at a little over 14 per share today, which, using our earnings estimates, implies a forward multiple of only about 12 times. So obviously they’re much, much cheaper than some of the top-tier companies in the sector.

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.