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Two analysts and top management from two six sector firms examine the Video Games sector in this 17 - page Special Focus - Video Games Issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info590.htm

TWST: Paul, please tell us how you define your coverage universe.

Mr. Kaump: My coverage universe really follows the gamut of entertainment software publishers, third-party publishers, if you will. We follow Electronic Arts (ERTS), with the largest market cap, on one end of the continuum all the way down to the micro-cap companies. We currently monitor companies with market caps as small as $50 million, such as 3DO (THDO) and TDK Mediactive (NYSE:TDK). We try to differentiate our approach by covering the whole group. A lot of folks are tiered a little bit more at the higher end of the market cap range simply because that’s where you have the trading volume and business models that are in favor. But we follow everybody either on an “official research” or “monitor” basis. In doing so, we believe this provides greater insight into the overall market, as well as a better appreciation for some of the smaller business models that may or may not be in favor.

TWST: Has the recent price reduction in video game consoles had an impact on the entertainment software stocks?

Mr. Kaump: Not as much as most people would think. Most folks had anticipated that there would be a price cut on the hardware front either now, in the May-June time frame, or in the fall, prior to the all-important holiday season. For that reason, we believe much of the price cut was already factored into the stock prices. Also, when Sony, which was first to drop their hardware price, made the announcement, they also announced a price cut for its own internally published software on the PS2. This confused the marketplace a bit as many investors thought that Sony’s software price reduction, from $49.99 at retail to $39.99, implied a price cut for all publishers involved. Furthermore, a price cut for PS2 software would have led to software pricing declines for GameCube and Xbox software. Naturally, if this had been the case, it would have had a dampening effect on revenues this year. However, Sony’s software price cut has more to do with its declining market share on its own PS2 platform. Therefore, the good news of the hardware price cuts were largely offset by the confusing news regarding Sony and its software pricing strategy. That said, most publishers, and retailers for that matter, are committed to supporting the $50 price point through this holiday season.

TWST: We talked a bit about the big three companies. Are there any small cap names you’d like to bring up as well?

Mr. Kaump: Yes. There are a couple. One company that we monitor, but don’t yet have an official recommendation on, is TDK Mediactive. It is a company that we follow quite closely and it is growing a pretty good portfolio of products. They published the Shrek titles last year and have the licenses to publish Aquaman, Robotech, Dinotopia, and Masters of the Universe. Their products, much like THQ, should appeal to the casual and mass markets. I don’t want to say they’re a small version of THQ, because THQ is a more experienced and more diversified company, but they seem to be hitting the right part of the market at the right time. Another company that I have a buy recommendation on, and this is one that I do follow actively is Acclaim Entertainment (AKLM).

This special report includes:

1) Video Games & Entertainment Software - In an in-depth (2,800 words) interview, James R. Preissler, a Director of Digital Media Research at Investec, examines the outlook for the sector and shares specific stock recommendations.

2) Entertainment Software Publishers - In an in-depth (4,800 words) interview, Paul D. Kaump, a Vice President and Senior Research Analyst at Dougherty & Company, examines the outlook for the sector and shares specific stock recommendations.

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