Last week, we learned that U.S. retail sales of video games declined 15% in February, part of an ongoing decline for the industry. 2010 could be shaping up to be bad all over, and that could spell disaster for many already-battered video game stocks including retailer Gamestop (GME); hardware makers Microsoft (MSFT), Sony (SNE) and Nintendo (NTDOY) and game studios Activision Blizzard (ATVI), Take Two Interactive (TTWO) and Electronic Arts (ERTS).
That’s saying a lot, considering how bad things have been for Gamestop (GME). The company is one of the market’s worst performers in the last year, down about -20% since March 2009 compared to a +60% surge in the broader market.
Americans spent $1.26 billion on video game systems, software and accessories during the month, down from $1.48 billion a year ago, market researcher NPD Group said Thursday. As predicted here two weeks ago, without the boost in hardware sales it was a bad month for the video game industry. In particular, slower sales of music games and lower sales of the Wii system hurt overall figures.
Though holiday sales were favorable in late 2009, sales for the full year were off about 6% — from over $21 million in 2008 to about $19.6 million last year. And apparently strong demand in December has been offset by softer demand in the beginning of 2010.
February isn’t generally a big month for the video game industry anyway. But a few high-profile titles such as a BioShock sequel from Take Two (TTWO) and the much-hyped Dante’s Inferno from Electronic Arts (ERTS) did perform well thanks to appeal to hard-core video game fans. BioShock 2 was the best seller, with over 500,000 titles shipped in the first week.
However, sales of individual games have declined for more than a year – a disturbing trend that indicates casual gamers are forgoing their video game spending. That leaves only the avid video game audience, or loyal fans of proven titles such as Take Two’s BioShock title. In February, software sales fell 15% from the same month a year earlier to $624.4 million.
It’s impossible to find another fad like Activision Blizzard (ATVI) did a few years ago with its Guitar Hero titles, resulting in big software sales and a demand for new video game hardware. But something needs to breathe new life into the industry if video game stocks are going to gather any momentum.
So what’s next for the video game industry? Well, there may be hope for March but typically this is not a busy month for retailers or software releases. Some highlights will be the much-anticipated sequels like the Mega Man 10 title for the Nintendo (NTDOY) Wii console, an “ultimate edition” of God of War III from Sony (SNE) and a new Assassin’s Creed for the PC. Also, seasonal releases of Take Two (TTWO) Major League Baseball 2K10 and MLB ’10: The Show from Sony (SNE) typically have built-in demand. But the big mover could be the highly-anticipated Final Fantasy XIII from Square Enix.
Perhaps the best news of all, however, is that year-over-year comparisons may start to get easier. March 2009 video game sales were down 17% when up against 2008 numbers. Hopefully with a lower bar to cross, the video game industry can win a reprieve when the March numbers roll out.
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