After a disappointing February video game sales report, many analyst insiders are predicting a strong month in March for top video game makers Activision Blizzard (ATVI), Electronic Arts (ERTS), Sony (SNE) and Take Two Interactive (TTWO). Hardware makers like Nintendo (NTDOY) and Microsoft (MSFT), however, may still be feeling a bit of a crunch.
The biggest reason is simply because the bar is set pretty low. March 2009 video game sales were down 17% when up against 2008 numbers, and unless the data gets seriously skewed we should see an organic rebound in numbers just from that low. If you’ll recall, March 2009 was pretty bad on all fronts — the economy shed 650,000 jobs, stocks hit a 12 year low and the U.S. was in the middle of a -6% contraction in GDP for the first quarter of 2009 .
Hopefully with a lower bar to cross, the video game industry will win a reprieve when the March numbers roll out. But on top of those low expectations, a number of blockbuster titles should result in decent sales for the industry. Sony (SNE) vice president of marketing claimed that the highly anticipated sequel God of War III had sold 1 million units in “just a couple days” after its release. And Japanese studio Square Enix made a huge splash with yet another incarnation its RGP powerhouse, Final Fantasy XIII. It’s been three and a half years since the latest Final Fantasy video game hit the United States, so demand should be strong. The company estimated it topped 1 million unit sales in the first week after of the video game’s March 9 launch. Also on the list of profitable sequels was Ubisoft’s Assasin’s Creed II, which sold 1.6 million copies in its first week when released for video game consoles last fall. Now that a PC computer version is out, a resurgence in sales could be in the works.
The key thing that all of these titles have in common is obvious: They’re sequels. Other hot-selling titles share this trend — Take Two Interactive (TTWO) released yet another season of its ubiquitous MLB 2K sports games. Electronic Arts (ERTS) moved over 2 million units of its latest war game Battlefield: Bad Company 2 as of mid-month. Tokyo software firm Capcom gets the honors for the laziest sequel of all, pushing out a mildly revamped Resident Evil 5 and branding it a “Gold Edition.”
It’s tough to blame video game studios for playing it safe. Spending is down among casual gamers, and core audiences are really powering video game sales right now. Playing to built-in audiences with sequels not only makes sense, but can save on development costs since you can reuse existing characters, music and game architecture.
But playing with existing themes often means no new hardware for gamers. That means software alone has to power profits for Nintendo (NTDOY) and its Wii, Microsoft (MSFT) and its Xbox and Sony (SNE) with its PlayStation 3. All three of these video game companies develop software, so they will do fine in March — but the big money is made on big-ticket items like controllers and consoles. And those paydays are still not materializing.
So while March may pick up, the overall trend for the video game industry should still be weak sales. With Sony pushing back the launch of its PlayStation Move motion controller to this fall and Microsoft hoping for a Christmas launch of its own motion-sensitive hardware (nicknamed “Project Natal”), it’s going to be nothing but software pulling the industry for a few months.
And judging by March’s rash of sequels and the scheduled releases for April, that software should include a lot of familiar video game titles. Already on the block for April are Take Two (TTWO) with Grand Theft Auto IV: The Lost and Damned for PC and PS3 and Electronic Arts (ERTS) with its regular yearly offering of a FIFA soccer video game, among others.
Video game stocks appear to be content sticking to their old tricks. But how long this will stay profitable is anyone’s guess.
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