The downward trend in the video game industry has continued into the fall release season according to the latest monthly sales data reports from NPD Group. Even a new release from Microsoft (NASDAQ: MSFT) and Bungie Studios’ venerable Halo franchise couldn’t stop overall game industry revenues from dropping -8% year-on-year in September, with $1.22 billion in combined hardware, accessories and software revenue compared to 2009’s $1.32 billion during the same period. Investors hoping that big fall releases would turn around an otherwise dismal 2010 better hope that sales pick up as the holiday season progresses. Otherwise, the post-Christmas sales season may lead to a stock fire sale as much as to overstock deals at retail.
It was game hardware that took the heaviest hit in September. While the NPD Group announced this week that they would no longer reveal specific sales numbers for individual hardware, industry analysts and executives have leaked numbers to the public. Wedbush Morgan analyst Michael Pacheter reports that Sony (NYSE: SNE) sold 312,000 Playstation 3 units in September, down -37% from the year previous when Sony relaunched the Playstation 3 with new branding and redesigned hardware. Nintendo (PINK: NTDOY) took an even heavier hit, selling just 254,000 Wii consoles, a drop of -45% from 2009. Microsoft’s Xbox 360, however, continued its upswing with its third straight month of strong sales. Xbox product director Aaron Greenberg announced via Twitter that Microsoft sold 483,989 Xbox 360s in September, thanks in no small part to the release of Halo: Reach.
Halo: Reach meanwhile led software sales, moving 3.3 million units following its mid-September release, nearly doubling the first month sales of last year’s Halo: ODST and matching those of 2007’s Halo 3. Electronic Arts (NASDAQ: ERTS) and Activision Blizzard (NASDAQ: ATVI) controlled much of the rest of the software top ten in September. EA’s Sports titles controlled the second, fourth and fifth spots with Madden NFL 11, NHL 11, and FIFA 11 respectively. ATVI finally saw a new piece of software, Spider-Man: Shattered Dimensions, break the top ten taking the eighth spot, while the ever-green Call of Duty: Modern Warfare 2 took the tenth spot. Take-Two Interactive‘s (NASDAQ: TTWO) Mafia II came in seventh. Japanese developers controlled the remaining three slots with Capcom’s Dead Rising 2 coming in at number three, Square-Enix Holdings’ Disney-branded (NYSE: DIS) Kingdom Hearts: Birth By Sleep coming in at number six, and Nintendo’s Metroid: Other M at number nine. This sales data is misleading, however, as NPD Group’s new reporting methods counts sales all different SKUs of a given title in its placement, making it difficult to judge how strong the performance of single platform games, such as Kingdom Hearts and Metroid. Though both titles broke the top ten, Cowan & Company analyst Doug Creutz has reported that at least Metroid missed sales expectations.
One bright note for the industry was that accessories sales grew by +13%, accounting for $180 million in revenue during September. This is especially promising news for Sony whose new motion control technology the Playstation Move accounted for three of the top selling accessories in the month. Early reports from USA Today indicate that pre-orders for Microsoft’s hands-free motion control device Kinect are selling out at retailers well ahead of its November 4th release date.
Right now, investors should be concerned that traditional earners will fail to perform this fall. ATVI shareholders should brace themselves for Call of Duty: Black Ops to underperform in comparison to Modern Warfare 2. Both ATVI and ERTS shareholders can no longer rely on the music game sector to bring in substantial holiday revenue either, as it appears that the market has finally hit its saturation point—Activision’s latest in the Guitar Hero franchise, Warriors of Rock, reportedly sold just 86,000 units in September. Now is the time to hope that next year, when the Playstation 3 and Xbox 360 are expected to see new price cuts and the Nintendo 3DS will be introduced, will see substantial recovery in the games sector.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
