At least one video game publisher and one video game console manufacturer are having an excellent November. Activision Blizzard (NASDAQ: ATVI) is riding high after last week’s release of Call of Duty: Black Ops brought in $360 million after just 24 hour’s on the market. Microsoft (NASDAQ: MSFT) is also enjoying brisk sales of its new Kinect hands-free controller and interface for the Xbox 360. The company announced on Monday that 1 million Kinects have been sold during the device’s first ten days on the market.
The success of these products are encouraging for investors hoping that the holiday shopping season will breathe new life into the sagging video game industry. The month of October, however, may dampen those raised spirits as data compiled by industry analysts and NPD Group reveal continuing declines during a month that is traditionally one of the biggest revenue generators of the year.
Game hardware took the heaviest blow in October, with revenue generated by both home and portable consoles dropping by -26% overall. Microsoft’s Xbox 360 led the home console pack with the company’s community manager Larry Hryb reporting 325,000 consoles sold during the four week sales period, a drop down from the 483,989 systems sold in September, but still a year-on-year increase. Microsoft has sold 3.5 million Xbox 360s in 2010 to date, outselling Sony‘s (NYSE: SNE) Playstation 3 and so far outselling Nintendo‘s (PINK: NTDOY) former powerhouse Wii. According to USA Today, the Wii sold just 232,000 units in October, a shocking drop of -54% in year-on-year sales. The Playstation 3’s sales declined -22% from the same period in 2009, selling just 250,000 units, indicating that the company’s new Move motion control peripheral is not driving new sales of the console.
Wedbush Morgan analyst Michael Pachter highlighted the declines in the portable game hardware market as the most concerning for game manufacturers and investors alike. Though the Nintendo DS was the overall best-selling hardware in October—USA Today also claimed 342,000 in sales for Nintendo’s handheld device—the device was down -34% year-on-year, continuing its steady decline over the course of 2010.
While consumer anticipation of next spring’s glasses-free 3D system, the Nintendo 3DS, has undoubtedly deterred some potential Nintendo DS customers from buying the system this fall, Pachter believes that outside forces are impacting DS sales. “We believe the iPod Touch is cannibalizing dedicated game handheld hardware sales, and expect weakness in handhelds to persist until the 2011 introduction of the Nintendo 3DS,” said the analyst to website Gamasutra. News that Apple Inc. (NASDAQ: AAPL) is finally realizing its ambitions in the video game space should be good news to investors in the Cupertino, Calif. company.
Others invested in Nintendo and publishers like Activision Blizzard, Electronic Arts (NASDAQ: ERTS), THQ (NASDAQ: THQI), Take-Two Interactive (NASDAQ: TTWO), and others whose software previously thrived on the DS will be none too happy that the holidays may not improve the DS’ fortunes.
Speaking of software, sales were troubling in that sector as well. Electronic Arts had a particularly troubling month despite dominating NPD Group’s top ten sales chart. There was significant drop off in sales of EA’s popular licensed sports titles, with both FIFA Soccer 11 and Madden NFL 11 selling below 280,000 units across all hardware platforms, while NHL 11, a top performer in September, disappeared from the rankings entirely. EA Sports MMA, the company’s foray into the mixed martial arts game market, also disappointed, selling just 45,000 copies. EA’s military shooter and Call of Duty competitor Medal of Honor also debuted to disappointing sales, selling just 1 million copies across the Xbox 360, Playstation 3, and PCs.
Medal of Honor sales are expected to drop off dramatically in November due to the rampant popularity of Call of Duty: Black Ops. Other troubling news for EA is the continued decline of its music game business. Rock Band 3, a joint effort by EA and the Viacom (NYSE: VIA) subsidiary Harmonix Games, sold well under 220,000 units, indicating that the one-time billion dollar instrument peripheral business enjoyed by both EA and Activision is completely saturated. (Viacom announced last week that it was looking to sell Harmonix and exit the game business altogether.)
Other publishers fared little better. Take-Two Interactive’s NBA 2K11 basketball game was the overall bestseller in October. Though the company hasn’t released exact sales numbers for the game, it sold over 1.1 million copies across all platforms, beating out Fallout: New Vegas, the latest from Zenimax subsidiary Bethesda. Though Halo: Reach dropped off significantly from September, selling just 315,000 units, Microsoft’s Fable III had a promising first months, selling 580,000 copies in just one week on shelves. Other notable entries on the top ten were Ubisoft’s Just Dance II, the only Wii exclusive to make an impact during the month, and Lucasarts’ Star Wars: The Force Unleashed II.
Most surprising is that October marks the first time in five years that the NPD Group’s top ten has been devoid of software made by Nintendo, indicating that not only the Wii hardware market has become saturated, but the software market has as well. Titles like Wii Fit, New Super Mario Bros. Wii, and Mario Kart Wii, once guaranteed charters month in and month out, have disappeared from the charts. With no marquee titles planned between now and Christmas—Nintendo’s next release is Donkey Kong Country Returns, a sequel to the long-dormant franchise—Nintendo’s shareholders must brace themselves for what will potentially be Nintendo’s worst quarter in close to a decade.
While Microsoft’s business should boom this holiday thanks to the Kinect, there is also good news for Sony. Though the Playstation Move doesn’t appear to be encouraging new console customers, it is selling well to existing Playstation 3 owners. Pachter reported a +15% increase in Move bundle sales over its debut month in September, suggesting “strong consumer demand” for the device. Playstation 3 software sales were also strong, with Pachter claiming +50% growth over September. Sony shareholders made anxious by the industry’s poor health should take comfort that Sony’s longtail strategy with the Playstation 3 should yield good dividends in the coming year. Sony will release the long-awaited driving simulator Gran Turismo 5 on November 24th.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
