Tough Comps Kill Video Game Sales Growth

On Thursday, we learned that Activision Blizzard (ATVI) is doing fairly well in a tough economy. But Friday night, market-research firm NPD reported March 2009 video-game industry sales, and there wasn’t much to get excited about.

Overall sales fell 17% to $1.43 billion, with hardware down 18%, software down 17%, and accessories down 15%. The problem wasn’t the economy - it was more a case of incredibly tough year-over-year comparisons.

In March of 2008, hardware sales were up 51%, while software sales were up an insane 63% on the back of Nintendo’s (NTDOY.PK) Super Smash Bros: Brawl, Ubisoft’s Rainbow Six: Vegas 2, and Electronic Arts’ (ERTS) Army of Two.

Capcom’s (CCOEF.PK) Resident Evil 5 sold a solid excellent 1.5 million units across the Microsoft (MSFT) Xbox 360 and Sony (SNE) PS3 platforms, but even that paled in comparison to Brawl’s insane 2.7 million unit sales on the Wii last March. Even at a 17% lower price, that’s a significant difference in dollars. There may also have been some residual impact from higher used-game sales and discounting at the failing Circuit City.

So if you look at two-year industry growth, the numbers look pretty good, even with the decline. March 2009 hardware sales are up 24% relative to March 2007, with software sales up 35%.

The real takeaway, however, is that Sony needs to cut the price of the PS3, pronto. It is losing more and more ground to the Xbox 360 and Nintendo Wii every month, and at this rate, it will never catch up.

Looking forward, April should be another tough month for the industry as it laps the release of Take-Two Interactive's (TTWO) Grand Theft Auto IV and Nintendo's Mario Kart Wii.

Disclosure: I am long Activision Blizzard.

Comments

[Ishortyou:]

in a recessive economy without a job and poor prospects there is nothing better than staying at home and playing a favorite game with your buddies, the game industry does well in these conditions.

Apr 19 09:30 AM

[Michael Comeau:]

I agree - relative to many other forms of entertainment, video games provide a lot of value per dollar, ESPECIALLY titles with robust multi-player components. There are also plenty of amazing older games that are super cheap - stuff like Bioshock.


On Apr 19 09:30 AM Ishortyou wrote:

> in a recessive economy without a job and poor prospects there is
> nothing better than staying at home and playing a favorite game with
> your buddies, the game industry does well in these conditions.

Apr 19 10:14 AM

[Michael Comeau:]

Good point on Blu-ray. I really do believe it was an awful decision to stick Blu-ray in the PS3 - it was a huge risk at the time given the format war and it's a major cost addition. At the same time, developers are doing fine with the regular DVD format on the 360.


On Apr 19 07:08 PM speculawyer wrote:

> Sony is stuck between a rock & hard place. If they cut the price
> much, they'll lose even more money on each PS3 sale. And worse,
> Blu-Ray fans may buy a PS3 just for Blu-Ray viewing and thus never
> buy enough games to cover the subsidy. They are just going to have
> to grin and bear it this generation and hope for better performance
> next generation. At best, they can hope Blu-Ray popularity increases
> such that people buy the PS3 for both Blu-Ray and games.
>
> Perhaps they can do another cost reduction on the PS3 . . . do an
> external power supply, remove built-in 802.11, do a cheaper tray-load
> drive, etc.

Apr 20 10:42 PM