The NPD group recently released their videogame sales report results. News of a video game retail apocalypse instantly swept throughout the Street. The reported 21% drop for 2011 and an 8% drop in December (the holiday season!) paralyzed video game stocks and led to massive sell-offs of Electronic Arts (EA) and Gamestop (GME).
Let's take a step back and look at the bigger picture. How are video games being sold? Why are NPD's numbers virtually worthless, even in their own eyes?
Let's begin at the beginning - they even admitted it in 2010, when they said digital sales outstripped retail box sales. Increasingly, many games are sold by digital download services such as Electronic Arts' Origin.com service, Steam, Activision Blizzard's (ATVI) Battle.net, Gamestop's Impulse service or Gamefly's Direct2drive as well as several smaller sites like GamersGate (who were among the first to note discrepancies) and Good Old Games.
Electronic Arts' new blockbusters Star Wars: The Old Republic and Battlefield 3 were sold on Electronic Arts' Origin site. Those are probably the bestselling games of the year according to trending (Electronic Arts has not yet released detailed sales figures for these games). Yet since those digital downloads are not point of sale items, they are not recorded anywhere on the NPD survey. For instance, Star Wars: The Old Republic sold 600,000 copies according to NPD's December report (explained in detail here). Yet, it had 1,000,000 subscribers as of the first week, making it "the fastest growing RPG in history," according to EA. You cannot subscribe without a copy of the game, so even in the first week at least 40% of sales were digital.
If we check forum trending on leading sites like gamefaqs.com, a knee-jerk litmus test of what's popular, 5(10) games are predominantly digital downloads - Star Wars: The Old Republic, World of Warcraft, Battlefield 3, Starcraft 2: Wings of Liberty, and Team Fortress 2.
- Elder Scrolls V: Skyrim
- Star Wars: The Old Republic
- World of Warcraft
- League of Legends
- Katawa Shoujo
- Battlefield 3
- Starcraft II: WoL
- Team Fortress 2
I contacted Electronic Arts and the NPD group for further information on why online sales weren't featured prominently in their investor relations or surveys and have yet to receive a reply. Electronic Arts has previously, correctly, stated how invalid this sales measurement is, but I have yet to see sales figures.
Obviously, as concerned investors and analysts, we need to look not just at point of sale purchases, but digital sales where provided, and in the absence of that, trending on major gaming websites and social networks. We also need to pressure companies like Activision Blizzard and Electronic Arts to release this information to combat the NPD group's erroneous conclusions.