October retail video game sales were lower than expected. As reported in GameBiz Daily, NPD reported October retail video games sales Friday morning. Total industry sales were up 16%, but software sales were flat. This compares to expectations in the 10% to 15% range. More data points:
* Lower than expected sales due to a higher percentage of PS2 titles. NPD attributed lower-than-expected video game software sales to lower than expected average ASPs. Of the top ten titles in the month, 6 were PS2 titles, 3 were Xbox 360 titles, and one was an Xbox title. The month was also characterized by strong sales of handheld games which are sold at lower ASPs. This contrasts to recent upside in monthly sales which were driven by strong sales of Xbox 360 titles.
* EA likely the most exposed to downside versus expectations. Our sense is that Electronic Arts is most exposed to downside versus expectations for October sales, largely because Need for Speed: Carbon was released on October 31 and is not in NPD data for the month (although it is our forecast for the quarter). THQ sales also appear weaker than expected. We believe Activision came in line with modest expectations for the month, as well as Take-Two due to strong sales of Bully for the PS2, although, October results do not include GTA: Vice City Stories as it was released on October 31 as well.
* Confirms our thesis that this season's sales may have been front ended. We believe this pullback in retail sales after strong gains in the past three months confirms our thesis that the largest publishers managed their release schedules to put their strongest titles out into the market earlier in the sales season than last year. We think these companies are positioning themselves to take advantage of the next-gen cycle once a larger installed base builds and will be releasing their key titles accordingly.
* We believe the group is overbought and due for a correction. Video game stocks rose over 30% on average in the September quarter as a strong rebound in retail sales led investors to the conclusion that the cycle had bottomed out. We think expectations are now ahead of themselves. We think it will be a strong holiday season for overall industry sales due to the launch of next gen consoles. However, our sense is that the aggregate release slate for the holiday season is crowded, opening the possibility for overall sales to be spread too thin and misses by individual publishers.
* We reiterate our underweight ranking on the group. Our underweight rating for the group reflects our belief that there is a significant risk that one or more of these companies will disappoint in the December quarter.