Amid the economic turmoil that has shrouded the U.S. for the last couple of weeks, the gaming industry seems to be the latest victim as figures released by The NPD Group, a market research firm,? reported that the gaming industry has shrunk 26.0% in July from the comparable-previous year. It was the sharpest fall since October 2006.
July?s decline was the industry?s third-straight month when U.S. sales of video games? hardware, software and accessories contracted in double digits. Earlier, sales during May and July declined 14% and 10%, respectively.
The major factors that resulted in the decline were weak schedule of new title releases and seasonally lower sales. Adding to the woes was the uncertainty about the economy and the disappointing growth in the jobs market that ultimately affected the consumer sentiment.
In July 2011, US sales were $707 million, down from $961.3 million in the prior-year period. Software sales including PC games and console games were down 30% to $356.9 million. Only 17 new titles were released in July 2011 compared with 29 in July 2010.
Amid this grim picture, the games that stood out were Electronic Arts Inc.?s (ERTS - Analyst Report) NCAA Football 12 and Disney Interactive Studios? Cars 2,which took the first and second spot, respectively.
Activision Blizzard Inc.?s (ATVI - Snapshot Report) all time favorite Call of Duty Black Ops followed next. The fourth, fifth and sixth positions were? taken by Disney Interactive Studios? Lego Pirates of the Caribbean: The Video Game, Ubisoft?s Just Dance 2 and Take-Two Interactive Software Inc.?s (TTWO - Snapshot Report) Major League Baseball 2K11, respectively.
Hardware sales were down by a whopping 29% year on year to $223 million. The decline was primarily led by a 37.6% drop in the sales of Microsoft Corp.?s (MSFT - Analyst Report) Xbox 360 gaming console. For the month, 277,000 units of console were sold.? This was Xbox?s first decline in sales since December 2009. Additionally, Nintendo?s sales of DS and 3DS handheld players were flat on a year-over-year basis.
However, the motion-sensing Move peripheral for Sony Corp.?s (SNE - Snapshot Report) PlayStation3 jumped 18% from the prior-year period.
Sales of videogame accessories were down 8% from the previous year to $127.8 million.
In the present scenario, with the changing dynamics of the gaming industry, consumer spending on mobile games and social networking games are gaining tremendous popularity. We believe publishing companies having an exposure in these segments would be benefited in the long run.
To drive home the advantage of the popularity, Electronic Arts had bought PopCap Games, which is one of the largest social gaming companies with over 150 million games that are played on various platforms such as Facebook, RenRen, Google Inc.?s (GOOG - Analyst Report) Android, Apple Inc.?s (AAPL - Analyst Report) iPhone, iPad and also on the web. We believe that other publishers would follow soon.
We also believe that digitalization of the games would be a major revenue earner for the publishing companies.
However, the overall video game market remains highly fragmented, graced by a large number of companies, including Activision, Electronic Arts, Take Two Interactive Software Inc., Capcom, Koei, Konami, LucasArts, Midway, Namco, Sega, THQ and Ubisoft. This has increased competitive pressures that have kept the lid on prices.
Moreover, analysts are not projecting any positive picture for the monthly sales figures of August as no major releases are scheduled for the month. Analysts from Cowen are particularly negative, anticipating a 30% or more decline in August sales.?
To conclude, the economic slowdown has taken its toll. Consumer spending remains weak to date and the lack of new game releases has not helped.
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