Console video games post continued sales declines in October; lackluster titles a key factor

Port Washington (NY) - Continuing a disappointing trend, retail sales numbers for console video games in the US, based on October's figures, continue to decline at a rate of 24 percent per annum, according to NPD Funworld, which tracks sales for 60 percent of the nation's retailers. Last month, NPD also reported a 24 percent year-to-year decline in retail console game sales over September 2004.

As NPD's David Riley told TG Daily this afternoon, the gaming industry's lackluster performance this year is not entirely unexpected. "The real pain comes from the software side," he told us. At this time last year, he said, sales were being driven by the latest entries in the Grand Theft Auto, Star Wars: Battlefront, and Halo series; whereas this year, there are few, if any, counterparts.

Last month, Electronic Arts' Madden NFL '06 fell to third place on both PlayStation 2 and Xbox sales charts. Sony's SOCOM 3: US Navy Seals took the lead on PS2, while Ubisoft's Far Cry Instincts took the lead on Xbox. EA's NBA Live '06 took second spot for both consoles.

This afternoon, an analyst told Reuters, and Electronic Arts subsequently confirmed, that the publisher would be slashing prices on NBA Live '06 and at least two other titles, Burnout Revenge and NASCAR '06, by 20 percent - from $50 to $40. Gary Cooper, an analyst with Bank of America Securities, told Reuters game titles are becoming softer, not sustaining their premiere-date premium prices for as long as in the past. An EA spokesperson denied to Reuters that the price slash was indicative of any newer, softer pricing policy.

Tightening the drag for game sales figures in the second half, NPD believes, has been an apparent decline in turnover for their associated consoles, due in large part to market saturation. Another factor is the highly anticipated entry into the market of Xbox 360 - still on schedule for 22 November - followed in 2006 by PlayStation 3 and Nintendo's wild card, Revolution.

But compensating for the decline in overall console sales, said Riley, is continued strength in portables. "Last year with only the Game Boy Advance in the market, all portable units were sold for under $100," he remarked, "while this year you have the [Nintendo] DS and [Sony] PSP pulling up the average retail price of portable hardware overall."

How much of the apparent sales decline is due to the industry's own internal trends, and how much is a factor of the near-term weakening of the US economy? "I don't think we can deny that the current economic situation plays a role in the decreased sales we've seen over the past two months," NPD's Riley responded, "but I'm confident that November and December sales will drive the overall industry sales for the year above the record $10.3 billion.

According to a Reuters report, October's numbers have triggered a split among securities analysts who track game publishers, at least one of whom, from Wedbush Morgan Securities, is predicting a strong holiday rebound, while a UBS analyst predicts final figures for the year overall will show a general, though slight, decline - as little as 1%. NPD's recent holiday spending survey, said Riley, "showed that consumers are currently planning on spending slightly more this holiday than last, which speaks to their optimism... About a quarter of respondents did say that gas and heating prices would impact their spending decisions, so it's definitely a factor to be considered."

While it's still theoretically possible for 2005 to be a record-breaking year for video game retailers, the likelihood of that eventuality might be compared to a generally winning football team that finds itself in the midst of a three-game losing streak. The economy will play a role in determining which way the needle points, said Riley. But the critical factors of inventory availability and publishers adhering to their shipping deadlines - which amateur gamblers could safely bet against this year - must be considered equally. "It's such a dynamic and rapidly changing industry," Riley added.

So all eyes are on the holiday season for the US economy as a whole, which had been poised for a strong comeback over the previous year, until the hurricanes crisis triggered a sharp rise in oil prices, which in turn triggered an economic speed bump. The key to making a reliable forecast may be the relative strength of the "unselfishness" factor this season. Over the past four years, NPD's David Riley told us, between 67 percent and 72 percent of console game purchases during the fourth quarter of the year, have been estimated as gifts for someone else, not purchases for oneself. Even though Sony will be battling Microsoft's new Xbox 360 this season with a PlayStation 2 that analysts say has already saturated the market, if Sony comes up with a price plan, it could stay in the game, especially if that price appeals to as much as three-quarters of customers who aren't evaluating the console for their own purposes anyway - they may not even be playing the games themselves.

"The Xbox 360 will certainly get many of the earlier adopters that are buying for themselves," said Riley, "but will the other platforms benefit because they're offered at a more gift-giving friendly price? The device manufacturers are going to have to work hard to make sure they're on the top of many a wish-list to win that battle."