Game Sales in April Show 'Something is Terribly Wrong,' says Pachter
Following the worse than expected and highly disappointing NPD results for April, Wedbush Morgan analyst Michael Pachter has reacted to the data, and it seems he's stumped.
"The April sales results are baffling to us," he began. "The dollar sales level of $399 million is the lowest since May 2007, when this generation was barely underway, and is the weakest April result since 2005, when console software sales totaled only $6 billion for the full year. The sequential decline of 54% is the greatest in the 11 years that we have been tracking monthly data (except for December-January declines), dwarfing the previous record of 42% set in March-April 2002. For the first 13 weeks of 2010, video game software sales averaged just under $162 million; for the four weeks of April, they averaged just under $100 million."
He continued by noting that many gamers likely played the games they already had and were waiting for the AAA games that are shipping this month.
"It’s easy to blame the lineup, which was quite light (Ubisoft’s Splinter Cell Conviction was the only AAA title, and it was an Xbox 360 exclusive), but the results suggest something is terribly wrong," he said. "Unfortunately, we are at a loss to identify precisely what was wrong, given relatively robust sales for the three months prior, decent weather, an improving economy, and a deep catalog of recently released titles. We do not believe that core gamers suddenly shifted allegiance to Facebook or iPhone games in April, nor do we believe that Call of Duty Modern Warfare 2 online play increased dramatically during April. As we cannot explain the reasons for the shortfall, we can only conclude that April was a fluke, with many core gamers enjoying recently purchased games and looking forward to new releases coming out in May."
He added, "The May lineup is indeed stacked in favor of dramatic growth, with Red Dead Redemption, Super Mario Galaxy 2, Alan Wake, Prince of Persia, Lost Planet 2, Blur, SKATE 3, Iron Man 2, LEGO Harry Potter, UFC, and Shrek 4. We think that this lineup is quite appealing to a broad audience, with one Xbox 360 exclusive, one Wii exclusive, two hardcore shooters, two adventure games, one racing game, two action sports game, and three movie licenses. In other words, May has something for everybody."
Pachter also noted that investors in the games industry are likely to be "spooked" by April's poor performance and many will "continue to believe that the video game industry is in a state of persistent secular decline." Part of the problem is that gamers are able to enjoy the same titles for longer, thanks to multiplayer and DLC offerings.
"We think it is inevitable that there will be a shift in delivery of video games away from packaged products and toward digital downloads, but don’t think that the shift is occurring in a material way in 2010. Rather, we believe that the publishers and developers of games have created more robust multiplayer content in recent years that has resulted in core gamers playing the same games for much longer, on average, than they did in the past, leading to lower sales of new games," Pachter explained. "We expect the publishers to monetize the value created by online play, led by Activision. We anticipate that Activision will find a way to monetize the 1.75 billion hours of Call of Duty Modern Warfare 2 online play on the Xbox 360 in the first five months following the game’s release. This game play suggests that as many as 12 million gamers (PS3 and Xbox 360 combined) played online for an AVERAGE of 10 hours per week for the five months since the game’s launch. It is obvious to us, and likely equally obvious to Activision, that these gamers are spending a lot of time that was monetized only through the original purchase. In the future, we think that Activision will find a way to charge for some portion of online game play, and if successful, we think that other publishers will follow suit."
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