It isn’t the same video game sales market it used to be, at least for giants Activision Blizzard (ATVI) and Electronic Arts (ERTS). While video game sales were up +4% over the previous month this past month, May video game sales continued a disturbing year-on-year decline. �This could spell more bad news ahead for video game stocks like ATVI, ERTS and related competitors.
Total sales were down 20% over the previous year, an even further decline from 2008. The big story in May was the Rockstar developed Red Dead Redemption sales, which took the two top spots in NPD Group’s reported top twenty. TTWO shareholders should be thrilled by the game’s performance on both the Microsoft (MSFT) Xbox 360 and Sony (SNE) Playstation 3; it sold 945,900 and 567,100 units on each respectively. May’s other major player was THQ (THQI) with their new mixed martial arts game UFC 2010: Undisputed selling 413,000 units across Microsoft and Sony’s machines. Nintendo (NTDOY) also performed well, with their games Super Mario Galaxy 2, New Super Mario Bros, Pokemon SoulSilver, and the popular Wii Fit Plus all breaking into the top ten. Other strong movers in May were God of War III and Modnation Racers, both published by SNE, as well as the MSFT psychological thriller video game Alan Wake.
The giants of the gaming industry, however, failed poorly at the end of spring 2010. Electronic Arts (ERTS) has only one piece of software in the top ten, their skateboarding simulator Skate 3. Activision (ATVI) broke into the top twenty thanks to their evergreen war game Call of Duty: Modern Warfare 2, but sales have grown sluggish. ATVI’s high profile racing game Blur, released on May 25th, failed to make any kind of impression on consumers as evidenced by its absence from NPD’s charts. Blur was positioned as a big summer seller so its failure is sure to upset Activision shareholders looking for their stock to perform as consistently as it has in the past three years.
In addition to the disturbing underperformance of Activision and electronic Arts products in May, the potrable gaming market has also continued its steady decline. While hardware is still relatively healthy�the Nintendo DS continues to dominate the video game hardware market with 383,700 units sold in May�portable software sales have stagnated to dangerous levels. Only three of the top twenty games sold in May were for portable devices, all of them for the Nintendo DS, and all of them published by NTDOY themselves. ATVI, ERTS, TTWO, and THQI have all poured significant sums into portable development and the return has been negligible in 2010. Couple NTDOY’s dominance of the portable software market with the continued irrelevance of SNE’s PSP handheld, and it’s understandable why ATVI and ERTS continue to put their resources into home console development.
While sales were down year on year, game revenue in May was actually more promising. Revenue was only down 6.7% over the same period in 2009, a significantly better dip than the massive 10% drop from 2008 to 2009. While publishers like Activision Blizzard and Electronic Arts are selling fewer units, the overall price of games has increased so revenue has maintained some balance.
With few high profile releases in June, it’s doubtful that the game market will perform much better over May. The market will, as usual, pick back up in August when ATVI, ERTS, NTDOY and the rest of the game industry begin their push towards the holiday 2010 season.
As of this writing, Anthony Agnello did not own a position in any of the stocks mentioned here.
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