By all accounts, 2007 was the biggest year yet in the US gaming industry. Before the lucrative December sales period had even started, the industry's full-year retail revenues were already up 5 percent over the entirety of 2006, which was previously the best US retail sales year the industry had ever experienced. With the industry-tracking NPD Group set to reveal its December US retail sales figures later this week, a handful of analysts have released investors' notes with their software sales expectations for the 2007 capper.
Lazard Capital Markets' Colin Sebastian offered the least optimistic sales prediction, saying he expects software sales up between 20 percent and 25 percent from 2006's $1.7 billion December take. Pacific Crest Securities' Evan Wilson was a little more optimistic with a 26 percent growth projection, while Wedbush Morgan Securities' Michael Pachter went a little bit higher with expectations of 28 percent. Despite being more bullish than his peers, Pachter still said there was plenty of potential upside to his estimate.
"This was an exceedingly difficult month to forecast, given that November sales of $1.3 billion were so phenomenal," Wilson said. "Historically, December has never yielded results lower than [twice] the results in November (at least since 2000), and we are prepared to be spectacularly wrong with our forecast should the historical pattern hold this month."
The deluge of big-name titles toward the end of the year was not lost on Wilson, with the abundance of highly anticipated titles creating problems for one another.
"Enough products were slated on a growing number of platforms that a lack of shelf space prevented the success of some games," Wilson said. "A few significant games like Call of Duty 4, Guitar Hero III and Rock Band ended up taking a disproportionate share of sales. Publishers also had to navigate lengthy reorder times for third-party Nintendo platform games and the decline of PS2 software sales. "
Wilson's note focused on a number of year-long trends in 2007, and gave some expectations for 2008. Calling the continued success of the Wii and DS "the clearest reason" for last year's record results, Wilson said Nintendo had carved its way back into the software sales race, with games on its systems accounting for 33 percent of software sales, up from less than 25 percent in 2006. Wilson also listed a number of surprise hits that emerged during 2007, specifically new intellectual properties like Mass Effect, BioShock, Assassin's Creed, and Rock Band. While Harmonix's latest rhythm game was a surprise hit, Wilson singled out its previous franchise, Guitar Hero, as a cultural phenomenon that emerged in 2007.
"We estimate that Guitar Hero will represent 9.5 percent of total software sales this year," Wilson wrote. "This will be by far the biggest game of the year and compares with 5.2 percent for Madden in 2006, which was the biggest franchise that year."
As for full-year 2008 projections, Sebastian and Wilson both suggested that the industry would again grow, although not at the same pace as it did in 2007. Noting that the industry's own generational growth cycle seems to impact sales more than the general state of the economy, Sebastian said he expects sales growth of 10-15 percent for the year, driven by anticipated games like Grand Theft Auto IV, Spore, and Metal Gear Solid 4. Wilson pegged 2008 growth at a little under 12 percent, saying that the PlayStation 2 sales are going to taper off much more quickly and the coming year's release lineup looks significantly weaker than last year's, Grand Theft Auto IV excepted.