Analysts react to February figures

Industry watchers weigh in on which numbers are actually important from the latest peek at an industry in transition.

Industry-tracking group NPD Funworld released its February US sales figures on Friday, and the general results were more or less as expected. Unable to compete with a February 2005 that saw continued strong sales of Grand Theft Auto: San Andreas, Halo 2, and Resident Evil 4, last month's game software sales dropped 13 percent from the year before. A handful of industry analysts provided their takes on the numbers in notes to investors today.

Friedman Billings Ramsey analyst Shawn Milne pointed to Electronic Arts' performance in the quarter as particularly strong, noting that the company produced four of the five best-selling games of the month (Fight Night Round 3, Need for Speed Most Wanted, Madden NFL 06, and NBA Live 06), and was one of the few publishers to match its sales from the year before. Milne also noted that EA commanded a larger slice of the pie with a 24.7 percent market share during the month, up from 21.4 percent a year ago.

Michael Wallace with UBS Securities addressed the possible arrival of PlayStation 3 details this week as being particularly significant as to where the industry goes from here.

"We think confirmation of the PS3 shipping this year will help the game stocks while a delay into 2007 could lead to the game stocks testing bottoms, which could provide some good buying opportunities," Wallace wrote.

He also noted rapidly declining software sales for current-generation systems, with Xbox games dropping 39 percent, PlayStation 2 titles falling 33 percent, and GameCube software down 31 percent. The Game Boy Advance was the worst hit of the bunch, seeing a 44 percent drop in game sales from the previous year. Only the DS sold more games this February than last. Its numbers jumped 126 percent.

Webdbush Morgan Securities analyst Michael Pachter told investors that the sales declines should stabilize as the Xbox 360 supply catches up to demand (he expects the system to be "widely available" in April), but he thinks the six-month slide of game sales is going to continue.

"We think that March poses a particularly difficult comparison of +31 percent last year, when the PSP launched in the US. We think that March sales will be down at least 20 percent or more this year, bringing year-to-date software sales down at least 14 percent."

As bad as the industry might look to investors right now, Pachter thinks it's going to get worse before it gets better.

"We think that the transition has only just begun, and believe that the worst effects of the transition lie ahead. We think that as monthly software sales decline by double digits over the next few months, many investors may begin to question the health of video game publishers, and may begin to question whether these stocks make sound investments."

While Pachter has gone on the record as saying 2007 will be big for the industry "no matter what," he thinks many people have underestimated the transitional woes it will encounter getting there. He added that things should turn around once the Revolution and PS3 are out (which he believes will happen in September), when the game sales of three next-generation systems and the PSP and DS will more than make up for the declining current generation.

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20 comments
XAF1
XAF1

what the stock analysts are indicating about a decline in game sales this year is correct but what we the consumers aren't really hearing are a great deal of the reasons. I'm sorry to say that the arrival of the PS3 is not going to change the world. As always Sony fans will still gobble up the PS3 like they have with every other Sony product. I own a PS2 but it's because I own a resaonable number of PS1 games. Some of the original Playstations were defective from the get go. I tried everything with my PS1 and finally I just waited until the PS2 came out and bought one due to the death of the Dreamcast. The funny thing is that some of the PS2s both old and Slim Line Models are still having problems here in the states. We can't debate the facts that defective products come out. (1.) Yes gamers are confused about the next-gen change but I don't think that once all the new consoles are out that situations will be solved. Too many choices makes for too much confusion leading to a wait and see type stance leading to a lose in company earnings. (2.) Next-Gen consoles are more expensive than what we have grown use to. Possibly with the exception of the Revolution. So, right now if you want a next-gen console then you have to start saving and wait on bargain prices for current- gen games. (3.) Not only have the next-gen consoles gone up by $100+ dollars but so have the games by $10 dollars. Gamers look at the situation and we realize we have to cut back some where so we begin to change our buying habits. Less here, more there. (4.) The PS3--- so much new technology--- so much more technically to go wrong. Blue-ray a totally new storeage system with so much confusion behind it for consumers aswell as programmers. (5.) Consumers really aren't ready for such a quick change but the gloves are off. A great deal of companies are hurting right now and need a infusion of cash to keep their stockholders happy. (Can't really blame them.) (6.) Where is the real next-gen software coming from.? When will gamers see it. Beautiful graphics are nice but it's starting to feel like the same old thing with a new coat of paint. Graphically I don't think the system will be much different nor will a great deal of the games from system to system. And before anyone takes me the wrong way I'm not beating up on Sony but it has a rep. for promising too much too soon. As a hardcore gamer I intend to own all 3 next-gen consoles in due time. the 360 just came out 1st so if u have one enjoy . The PS3 & Revolution will be powerful enough to be around for a good while aswell.

espme
espme

ea stinks.24.7 percent of the ENTIRE game industry market share?!That is why there needs to be a 2k football game.

osxgp
osxgp

I think Analysts are wrong if they think PS3 will be the gaming savior. Numbers are down because of the new systems are on the way and people want to wait and see what to spend their money on. First of all, Sony's last two systems both had hardware problems (overheating, disc read errors, etc). I started working for Gamestop around the PS2 launch and saw many returns (more than XBOX and Gamecube combined). Then the initial amount of PS2 systems to be launched were cut in half at the last second. There were a lack of launch games for PS2. The biggest selling point for the system was the fact it played DVD movies (the system was 1/2 the price of a DVD player at the time). It still took months for decent games to come out. Hopefully Sony won't rush the PS3 and have shortages (AGAIN). It builds hype of course, but upsets the consumer. Look @ the 360, it was rushed to be the first and now its hard to find one still. Sony needs to follow in the words of Bungie...Its done when its done!

BugCatchingNet
BugCatchingNet

and all I want is an Xbox 360....if only MS would make more premiums...

SilV3RSix
SilV3RSix

Um, Kaos... $225 million on 2.5 million copies? Thats 90 bucks a pop, bro. They'd have to sell somewhere in the order of 4.5 million copies in two days. Those numbers are Halo 2-esque. I suppose it COULD happen... but I sincerely doubt it.

LordGamer0001
LordGamer0001

well if everyone thinks they are gonna do bad well then maybe that will give some slack on the cost of games. that would be a plus side to all of this.

NeoJedi
NeoJedi

Never trust analysts... let's just hope they are wrong.

ebonyflame
ebonyflame

This is a comment strongly supporting what Kaos-Angel said at the beginning of the thread. Taking into accound US gaming trends and how well things ar doing for the handheld sector while things lag behind in the home system sector is just stating the obvious to anybody that plays games. And the numbers are very biased as they do not account for worldwide sales or.

ryokinshin
ryokinshin

and they hav already announced the price rite? the hardware i do agree with u, but the games would probably cost the same as xb360 games to keep it competitive. ppl are gonna buy the ps3 no matter how much it costs anyways

GuiltysparkHALO
GuiltysparkHALO

lol ps3 will cost 600 bucks and games 70 bucks, no one will buy it

kamtong1
kamtong1

The PS3 is the real next gen

sigma8
sigma8

"what makes them believe the stocks will take a hit if the ps3 is delayed?" Um.. Lack of product to sell? Continued dumping of cash into R&D, marketing, and getting the product to market? The effect it will have on companies whose livlihoods are based on being able to release their games for a platform....which doesn't exist by the time Sony said it would exist? Yes, the analysts state the obvious for the present. They have to. They aren't trying to be wrong, after all. If you can't even diagnose what's in front of you, you're not a good analyst. Their "talent" is predicting how long a slump will last, so that investors know when to sell & buy stocks. Timing is pretty critical, if you want to make a lot of money.

arsneo
arsneo

ain't no new games coming sales will drop even an idiot can figure that out.

Kwzy
Kwzy

Final Fantasy XII alone make 2006 a good year for gaming!!!

jimbo102671
jimbo102671

Analysts either state the obvious or have no idea what is going on. Obvious: It's the transition period, all right. Gamers and developers alike are awaiting the new systems. No idea: What makes them believe stocks will take a hit if the PS3 is delayed as rampant rumors suggest?

yanks26wsw
yanks26wsw

Once all the next gen consoles are out, evrything will be ok

Kaos-Angel
Kaos-Angel

Bah, these guys don't know anything about Video Games. If they even say the industry will slide down even more in March, they will prove to me that they are idiots. I mean, Square is going to make $225,000,000 with 2.5 million preorders of Final Fantasy XII within the first hour in 2 days. I hate American analysts...can't Famitsu do it? They are always dead on and know what they are talking about. First btw...