US Dec. game software sales sank 12% - Analyst

Wedbush's Michael Pachter expects last stretch of holiday season to remain true to 2009 form, Zelda: Spirit Tracks to be best-selling debut of the month.

The NPD Group won't release its December US game sales figures until Thursday, but Wedbush analyst Michael Pachter is expecting the research firm to leave a lump of coal in the industry's collective stocking. In a note to investors, Pachter predicted that the NPD Group's figures would show December gaming software sales down 12 percent year-over-year to $2.45 billion.

Pachter expects the latest Zelda adventure to be the biggest debut of December, even if the sales charts are dominated by older releases like Modern Warfare 2 and New Super Mario Bros. Wii.

Pachter chalked up part of the decline to "a precipitous decline" of nearly 47 percent in the music genre alone. He also noted that December 2008 was a particularly strong month, with its 16 percent year-over-year growth making for a tough comparison.

As for specific games, Pachter predicted strong sales for Call of Duty Modern Warfare 2 (2.1 million sold), New Super Mario Bros. Wii (2.5 million sold), Wii Sports Resort (1.7 million sold), and Wii Fit Plus (1.5 million sold). As for new releases, Pachter pegged Nintendo's The Legend of Zelda: Spirit Tracks for the DS as the best-selling debut of the month, racking up an expected 700,000 copies sold.

On the hardware front, Pachter actually expects revenues to be up 5 percent, thanks to price cut-driven sales surges for the Wii and PlayStation 3. The analyst has the Wii selling 3.2 million systems for the month, up 49 percent year-over-year, while the PS3 is predicted to have sold 1.4 million, narrowly edging out the Xbox 360's 1.35 million.

"Xbox 360 sales have kept pace with PS3 sales since the price cuts, and we expect this to persist well into 2010, but this implies solid year-over-year growth for the PS3," Pachter said. "We expect another price cut for both systems sometime this year (around summer), but note that because its manufacturing costs are lower, Microsoft has the ability to lower the price as early as March or April."

At the very least, Pachter expects Microsoft to sweeten the deal of its $299 console, perhaps adding a 250GB hard drive into that configuration.

On the portable front, Pachter believes the PSP fared poorly, selling 650,000 units in December for a year-over-year decline of 36 percent. He also pegged DS system sales for December at 2.45 million, down 19 percent year-over-year.

"We believe Nintendo's DS biggest sales challenge will be its own high installed base (36 million in the US) and expect that December will mark the beginning of an overall decline in DS sales that will persist throughout 2010," Pachter said.

Despite the glum results, Pachter is optimistic for 2010. He said game sales would be down again in January, but a dynamite lineup of new releases would lift the industry into positive territory starting in February.

"We think that it is likely that sales will begin to grow in February, hit high single digits in March, and hit double-digit growth from April through October," Pachter said. "Once sales begin to grow sustainably, chatter of an end to the current console cycle will likely be stifled, and we expect investors to again grow interested in the video game publisher stocks."

For the entirety of 2010, Pachter is expecting software sales to be up 10 percent.

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