Dec. game sales drop to cap 'miserable' 2009 - Analysts

As the industry was at the height of its midyear malaise, industry analysts pinned their expectations for US gaming sales growth in 2009 on a strong holiday season. With the realization that not even the blockbuster launch of Call of Duty: Modern Warfare 2 could push November sales into positive territory, analysts are now chalking up the year as a loss and looking forward to 2010.

"2009 appears to be an all-out miserable year for both hardware and software sales," wrote Wedbush's Michael Pachter in a note to investors. "After two consecutive phenomenal years of growth, with software sales up 34 percent and 27 percent in 2007 and 2008, respectively, it should have been evident that a slowdown was coming, but many observers (including us) were lulled into the belief that the video game software business was recession-proof. Compounding our error was the belief that Wii sales would never slow, and that the music genre could continue to grow. We now see just how wrong we were."

Between the precipitous decline of the music genre and the popularity of hardware packages that include multiple games (reducing the need to purchase extra software), Pachter said December sales could be down as much as 10 percent. That sentiment was backed up by Signal Hill's Todd Greenwald, who told investors that a 10 percent decline to end the year "is reasonable at this point," and Pacific Crest Securities' Evan Wilson, who predicted "a healthy double-digit decline" for the month.

For his own December expectations, Electronic Entertainment Design and Research analyst Jesse Divnich gave a 7-12 percent range for software sales decline. He noted that titles targeting traditional gaming audiences were better represented in November than in years past. However, given that the December sales rely more on casual or nongamer audiences, that positive is a bad omen for the current month's sales figures.

As for other lessons pulled from the NPD sales data, Greenwald started with Modern Warfare 2 and its whopping 6.1 million copies sold.

"It is likely that MW2 is 'sucking the air' out of the competition, as the rest of the titles largely disappointed," Greenwald said. "While Super Mario Bros (1.4M units) and Assassins Creed 2 (1.2M) were respectable, most other titles underperformed."

Divnich noted the same trend, but managed to find an optimistic angle on it.

"This would suggest that publishers who purposely diverted their AAA holiday titles into 2010 made the proper decision and will likely realize stronger sales with a post-holiday release than a holiday release," Divnich wrote. "Additionally, a byproduct of this schedule shift will limit cannibalization and create a much stronger and healthier video game environment in the long-term."

While other analysts were focusing on the impact of Modern Warfare 2, Wilson took a deeper look at the Wii. Nintendo's console saw its hardware sales drop from 2 million in November 2008 to 1.26 million last month, despite the recent price cut.

"While most in the industry accept that the price cut was not significant enough to draw much of a new audience into the Wii installed base, these sales results show that Nintendo likely needs a much lower price to hold unit sales flat with previous levels," Wilson said. "Compelling new software is also needed to draw existing Wii owners back to retail. Nintendo thought that New Super Mario Bros. Wii would be that software, and at 1.4 million units sold the game had a solid launch, but it has not been nearly as influential as several releases Nintendo had in its previous fiscal year."

As gloomy as 2009 was, analysts are confidently optimistic about next year. Wilson predicted that sales would start to grow again in March due to easier year-on-year comparisons and a strong lineup. This year, sales shrank each month from March through August, so the bar for the same span in 2010 has been lowered accordingly.

Pachter also called 2010 "a very easy year to grow sales," saying the parade of hotly anticipated games in the first half of the year should push sales up an average of 18 percent from March through October.