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Analysts lower gaming growth expectations, project price cuts by October

EEDAR's Jesse Divnich and Wedbush Morgan's Michael Pachter now believe gaming industry will grow only 5% in 2009; $50 PS3, Wii discount, 360 response possible.


Last week, Pacific Crest Securities analyst Evan Wilson got a jump on prognosticating The NPD Group's monthly US gaming retail sales data, predicting June software shrank 20 percent year-over-year to $700 million. According to Wilson, the decline could be attributed as much to an overall dip in consumer confidence and greater market forces as it could to a less impressive release schedule for the month.

Alex Mercer knows how to make an impact.
Alex Mercer knows how to make an impact.

Today, two other industry illuminati weighed on NPD's upcoming report, which is due later this week, and both assessed similar losses for the industry. Electronic Entertainment Design and Research's Jesse Divnich believes June 2009 software sales came in at $697 million, a 20 percent year-over-year slip. Michael Pachter, of Wedbush Morgan Securities, took a slightly gloomier stance, predicting a 23 percent software sales decline to $670 million.

With the first half of 2009 coming to a close, both analysts also took the occasion to revise their full-year sales predictions downward.

"Unfortunately, due to a slowdown in gaming sales, an increasingly aggressive retail environment and some delays from major titles, EEDAR is lowering full-year software growth estimates for 2009 from 7 percent down to 5 percent," Divnich said. "While we believe that the video game software sector remains highly recession-resistant, we expect growth of only 5 percent in 2009, due to a weak start to the year and continuing tough year-over-year comparisons," Pachter noted.

As for software, Divnich and Pachter both agree that Activision's Prototype led sales for the month, with the former pegging combined sales at 680,000 copies and the later estimating 500,000 units. Divnich also called out an interesting trend with Prototype sales data as compared to the PlayStation 3-exclusive Infamous.

"Infamous is currently on track to sell 35 percent more than Prototype for the PS3 in North America," Divnich said. "Lifetime sales could outpace Infamous over Prototype by as much as 50 percent due to the longer sales curve exclusive titles receive. Due to near identical gameplay and quality scores, the Infamous versus Prototype case study presents interesting data to publishers when considering the sales bump a title could receive by choosing exclusivity over a multiplatform release."

Divnich went on to say that Prototype is expected to outsell Infamous by some 90 percent, when the Xbox 360 edition of the game is factored in. Other titles the analyst expressed optimism over were EA's Fight Night Round 4, predicting a 600,000-unit debut, and THQ's UFC 2009 Undisputed, which he now believes will broach the 3-million-unit milestone during the publisher's current fiscal year.

As part of his investor note, Pachter reiterated his belief that all three hardware manufacturers will enact price cuts for their devices during the back half of the year.

"We think that the console manufacturers will therefore be forced to consider a price cut before year-end, with Sony cutting the PS3's price by October 1," Pachter said. "Further, we do not think that Nintendo's hardware forecast figures are achievable without a price cut, and we expect one around the same time as the PS3 price cut. It is likely both manufacturers will cut by $50, with Sony making up any lack of increased demand with a software bundle. We expect Microsoft to follow suit, giving us confidence that US software sales will grow later in the year."

With the PSP Go due October 1, Pachter also said that he expects Nintendo to trim the price of the DS Lite this fall.

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