Analysts: October strong, despite higher expectations

Industry watchers unfazed by less-than-expected revenues for the month leading into holiday sales rush.

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Earlier this week, industry analysts preemptively awarded the October software sales crown to Activision, thanks in no small part to its rhythm-rocking franchise Guitar Hero III: Legends of Rock. That insight proved to be lucent, as evidenced by industry-tracking group NPD's October sales figures, which it released yesterday. However, while Activision's revenues were up 414 percent compared to the same time last year, the industry on the whole performed well below their expectations.

Today, several analysts weighed in on the discrepancy. Analysts agreed across the board that one of the primary contributing factors to October not living up to their expectations was the significant drop in software sales for the PlayStation 2, which were down 29 percent year over year. However, Pacific Crest Securities analyst Evan Wilson sees a logical explanation behind this drop. "This month, NPD did not receive data from Toys R Us for the first time," he noted. "It appears that mass-market titles on the Wii, DS, and PS2 are underrepresented in the data."

Wilson reiterated that despite growth being less than expected, software sales still shot up 39 percent. He also called attention to last year's lackluster October sales in comparison to how the rest of the year played out. "October 2006 NPD data showed 1 percent growth after 14 percent to 28 percent growth in the previous four months," he said. "Publishers later had solid holiday seasons."

Wedbush Morgan Securities analyst Michael Pachter believes another contributing factor to lower-than-expected software sales was a preponderance of bundled games for the Xbox 360 and PlayStation Portable. "In the aggregate, these bundles represented over 600,000 units of games that were purchased by consumers and which were not counted in the NPD software numbers for the month because the software was included 'inside the box' as part of the bundle," he said.

However, prediction market the simExchange also noted that sales were lower simply because some titles did not perform to expectations. In particular, Insomniac Games' high-profile PS3-exclusive title Ratchet and Clank Future: Tools of Destruction, which released October 23, hasn't thus far lived up to sales expectations.

"Ratchet & Clank Future sold only 74,500 units in October, well below an already low market expectation of 129,000 units," said simExchange analyst Jesse Divnich. In comparison, Insomniac's PS3 launch title Resistance: Fall of Man sold nearly 71,000 last November, with lifetime-to-date sales at nearly 700,000, according to NPD.

Divnich believes that continued lackluster performances from PS3-exclusive titles are having a negative impact on hardware sales for the Japanese giant. As such, Divnich believes a lot is riding on Naughty Dog's Uncharted: Drake's Fortune. "Sony does have one last chance to prove itself in 2007 with its first-party titles with Uncharted: Drake's Fortune, which the prediction market expects 286,000 units sold in December." Uncharted officially ships out November 19, though some retailers appear to already be stocking the anticipated action adventure.

Pachter, on the other hand, believes that PS3 sales, while "still tracking below our expectations," are in for a strong holiday season riding the recent price drop of the 80GB SKU to $499 and the introduction of the $399 40GB model.

However, Pachter did raise an eyebrow at Sony CEO Howard Stringer's recent ballyhoo over the PS3's uptick in sales. "We are somewhat perplexed by Sony's recent announcement that sales accelerated to 75,000 to 100,000 per week after the price cuts (announced October 18) as it appears that sales increased by a smaller amount," said Pachter. Speaking to financial news service Bloomberg, a Sony representative clarified Stringer's statement, saying the 100,000 figure included PS2 and PS3 sales.

Addressing the Wii's reemergence atop the console leaderboard, Pachter sees October's hardware figures as affirmation that Nintendo has ramped up production of its hot-commodity console. "From January through June, Wii supply averaged 78,000 units per week, and from July through September, the supply increased to 102,000 units per week," he said. "It appears that Nintendo has managed both its production capacity and the allocation of units to the U.S. market so as to allow for a regular increase, and we expect further increases over the next two months."

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