April software decline inconsequential - Analysts

April 2008 saw million-unit-plus game debuts on all three current-generation consoles. Released during the final week of April, Take-Two's Grand Theft Auto IV debuted to 1.85 million copies on the Xbox 360 and 1 million units on the PlayStation 3, whereas Mario Kart Wii burned through 1.12 million units in the US during its opening weekend.

That being the case, April 2009 is in for a tough comparison when The NPD Group releases its monthly retail-sales recap later this week. And despite predicting a 17-25 percent year-over-year sales decline, industry analysts are quick to note that the dip has more to do with the aforementioned tough comparison than any weakness in the market.

Leading off a string of investor notes this week, Wedbush Morgan Securities' Michael Pachter said that April 2009 software sales data is expected to match last month's 17 percent slip. He expects that software fell to $550 million in April, down from $793 million in March and $655 million in April 2008. Top sellers for the period, according to Pachter, will be Halo Wars, Resident Evil 5, Pokemon Platinum, and Wii Fit, with EA's The Godfather II making the strongest debut at only 150,000 units sold.

"Console software sales growth was extraordinary in 2008, up 26 percent," commented Pachter. "However, year-to-date, sales have declined modestly, and we forecast another double-digit decline for April. Notwithstanding that sales will likely be tracking down 5 percent through April, we believe that the decline is more attributable to difficult year-over-year comparisons (which improve after July) than to overall weakness in the economy."

EEDAR's Jesse Divnich--who was one of the few analysts to predict Grand Theft Auto: Chinatown Wars' inauspicious start in March--also estimated April 2009 software-sales growth slipping 17 percent year-over-year to $548 million. Divnich noted that if his forecast were to hold true, the industry would be down 5 percent through April, the biggest decline since 2001.

"If April sales exceed $550 million, we believe it is a positive sign for the industry and an indication that sales may remain robust for the rest of the calendar year," Divnich cautioned. "Sales below $510 million would be an indication that consumer spending in the video game sector is beginning to contract over last year and could impact sales in the summer months."

The EEDAR analyst also offered an observation on the impact of celebrity-endorsed marketing campaigns on the sale of game software, especially as it relates to Nintendo's Rhythm Heaven for the DS.

"Rhythm Heaven is one of the few games in our industry where the marketing budget--expected to exceed $6 million worldwide--is likely larger than the cost of development," Divnich noted. "With video games now becoming a mass-market entertainment product, publishers must realize that to truly reach the mass-market audience, they must use mass-market techniques (such as celebrity endorsement) to market their products."

Pacific Crest Securities' Evan Wilson took the gloomiest stance on April's software sales figures, saying that he believes revenues slipped 25 percent year-over-year to $500 million. However, even he noted that this decline is hardly significant, taken in light of April's contribution to the total year-end tally.

"It is also important to note that we estimate April will represent 4.3 percent of total industry sales this year," he said. "Therefore, general weakness in April sales or weakness versus our estimate (if said weakness does not extrapolate to a trend) means little to our full-year estimate. As such, we recommend investors turn a deaf ear to the NPD sensationalists."