Game publishers buffeted by Nintendo's big April

The success of the first-party-oriented Wii and DS cut into third parties' profits; EA, THQ, Take-Two hard hit.


Yesterday, industry research firm NPD Funworld released its US sales figures for the April 2007 reporting period. While hardware sales increased, overall non-PC software sales were flat, slipping 1 percent. However, console software fell a sharp 20 percent, while handheld software rose 61 percent on strong sales of Pokémon Diamond and Pearl.

In the wake of the report, Wall Street industry analysts staged their traditional postgame show. They were unanimous in their opinion that the success of the Wii and DS, which rely primarily on first-party games, has cut into the bottom line of third-party publishers. In April, roughly 63 percent of all Wii games and 79 percent of all DS games sold were made in-house at Nintendo.

"The shift in interest to Nintendo products has clearly stolen share from third-party games across all platforms," said Pacific Crest's Evan Wilson."This has had the greatest effect on Electronic Arts due to its size." Indeed, EA's sales slid 44.2 percent during the month to just $37.9 million, following the lackluster performance of Tiger Woods PGA Tour for the Wii (53,000 units) and Medal of Honor: Vanguard for the PlayStation 2 and Wii (56,000 units overall).

Two of EA's archrivals also had a bumpy April. Take-Two Interactive saw its monthly sales plummet 54.5 percent to $19.8 million, despite MLB 2K7 selling a decent 177,000 units. THQ, which had no major releases during the month, suffered a less drastic decline, falling 27.6 percent to 13.4 million--significantly below analyst expectations.

Besides being a short-term issue, the success of first-party games could pose long-term problems for third parties. "A key to the successes of many publishers during the last console cycle was market share gains at the expense of first-party publishers," UBS analyst Benjamin A. Schachter pointed out. "We are concerned that this cycle may revert somewhat back to greater share gains for the first-party players, particularly as Nintendo rebounds and Microsoft focuses on and improves its AAA titles."

Microsoft Game Studios' Gears of War has been an ongoing success story since its release last November, and the company has two more heavyweight Xbox 360 exclusives--Halo 3 and Mass Effect--slated to ship later this year. The most popular game on the PlayStation 3 to date has also been a first-party title, Resistance: Fall of Man.

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