Analyst: Packaged Game Business In U.S. Can Grow 5% In 2011

Sales in the packaged video game industry in the U.S. may have been shrinking the past few years, but analyst Mike Hickey with Janco Partners said Monday the industry could see modest year-on-year growth in 2011. Hickey said in a research note that the game industry will see 2011 growth driven by factors including an "expanding video game market," platform extensions like the Microsoft Kinect, new handheld devices from Nintendo and Sony and increased sales of in-store paid DLC. "We believe the domestic video game packaged goods market can grow 5.4 percent [to $19.5 billion] in [calendar 2011]; with hardware, software and accessories sales up 6.7 percent, 5.3 percent and 3 percent, respectively," wrote Hickey. In 2010, the U.S. video game retail industry reached sales of $18.6 billion, down from $19.66 billion in 2009 and $21.4 billion in 2008, when Nintendo's Wii and music games were in higher demand. Hickey said growing sales from HD consoles Xbox 360 and PlayStation 3, new handhelds 3DS and NGP and accessories like Kinect will offset sales declines of Wii, PS2, DS and PSP, which he called "legacy platforms." "...A faddish consumer product adoption cycle and economic recession led to a speedy downward performance spiral [for the packaged industry]," said Hickey. "The blinding unwinding of the Wii generation / legacy platforms and social network game development created a significant multiyear growth disturbance for packaged good sales," he added. But he said that deterioration of the Wii and older platforms is "increasingly less relevant." Hickey expects Wii to represent 19 percent of total market sales in 2011, down from 31 percent in 2008. HD consoles and new handhelds will make up 68 percent of total market sales in 2011, up from 38 percent in 2008, Hickey predicted. "HD consoles will likely benefit from accessory accelerators including Microsoft’s powerful Kinect platform, the fastest selling entertainment device of all time," he said. "Nintendo’s next generation handheld, the 3DS, will likely benefit from a glasses free 3D experience and rich 1st and third party content offerings."