Analyst: 'Serious Strategic Error' In Not Charging For Multiplayer

When the NPD releases its November sales results this week, look for software to grow for the second month in a row. But it's tough to view the first consecutive growth months all year as a universally positive sign, says Wedbush analyst Michael Pachter -- who says the industry has to stop giving multiplayer away for free if it wants stronger numbers and happier investors. Look for an 8 percent rise in software sales to $1.52 billion during the month thanks to many strong releases, says Pachter; these include Call of Duty: Black Ops, Assassin's Creed: Brotherhood and Need for Speed: Hot Pursuit, and the month can also thank contributions from continuing performance from Fallout: New Vegas, Just Dance 2 and NBA 2K11. Hardware is expected to decline, however. All units except for the Xbox 360, which Pachter estimates will sell 1.1 million units for a 31 percent increase, are likely to come in down. Pachter forecasts 975,000 Wii units sold, down 23 percent year over year and 650,000 PlayStation 3 units, down 8 percent year over year. "Overall, we expect a 10 percent decrease in current generation hardware units, with console hardware unit sales down 3 percent and handheld hardware unit sales down 19 percent," says the analyst. "We expect strong demand for the Xbox 360 due to the successful debut this month for Kinect, and believe that Kinect console bundles sold especially well." But as the fall-holiday season of 2009 saw a price cut for PS3, Sony's console faces a tough comparison, the analyst says, and sales for Move aren't likely to help offset the challenge much. As Nintendo relies heavily on Christmas sales for Wii, the console can be expected to see a December rebound, but weakness for its DS will struggle until the 3DS launches next year, suggests Pachter. Notably, the NPD Group classifies Kinect and Move bundle sales under "accessories", and as such they don't contribute to software sales. "The reversal in October was a welcome surprise, following consistent sales declines for most of 2010. However, the reversal brings year-to-date software sales (including PC) to down 6.8 percent, so it is not clear to us, or to most investors, that the industry has returned to health," writes the analyst. Publishers must start charging for multiplayer if they want to reinvigorate sales numbers, Pachter suggests. "We firmly believe that until the publishers address monetization of multiplayer, game sales will continue to be challenged by the publishers’ altruistic decision to provide significantly more entertainment value per hour than ever in history," he says. "In our view, monetization of multiplayer is one of the greatest opportunities for the publishers, and we think that it would be a serious strategic error to pass on this opportunity," he adds.