Analyst: Strong Multiplayer To Drag Down Monthly NPD Results?

Despite soaring hardware sales and relatively easy year-over-year comparisons, analysts say August's NPD U.S. retail game revenues -- due out this Thursday -- are likely to show another decline for the game industry -- and that the longevity of popular multiplayer games is the cause. Robust multiplayer modes have been quintessential to the success of many games, particularly those in the competitive first-person shooter category. In that genre, in fact, many gamers have begun to purchase titles like Halo and Call of Duty primarily for those modes, leading developers to create much more minimal single-player modes than they would for titles that depended less on multiplayer. But developers may be getting a little too good at keeping players engaged, suggests Wedbush analyst Michael Pachter. He forecasts a 6 percent software decline and a 7 percent hardware decline (significant contractions in the handheld space are offsetting unit gains in home consoles) when NPD results for August's U.S. retail come out this week. The analyst says strong multiplayer is "the biggest driver" of the last 18 months' regular declines in packaged software sales. "Based upon statements made by Microsoft earlier this year, it appears that millions of people are playing multiplayer games online for an average of 10 hours a week, making a serious dent in the time available to play other games," he says. "We remain convinced that the popularity of online multiplayer gaming has caused a decline in overall packaged product sales, and we expect this decline to persist unless the publishers change the multiplayer model," Pachter adds. Publishers have already begun experimenting with different ways to monetize online content, such as the "$10 wall" solution pioneered by publishers like Electronic Arts; other possibilities include charging for premium services (as Blizzard does with its World of Warcraft and StarCraft II). Microsoft itself recently made slight raises to the cost of Gold subscriptions, while PlayStation Network continues to be free, but recently introduced a paid "Plus" subscription option. "While we expect the publishers to continue to offer free multiplayer content that is similar in quality to what is offered today; we expect the publishers to channel their efforts on improvements to multiplayer by offering a premium subscription service, in the hopes of driving an ever- increasing number of customers to a pay service," Pachter says. He suggests investors will remain cautious about the game industry until they can see the gains from a settled monetization strategy for online.