Analyst: U.S. Game Market To Reach $20 Billion In 2009

Janco Partners analyst Mike Hickey forecasts that U.S. video game sales -- minus accessories -- will reach $20 billion this calendar year, growing 6.7 percent over 2008's $18.8 billion. Making the comments in a note released after GameStop's financials yesterday, Hickey expects 2009 software sales to account for $12.6 billion of that figure, up 15.3 percent over $10.96 billion in the previous calendar year. He attributes the significant increase to a "meaningfully larger" (57 percent year-over-year) game console installed base, offset by attach rate deterioration for each platform, and mild software price deflation. "We continue to believe video games offer an exceedingly strong value proposition for consumers in the current economic malaise, and should continue to over index other forms of entertainment," says the analyst. Hickey believes that most of the software growth will come from the second half of the year due to a less competitive release schedule, retailers' sensitivity to inventory build, and recession-minded consumers. Hardware revenues, however, are projected to drop 5.4 percent to $7.4 billion this year, down from $7.8 billion in 2008, due to hardware price deflation and "flattish" year-over-year hardware sell-through. He adds that the continued success of Nintendo's Wii and DS consoles are "critical" for the 2009. With accessories, total game industry sales reached a record $21.3 billion last year, up 19 percent over 2007. Despite the record revenues, though, the latter half of 2008 revealed dramatically slowing year-over-year growth -- sales in 2008's second half only increased by 10 percent, compared to 43 percent growth during the same period in 2007.