Analysts: Despite Hardware Gains, Industry Numbers To Show June Slump

Even though U.S. console hardware unit sales are expected to have gained steam at retail in June, it won't be enough to reverse a weak May, face a tough year-over-year comparison or make up for lackluster software sales when the NPD Group releases the month's overall U.S. console retail numbers next week. There are finally more PlayStation 3 Slim units available on shelves, say analysts, which should help hardware sales after a few months of supply constraints. The new slim Xbox 360 should also inject a boost, too. But a "lack of significant new releases" on the software side is likely to drag overall industry numbers down 15 percent, says Lazard Capital Markets' Colin Sebastian. Wedbush's Michael Pachter is more specific: he believes that hardware units were up, with an 11% increase in Wii thanks to a new bundle, a 35 percent increase in Xbox 360 unit sales, and 18 percent growth for PS3, he says. But portables aren't any help, as the market holds its breath for the new 3DS -- handheld units will together fall 42 percent, he thinks. Couple this with the fact that as the prices of current-gen consoles continue to shrink, so do the revenues, and the industry is looking at a 17 percent decrease in overall hardware dollars, Pachter predicts. According to the analyst, the year-over-year dollar comparison for June is "the second most difficult from April through October, making positive software sales growth unlikely." But the remainder of the year contains many release likely to be strong: StarCraft II, World of Warcraft's Cataclysm expansion and the launches of Move and Kinect, so despite declines, 2010 could still come in as a flat year despite a shift in the business that increasingly favors free, online and digital games. But this business model shift will continue to drive something of a misperception of the industry's value, suggests Pachter: "We expect investors to remain spooked by the May results, and do not think that June results will likely reverse investor perception that the video game industry is in a state of persistent secular decline," he says. Gamers are also wringing more time out of popular titles like Modern Warfare 2, thanks to multiplayer content and increased ongoing title support via add-on packs: "While it is inevitable that there will be a shift in delivery of video games away from packaged products and toward digital downloads, we believe that recent weakness in packaged products sales is attributable to more robust multiplayer content, resulting in core gamers playing the same games for much longer, on average, than they did in the past." And publishers will keep seeking this revenue, Pachter adds. "We expect the publishers to monetize the value created by online play, led by Activision," he says. "With the early June launch of the second Call of Duty: Modern Warfare 2 map pack, we think that online game play will continue to be a drain on gamers' time and wallets, and think that sales will again slide into negative territory."