Pachter: Game Market Down 3% in 2006, Xbox 360 to Blame

Recently gloomy bearer of bad news Michael Pachter, an analyst with Wedbush Morgan Securities, has predicted a decrease of 3% in total game software sales for the year of 2006, in comparison to 2005, in his latest analyst note. This new prediction is a dramatic drop from Wedbush's previous forecast, which called for an 11% growth this year. "Over the first six months of 2005, combined console and PC software sales in the U.S. were up 9.2% compared to the first six months of 2004; during the last six months of the year, combined software sales declined by 12.2%, resulting in a full year sales decline of 4.8%," says Pachter's report. He continued: "Most troubling to us was the fact that the rate of decline was especially acute (down 21.6%) during the September - November period, a time that coincided with the hype surrounding the launch of the Xbox 360. We believe that sales may have been even worse in December had Microsoft continued its marketing push, and believe that sell through was helped in part by deep discounting of new releases during the month." Furthermore, Pachter predicts that consumers will continue holding off on software purchases in anticipation of the next generation of consoles, ignoring even the Xbox 360 itself. "In our view, Microsoft did a phenomenal job of marketing the Xbox 360, and created unfulfilled demand for several million hardware units over the holidays," continued the report. "As we move into 2006, we think that consumers will begin to consider deferring purchases of Xbox 360 units once a launch date for the PS3 is announced (we expect an October launch)." On the bright side, Pachter says that the launch of the PS3 will kickstart sales into another growth spurt, predicting a sales increase of 16% in 2007 and 17% in 2008. "We do not expect the turning point to occur until the latter part of 2006, leading us to a negative sales forecast for the full year," said the Wedbush Morgan analyst.