Pachter: NPD Sluggishness Due To Next-Gen Sales

Wedbush Morgan's Michael Pachter has been analyzing October's disappointing NPD numbers, suggesting that "lower than expected" sales of next-gen software was a prime reason for the 1% increase year-on-year to $369 million. Following his recent assumptions of a 10 percent growth in software sales for October, compared to the same period the previous year, Pachter particularly fixed on the results for next-generation games as the reason for his estimates being off so notably. While sales of titles for current generation platforms slid off by $84 million for the month to $238 million, $10 million better than the firm had anticipated, next-generation software sales increased by just $88 million for October to $131 million. This in turn was a dramatic $43 million less than Wedbush had previously predicted. “We believe that this slower decline (or growth for the prior four months) is a combination of continuing strong demand for PS2 hardware and key game releases, as well as consumer acceptance that the PS3 and the Wii will be almost impossible to purchase this holiday,” noted Pachter. “Consumers appear willing to purchase compelling content for current generation consoles in spite of the imminent launches of the PS3 and Wii, driving monthly sales higher. Accordingly, we expect to see more modest declines in current generation software sales over the next five months.” He added: “The sales pattern over the last few months still suggests to us that consumers are far less concerned about the transition than they have been in prior console cycles. We think that in part, this is attributable to greater publisher support for the PS2, and we believe that this support will continue throughout 2007. Although we continue to expect monthly year-over-year declines of 20 – 35% for current generation software sales throughout 2007, we believe that next generation software sales growth will more than offset these declines.” The analyst also commented that year-to-date software sales, including PC titles, are currently up 5 percent compared to the previous year, a value slightly above the firm's estimated 4 percent growth. Finally, despite the lower than expected sales results for the month, Pachter noted that he sees no signs of overall software sales slowing down significantly over the next two months. Thus, it was commented: “We believe that full-year growth should come in at the high end of publisher guidance of flat to +5%.” The report concludes: “We note that the final two months of the year have generated an average of 40% of industry sales for each of the last six years. With the expected launch of the Wii and PS3 in November (just over a week away), we believe that this pattern will again occur. October and November have a full slate of major game releases as publishers position themselves for the holiday selling season.”