Pachter: U.S. Game Sales To Be Down in June

Market analyst firm Wedbush Morgan Securities today announced that it expects yet another month of U.S. game sales decline from the previous year for June's upcoming NPD sales data, to be released on July 13. The firm noted that it forecasts sales of $370 million, a decline of 4 percent from June 2005’s $387 million. Wedbush attributed the continuing decline to the ongoing console hardware transition, and expects shares prices for video game companies to remain weak until the fall. According to Wedbush, the estimate includes a $120 million sales contribution from new platforms, such as the PSP, Nintendo DS, and Xbox 360, which represents a year-over-year growth of $76 million. The firm noted that it expects current generation software sales to drop 27 percent to $250 million, down $92 million from the previous year. Wedbush analyst Michael Pachter commented: “It appears that 2006 is following a similar pattern to 2000, when the last console transition began. Consumers have slowed purchases of current generation console software while snapping up an incredible next generation console, the Xbox 360, and its associated software, as well as waiting for the launches of the PS3 and Wii later this year." He continued: "Through May, NPD data shows that Xbox 360 hardware sales in the U.S. were 1.7 million units, and we expect sales of 250,000 units in June. Though the Xbox 360 is now readily available, we expect Microsoft to sell approximately 200,000 – 300,000 hardware units monthly until the holidays when a strong lineup of Xbox 360 games is anticipated.” According to the report, the company expects June sales to be driven by Square Enix’s Kingdom Hearts II for the PlayStation 2 and Nintendo’s New Super Mario Brothers for the Nintendo DS, in addition to Take-Two’s GTA Liberty City Stories for the PlayStation 2 and and THQ’s multiplatform licensed title, Cars. The report added that while just four games sold over 100,000 units in May, it expects nine in June (compared to 12 in 2005). Wedbush added that the user installed base for next-generation consoles, including the PSP, Nintendo DS, and Xbox 360, currently stands at 100 million as of the end of May 2006, which is up from 95 million at year end 2005. Pachter continued: "We think that the transition has begun, and that we are mid-way through the pain. April provided a respite from double-digit sales declines (+16%), but sales declined again in May, and we expect software sales to be flat or negative for the next few months. Once sales begin to rebound in September, we think that investor confidence will be restored, and the video game publishers will be valued based upon expectations of future earnings. Until then, we think that the group will trade in a narrow range.” He concluded: “We continue to believe that the publishers are very sound investment vehicles, and expect to see robust sales growth once Sony and Nintendo launch next generation consoles (expected in November). Beginning in the fall, we expect to see sales of software for the three major consoles and two handhelds more than offset sales declines of current generation software, and we expect to see industry sales growth rebound dramatically. At that time, investors should be much more comfortable owning shares of the publishers. Until then, we expect investor confidence to remain shaken."