Wedbush Morgan Predicts February, Mid-Term Software Slump

Analyst firm Wedbush Morgan has published its detailed predictions for the February NPD U.S. retail video game console software sales data, which will debut this Friday, and is forecasting disappointing U.S. game sales of $350 million, down 11% compared to last year. In February 2006, Wedbush expects sales to still be driven by the 2005 holiday releases such as Activision’s Call of Duty 2 Big Red One, Electronic Arts’ Madden NFL 06, and LucasArts’ Star Wars Battlefront 2. The top new February releases are Electronic Arts’ Fight Night Round 3 and Black, ad the firm believes that 5 games will sell over 100,000 units in February, compared to 9 in February 2005. In predictions of market share for February, the analysts suggests that Electronic Arts will lead with around a 24% share of software sales, thanks to titles such as Madden and Fight Night, tailed by firms such as Activision, with around 10%, and likely but unspecified contributions by first-parties such as Sony, which are not covered by Wedbush Morgan. The company's estimate reflects $95 million in sales contribution from new platforms (Xbox 360, PSP and DS), offsetting a likely steep decline in sales of current generation software (-33%), and the company is gloomy for the mid-term, expecting the sales weakness to persist for the first half of 2006, with negative year-over-year sales each month through June. However, Wedbush Morgan expects supply and demand for Xbox 360 hardware to balance in April, as the next-gen console finally receives sufficient stock. And, although the analyst expects the PS3 and Revolution to launch in the fall, it believes that declines in current generation software sales will be greater than contribution from next generation software sales. Overall, WM notes in its conclusion: "We expect another 3% dollar sales decline in 2006 for the U.S. video game software sales, with the potential for a greater decline should Sony delay the launch of the PS3 beyond the end of the year. Though we do note expect a delay, we think that the company’s silence about launch dates may imply the potential for a launch later than in “the spring”, as has been frequently promised." However, the company notes that, when Sony and Nintendo do launch its next generation consoles, it expects to see sales of software for the three major consoles and two handhelds more than offset sales declines of current generation software. Its best guess for this tipping point is that it will begin in September 2006, when the company expects both the Nintendo Revolution and the Sony PS3 to launch.