Video Game Sales Decline in 2010 - Analyst Blog

The video game industry continued its dismal run for the second straight year, with sales down 6.0% year over year in 2010 to $18.58 billion, according to the research group NPD.

Software sales declined 6.0% year over year to $9.36 billion. Including Personal Computer (PC) sales, software sales declined 5.0% to $10.1 billion in fiscal 2010.

However, higher sales from used games, digital downloads, games for smart phones and games played over social networks kept video game content sales at $15.4 billion to $15.6 billion for 2010, flat with 2009.

The depressing picture was further pressured by declining hardware sales, which declined 13.0% year over year to $6.29 billion, primarily due to weak sales from Nintendo's DS, which had driven 2009 sales.

According to NPD, only Microsoft Corp's (MSFT) Xbox per unit sales rose compared with fiscal 2009.

In 2010, Activision Blizzard Inc.'s (ATVI) recent release Call of Duty: Black Ops was the top-selling video game. The #2 game was Madden NFL 11 from Electronic Arts Inc. (ERTS), followed by Halo: Reach from Microsoft for the Xbox 360.

December Sales Data

On a monthly basis, December software sales decreased 8.0% year over year to $2.37 million. NPD does not include sales from PC games in its monthly game sales data. December, conventionally the biggest month for video game sales, saw hardware sales decline 9.0% to $2.5 billion.

The best selling hardware system in December was the Nintendo DS. Despite weak supply of Xbox 360 during the holiday season, Microsoft sold a record 1.9 million units in the month, a 42.0% increase from 2009.

Video game accessory sales increased 10.0% to $778.4 million in December, driven by higher sales of Microsoft's Kinect motion-sensing controller. Microsoft sold 8 million Kinect units in November and December.

Activision Blizzard's Call of Duty: Black Ops was the highest grosser in the month of December. The game earned $1.0 billion in worldwide revenue within the first six weeks in stores.

Just Dance from Ubisoft Entertainment for Nintendo's Wii and World of Warcraft: Cataclysm from Activision Blizzard for the PC was the second and third biggest selling games in December, respectively.

Analysts expect retail sales to continue to suffer in 2011, a picture similar to 2010. The packaged goods business remains challenging, as publishers continue to publish fewer games, with more focus on quality. However, analysts believe that higher growth from mobile games and Facebook games will offset this trend going forward.

Our Take

We believe the video game industry is undergoing a significant transition, with increasing contribution from digital downloads, used game sales, game rentals, subscriptions, social network games and mobile game apps as compared to retail sales.

We expect consumer demand to increase with the gradual improvement in the overall U.S. economy for 2011. The major players such as Electronic Arts, Activision Blizzard, Ubisoft entertainment, Take-Two Interactive Software (TTWO) and Microsoft are focusing on improving their game content and quality, which is expected to drive strong sales growth in 2011.

However, cut-throat competition will make it difficult for any single company to achieve significant market share in 2011. Moreover, increasing competition from online gaming companies such as Facebook remains a major concern over the long term.

 
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