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Analyst: Video Game Biz on 'Rocky Road'

13 Feb, 2006 By: Erik Gruenwedel

Ongoing supply shortages of Microsoft's Xbox 360 game console and a 5% drop in January game sales indicate the video game business is mired in a “rocky road,” according to analyst Michael Pachter with Wedbush Morgan Securities in Los Angeles.

Citing research data from the NPD Group, video game software sales in January topped $357 million, down 5% compared to the same period last year. The drop marked the fifth consecutive month of declining fortunes, including a 30% drop in sales and 25% reduction in units.

In a research note, Pachter says Microsoft's planned March launch of Xbox 360 in Australia, New Zealand and other Pacific Rim countries would result in a U.S. monthly supply ceiling of about 300,000 units.

“We consider this to be a problem,” said Pachter.

He said the drop in console sales result in a decline in accompanying game sales, with just four games tallying 100,000 unit sales in January compared to 11 games last year. Pachter believes Xbox 360 software sales will average about 3 games per console through the summer while current software sales continue to fall 30% resulting in about $100 million less in monthly revenues.

“We do not expect sales of next generation software offsetting the current generation software sales decline until the PS3 and Revolution are launched,” wrote Pachter.

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