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Analyst: May Video Games Sales Projected to Hit 12-Year Low

10 Jun, 2013 By: Erik Gruenwedel

Against a backdrop of industry hype, May sales numbers could disappoint significantly

While all eyes may be on the Electronic Entertainment Expo (E3) video game confab June 11 to 13 in Los Angeles, May industry sales are expected to be at their lowest in more than a decade, according to Wedbush Securities analyst Michael Pachter.

With Sony and Microsoft rolling out new game consoles by the end of the year, and few noteworthy new releases, Pachter expects May software sales to reach a 12-year low (since April 2001) when The NPD Group releases its monthly industry figures June 17.

The analyst expects console and handheld software sales to drop 16% to $215 million, with sustained growth not expected until 2014.

Among hardware, Pachter said the biggest decliners will be Wii and handheld software sales, with the former exceeding 50% year-over-year drops. He said current-generation Xbox 360 and PS3 consoles have seen more modest declines — down 10% or more for several months.

“Of particular concern is the fact that Xbox 360 and PS3 are still priced at $299 and $249, respectively; it appears to us that the biggest driver of continuing software sales decline is a reticence on the part of more value-conscious consumers to buy consoles at these prices when it is clear to most that Microsoft and Sony must cut price in front of the launches of their next-generation consoles, with release dates and pricing to be formally announced on June 10,” Pachter wrote in a note.

He said that unless and until Microsoft and Sony cut prices to at least $199, there will not be a rebound in retail foot traffic, and game sales (especially catalog) will continue to languish.

“Fortunately, we think that price cuts will come this week for the two current-generation consoles, with a cut for the Wii and a bundle for the Wii U likely before the holidays. That should mitigate some of the declines in monthly software sales we have seen so far this year,” Pachter wrote.

He said a major bright spot on the horizon is the release of Take-Two’s Grand Theft Auto V, expected in September.

“We think the game will sell extremely well, and believe that it will cause many consumers to return to retailers that they haven’t visited all year. With that said, it is not clear that the game will generate its historically strong catalog sales, given that next-generation consoles are slated to launch by November,” Pachter wrote.

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