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Pachter: 'Annus Horribilis' For Publishers, As U.S. PC Game Retail Plummets
by Staff
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December 1, 2009
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Wedbush Morgan's Michael Pachter has been discussing 2009 as "a horrible year" for public video game companies, also revealing that October 2009 U.S. PC game retail sales were down 38 percent to $27 million.
As part of a client note sent out today, video game sector analyst Pachter noted many of the topline NPD numbers for October, with console game retail software sales in the U.S. at $573 million, down 18 percent from last year’s $698 million, and much worse than Wedbush's estimate of $635 million (down 9 percent).
Along the way, the analyst also revealed how the money was split -- next generation U.S. retail software sales were $550 million, while current generation U.S. retail software sales were $22 million. Even more interestingly, he revealed that PC game retail software sales in the U.S. were down 38 percent year on year to $27 million for October 2009, a previously undisclosed number.
Pachter's comments on the year so far read as follows: "2009 continues to be a horrible year for video game publishers. Although a small rebound to sales growth in September sent a signal that the console cycle is not quite dead yet, investor confidence remained shaken when October sales again reverted to a year-over year double-digit decline."
"Historically, video game publishers have traded at a premium to the overall market, as investors generally accepted that the video game industry’s growth prospects were superior to those of the market as a whole. But clearly, conventional wisdom has been challenged throughout 2009, as monthly software sales declines have become the norm, leading many investors to believe that the industry is in a state of secular decline."
"We think that year-over-year declines for the music genre have contributed to the decline in sales growth in recent months, and believe that console price fatigue drove negative industry trends throughout the middle part of the year. The console price cuts triggered a rebound in unit sales, and we expect solid hardware unit sales in November and December, with the Xbox 360 and DS likely flattish year-over-year, Wii and PSP sales down significantly, and PS3 sales up significantly."
"While we expect software sales growth to return to positive territory in November, we expect a reversion to negative sales growth in December, as the music category appears to be down significantly. Once we’re past the holidays, we expect solid sales gains each month through October 2010. If we’re right, we think that multiples for the group will begin to expand, and we anticipate that the video game publisher group will outperform the market as a whole substantially during the first quarter of 2010."
"Of course, each publisher will remain susceptible to criticism, with investors likely discounting the performance of The Beatles: Rock Band and Left 4 Dead 2 as low-margin contributors for EA, and others skeptical of the staying power of Activision’s Guitar Hero franchise. We expect U.S. and European sales to be roughly flat in the fourth quarter of 2009, resulting in a decline in software sales for the full year of 8–10 percent, compared to -11 percent year-to-date performance."
Pachter's comments particularly refer to public companies and the retail game market in the U.S., with many commentators suggesting that free-to-play online games and digital downloads are making up for some or all of the gulf in retail sales. However, with a lack of conglomerated digital game sales information, it's difficult to gauge the overall current trends precisely.
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It will be interesting to see where games like AC2 and MW2 lead us.
Regardless, predicting doom for 2009 at this stage is a bit ridiculous.
The traditional retail market is suffering greatly, but it's hard to suggest digital games are impacting culture any less. My guess is interactive entertainment is still growing relative to traditional entertainment.
Most of my PC gamer friends only go for DD versions now. Here in Vancouver it is very hard to come by new games in retail... last game I looked for, Borderlands, wasn't even in stores here a week after release; the retail market here is terrible, it is no wonder more and more people are going to just use DD services.
Another factor could be the wider availability of discounted games. It would be interesting to compare software revenue with units sold. The article only speaks of hardware units, not software units. Someone who is in the market for a first music game might pick up a heavily discounted version of Rock Band for a fraction of the price of a more recently released music title. The same applies for RPGs, shooters, and other genres. The wider availability of low priced titles could be driving down overall revenue. But until we can compare revenue with unit sales, it is just speculation. However, as more used and discounted titles become available, one can expect further pressure on software revenue.
As an analyst I find it hard to believe that such broad-sweeping comments are made without full acknowledgment of all the factors. Shanda alone just posted $197.69 in revenue for the quarter, up 47.7% from last year. These kinds of comments do not always reflect the impact of growth trends and opportunities.
Obviously, I recognize that the sales price of games have been flat for some years. But the numbers of new releases has gone up. Further, the marketing effort that makes so many games and items "must haves" make the consumer get wallet fatigue.
I do note that publishers have recently tried to push some titles into subsequent quarters due to the numbers of hot titles being released in a particular window, but there are still too many. Think about how many AAA games are available right now. Think about how many new controllers that are being offered.
No way can the consumer keep up. Maybe I am pointing out the obvious. There is a recognition of console price fatigue, but how about the rest of the market fatigue.
Steve is right, but that has always been a problem mid-cycle, meaning that it can happen even when the economy is strong. That doesn't mean that the economy has no role to play, but it is just one of several factors.
The shape of the digital market is not currently trackable in a large scale. It's possible to make comments on specific companies, like shanda, but aside from a fluff one-liner like "digital sales are going up," any discussion of the full shape of the digital market would be a stab in the dark - a broad, sweeping statement, you might say. Unless you can present evidence to the contrary.
I think you are not taking in the entire picture here. The article implies that the industry as a whole has had "a horrible year" based on retail sales alone without taking the other venues into account. Other posters here are merely pointing out that retail does not paint the full picture and its almost a red herring to go after the retail market alone when trying to understand the health of the industry in this economy.
My thought on the subject reflect what others have said; it's hard to get the full picture when you don't take more into account that just retail. It just don't give as much information as it used to.
The question becomes "what is a publisher?" Is Zynga a publisher, by his definition? Maybe some information is lacking.
I think I'm just getting snippy because I feel like people may not actually read these stories before commenting, I of course do not believe the industry is down by much (if any) as a whole, with the rates at which digital distribution, subscriptions, and microtransaction-based business have been climbing.
Patcher was obviously not trying to be deceptive, more that comments like that, especially in the title, will always get a rise out of people:) Which is what happened... it gets people talking and that's a good thing.
Cheers.
But overall, I've learned to ignore Pachter's analysis quite a while ago. His proclamation that Borderlands was "sent to die" was simply the icing on the cake.
The PC died at retail a long time ago and only heavily marketed PC games stand any chance of doing any meaningful numbers.
at a guess, the games market as a whole hasn't slumped very much at all. Regardless of how retail is doing.
This is a trend that will probably continue in the future.