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Pachter: 'Annus Horribilis' For Publishers, As U.S. PC Game Retail Plummets
Pachter: 'Annus Horribilis' For Publishers, As U.S. PC Game Retail Plummets
December 1, 2009 | By Staff

December 1, 2009 | By Staff
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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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Comments


Tyler Peters
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It might be wise to wait and discuss 2009 numbers when 2009 is actually over.

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.

Andrew Dobbs
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Do these numbers account for things like social games, mobile and location-based games, MMO subscriptions, digital goods, and digital delivery?



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.

Kevin Reese
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Ya was just going to say Andrew -- I think this isn't so much the decline of PC game sales as it is the migration from retail to digital download services. I'm not sure how they can make these statements without taking into account digital downloading. It seems very misleading. I doubt there was anywhere even near this decrease in sales for PC games with DD's were taking into account.



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.

brandon sheffield
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Andrew and Kevin - you'll note that the headline says "retail PC sales." As such, it does not include digital distribution, subscriptions, or anything of that nature. All it's discussing is retail. It's pretty much a given that the market is migrating digitally.

David Wesley
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Part of the problem could be product life cycle issues that I identified previously in several blog posts, particularly for popular hardware and software, such as the Nintendo Wii and instrument-based music games. I also agree with the above comments about digital distribution, online services, and casual games. When you discount the impact of products that are experiencing life cycle declines, I would bet that the situation is far less gloomy than it first appears.



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.

Wanda Meloni
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I completely agree with Andrew and Kevin. Yes, it does read "Retail Sales", but there is no reference to the greater implications. It can become deceptive, albeit, unintentional.



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.

steve roger
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I know this is not a popular topic, but it seems like in addition the PC game sales being impact by the advent of digital download services (Steam of course) that price has a lot to do with the drop in sales. But of course, it isn't price alone. It has to be price plus market saturation. Consumers just can't keep up with the shear number of individual video and PC games, especially when they are priced from $49.99 to $59.99. When you add the cost of PC's, their upgrades, multiple console households and the constant in flux of pricey accessories and controllers a perfect storm hits the whole market. The consumer can't possibly keep up with what is being offered.



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.

David Wesley
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Wanda makes a very good point, namely that there will always be opportunities for truly new and interesting software, even in a down market.



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.

Kevin Reese
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Brandon-=> Ah -- I admit I didn't catch that 'retail' in the title. My bad.

brandon sheffield
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Wanda, how is it deceptive to not include digital distribution figures when the story says that retail is down? This is a story about retail. Where, as an analyst, do you find fault with the broad sweeping statement that retail is down compared to last year? It's a question of taking two numbers, looking at them, and seeing which is lower.



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.

Jonathan Howland
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Brandon



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.

brandon sheffield
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Fair enough. I feel a lot would be cleared up if pachter had simply stated that most publishers are still heavily-reliant on retail products - but his main point was not that the industry is down, but rather that publishers' revenue is down in general, which seems to be true.



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.

Simon Carless
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Since people seem quite insistent on this, we added a paragraph - as we often do when qualifying NPD sales numbers - noting the uncertain but likely significant growth in digital game sales. Since Michael Pachter concerns himself with traditional publicly traded game companies, who largely make money on retail sales, the comments are - of course - from his perspective. (Which is why the headline is 'Pachter:', and we quote his opinion extensively, rather than being absolute about the market being down.)

Wanda Meloni
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Hi Brandon, I was really more referring to the same thing that you are saying, people don't always read the full stories before commenting. I completely understand feeling snippy, God knows I've had my own share of misinterpretation.



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.

Javier Arevalo
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The title of the article suggests that "PC Retail sales plummeting" and "annus horriblis for publishers" are somehow tied together as cause and effect. I doubt this was what Pachter meant.

Joseph Cook
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It was Gamasutra's own Chris Remo who eloquently pointed out on a message board a few months ago how inherently poor Pachter's analysis of the PC gaming market was. At the time, he was ringing yet another bell for the gloom and doom of PC gaming, all the while comparing retail-only sales of PC games directly against the entire *combined* console software+hardware number as some sort of telling trend.



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.

Victor Perez
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And I am wondering now why none of these analysts are doing the effort to build an index for digital sales… If everybody is talking about it every time!! They can create an index of pure digital videogames incomes companies and to look at declared revenues or something… that will help a lot the market to focus their investments for the next two years. We know DD is the future… but the question is when!!

Wanda Meloni
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Believe me, it is currently in discussed. I personally am a big proponent, however it is more complex than tracking retail sales in one territory. Any DD data collection needs to account for the configurations of $$ spent online - full title purchases, subscriptions, microtransactions and it needs to be done on a global scale - tracking all regions. Certainly open to comments and ideas.

Derek Smart
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These projections are complete rubbish. As usual. They continue to downplay the impact of ESD sales even as more publishers are now moving quickly to fill in the gap, more ESD sites are opening up (two this week alone and above four more in the works that I'm aware of) etc.



The PC died at retail a long time ago and only heavily marketed PC games stand any chance of doing any meaningful numbers.

Jonnathan Hilliard
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Even on consoles, people are starting to spend their dollars on DD. .. and what about all those millions of i-phone apps being sold, many of them games...

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.

Victor Perez
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Perfect Wanda/Derek, let's go and do it please.... many small PC developers are waiting about it. We are fully online becouse we believe... but we need facts to convince investors!! Before the big guys kill all of us..;) And if you can provide facts, trends or useful links, thanks.. I have severals that are going out in the next few days...


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