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As 2009 comes to a close, all eyes are on the end-of-year totals. The official figures are still a month away, but we can take an educated guess at where we think they'll end up.
Hardware over the past three months have been down over 13% from the same period in 2008. In addition to the price cuts already in place, we think it likely that retailer-driven discounts could keep hardware revenue lower through the end of the year.
Software prices have crept up modestly since August, showing some gains over the end of 2008, regardless much of the bounce afforded software sales by the big hits of this past November may not carry over through December.
Furthermore, the appearance of two discount value software bundles in the most recent top 20 software list (one for the Wii and one for the Nintendo DS) suggests that consumers are seeking out inexpensive software. Keep in mind that the average price of software dropped from nearly $43 in November 2008 to just under $40 in December 2008.
We expect software revenue to drop approximately 10% from high level achieved in December 2008, for a total of about right around $2.5 billion. We expect that could represent a nearly 10% drop in monthly software unit sales.
The final total, we expect will be in the range of $18.9 - $19.1 billion. Were that projection to hold, the industry would have experienced an 11% contraction from its high in 2008. As a matter of transparency, we note that as recently as last month we expected full-year revenues of $19.5 billion.
For comparison, revenue in the $19 billion range would still represent more than a 5% increase over annual revenue from two years ago, in 2007.
We are not the only ones pessimistic about December and the full year figures. Michael Pachter of Wedbush Securities highlights software bundling (particularly with the Xbox 360) as a drain on catalog (i.e. not new release) software sales. Furthermore, he points out that the music game software which was such a strength in 2008 has shown significant erosion in 2009.
Doug Creutz of Cowen & Company also suggests that the software market is in for a rough patch in December. Hypothesizing that Modern Warfare 2 sales will “decline meaningfully” in December, he expects software revenues to decline “in the mid-teens range” year-over-year.
The chart below shows actual revenue for every month from January 2005 through November 2009 as well as our prediction for industry revenue in December 2009. When the final, official figures are released in January we can revisit our estimates and discuss what the latest data may mean for coming year.