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Video Game Sales Drop 6% in 2010, Second Year of Declines

Chris Morris|Special to CNBC.com
Thursday, 13 Jan 2011 | 9:19 PM ET

For the second year in a row, retail sales were down in the video game industry — the first time it has recorded negative growth in back to back years.

Call of Duty Black Ops
Source: Activision
Call of Duty Black Ops

The industry, as a whole, was down 6 percent compared to the 2009 figures, with sales of $18.58 billion. Software sales, which investors consider the best barometer of the industry’s health, were down 6 percent as well to $9.36 billion. (Adding in PC sales, the amount climbed to $10.1 billion, a 5 percent drop from last year.)

Like 2009’s numbers, the disappointing results come despite 2010 boasting the biggest game release in the industry’s history — and the industry’s hottest peripheral. “Call of Duty: Black Ops” boasted sales of $1 billion in just six weeks, the latest in a string of successes for the Activision franchise. And Microsoftsold 8 million of Kinect, its motion capture gaming device, worldwide in its first 60 days on shelves.

Hardware sales were down as well, as the Nintendo DS, which buoyed the numbers in previous years, saw precipitous sales declines this year. Overall, hardware was down 13 percent in 2010, with sales of $6.29 billion, according to The NPD Group, which tracks all video game sales.

Retail sales, however, make up just 60 percent of the video game industry’s total revenues. Digital downloads used game sales, game rentals, subscriptions, social network games and mobile game apps are all major contributors.

Adding those figures in, NPD said the preliminary overall software spend in 2010 was between $15.4 to $15.6 billion — which represented relatively flat growth compared to 2009 (though perhaps down by 1 percent).

“The dynamics of games content purchasing changed dramatically in 2010 with options ranging from the physical product to digital downloads on connected devices as well as in-store digital kiosks,” said Anita Frazier, industry analyst for The NPD Group. “The increasing number of ways to acquire the content has allowed the industry to maintain total consumer spend on content as compared to 2009, and we should expect 2011 to be a growth year in the games industry as the consumer demand for gaming continues to evolve.”

December, traditionally the industry’s biggest month, was a mixed bag — at best. Game sales fell 8 percent at retail to $2.37 billion, while hardware was down overall by 16 percent to $1.84 billion. That was significantly lower than analyst estimates — which had forecast a 2 percent increase in software sales.

Those numbers were tempered, however, but the accessories category — which includes Micorsoft’s Kinect and Sony’s new PlayStation Move controller.

NPD no longer breaks out hardware sales by platform, but Microsoft, in a separate release, announced it sold 1.9 million units in December — a 42 percent year-over-year increase — making that the biggest month in the history of the Xbox 360.

“December 2010 represented one of the strongest monthly performances the industry has ever had at retail. It was a robust finish to a year marked by innovation and engaging millions of consumers through a multitude of delivery models,” said Michael D. Gallagher, president and CEO of the Entertainment Software Association.

Most analysts expect 2011 to be a repeat of 2010 for retail — with continued negative growth. The key for investors, they say, is to keep an eye on the bigger picture.

“At this point, I’d say it looks like the industry could be down again from a software perspective — maybe low single digits — but the overall industry would be up, due to mobile games and maybe Facebook games,” said Colin Sebastian of Lazard Capital Markets late last year. “That’s a story that investors may not understand. The packaged goods business is challenged and publishers are publishing fewer games each year. The titles that do come out seem to be slanted towards the core gamer.”

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