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Sales Fall Again for Game Makers—Is Worst Over?

While August sales figures gave the video game industry yet another dose of bad news, at least Electronic Arts had something to smile about.

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WalMart

Software sales for the industry as a whole fell 14 percent last month to $403.5 million, according to NPD Group. That’s the worst performance for the month in three years and more than twice as bad as what some analysts were expecting.

Despite the grim numbers, though, "Madden NFL 11" still managed to improve on its 2009 numbers by roughly 6 percent.

That modest gain is the first clear sign that EA’s flagship franchise could be regaining some of the popularity it lost in recent years. (CEO John Riccitiello referred to sales of the 2009 installment as “discouraging”.) That’s critical, since the game is responsible for as much as 10 percent of EA’s annual revenue.

While software sales are seen as the best barometer of the industry’s health, the news was bad all over. Hardware sales were 5 percent below 2009’s level, at $282.9 million—and the industry at large lagged by 10 percent, with sales of $818.9 million.

Taking a particular beating is the handheld market, which is typically one of the most profitable areas for Nintendo and has been under severe pressure as Apple’s iPhone and iPod Touchhave become serious competitors in the space.

"While all categories are down in both dollars and units, the portable portion of the industry is down to a greater extent than the console portion,” said Anita Frazier, an analyst for NPD. “Portable dollar sales across hardware, software and accessories is down 25 percent versus last August, while console dollar sales are down 6 percent."

While "Madden" topped the charts, Take-Two Interactive Software saw “Mafia II” get off to a decent, though hardly overwhelming, start. The game sold over 121,000 copies on the Xbox 360 and the PS3 version was also in the top ten (though NPD did not provide sales numbers for that platform).

Missing from the list, though, was "Red Dead Redemption," which has been Take-Two’s savior this year. The company has shipped 6.9 million copies worldwide, but demand in the U.S. seems to be slowing down.

Microsoft’s Xbox Kinect, a gesture-recognition controller – a camera that is able to detect subtle movements and sounds from players.
Source: Microsoft
Microsoft’s Xbox Kinect, a gesture-recognition controller – a camera that is able to detect subtle movements and sounds from players.

Among hardware, Microsoft’s Xbox 360 took the crown for the second consecutive month, topping Nintendo and Sony. The Wii, in fact, had its worst month since the system’s launch.

Xbox 360 sales were slower than they had been in July, but they’re likely to rebound in September—as is the rest of the industry overall—as "Halo: Reach" leads the charge for an onslaught of holiday games.

"'Halo: Reach' … will kick off the mega-title releases for the remainder of the year,” said Frazier. “The 360 install base is now about triple what it was when ‘Halo 3’ was launched, so the potential audience for ‘Reach’ is significantly larger. Between the size of the potential audience, the quality of the game previews, and the hefty marketing program behind the game, we can expect big numbers to be reported with September results."

Year to date, only two months in 2010 have outperformed 2009’s sales. (At present, the industry is 8 percent behind last year’s pace overall—with software sales down 12 percent.)

That’s despite the fact that sales last year were lower than 2008, the first time that has happened since 2002. The video game industry has never had two consecutive years of lower sales, though many industry observers fear that will be the case this year.

While the monthly sales figures from NPD are seen as the barometer of industry health by investors, they are incomplete and do not include PC data.

That’s normally not a significant issue, but, as it was in July, it was a factor this month. "Starcraft II: Wings of Liberty," a PC exclusive from Activision-Blizzard, sold over 300,000 copies in the U.S. last month, which would have made it the month’s second best-selling title.

Mindful of this and other factors, NPD announced today that it would soon begin releasing quarterly sales reports that also include revenue from used games, digital downloads, downloadable content, rental and subscription services, mobile games and social networking games (such as Facebook).

When available, those should give investors a more complete look at the financial health of the video game industry.