Video Game Sales Outpace Expectations in February

The video game industry got some long-awaited good news in February.

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

Software sales came in slightly better than analysts were expecting, while hardware sales shattered forecasts. For the month, game sales fell 5 percent versus a year ago, according to the NPD. (Analysts had expected a drop of between 6 and 10 percent.) Sales of gaming hardware were up a surprising 10 percent, though.

Overall, the industry posted a 4 percent gain compared with February 2010.

While software sales are the most closely watched number by investors, the big boost in the hardware numbers (as well as peripherals, which were up 22 percent, largely on the continued strength of Microsoft's Kinect motion controller) could help the sector when the market opens Friday.

Analysts had called for a 28 percent decrease in hardware sales this month. NPD no longer breaks out its hardware numbers by platform, making it hard to pinpoint exactly where the surge came from — though Microsoft issued a statement saying Xbox 360 sales were up 27 percent during the month with 535,000 units sold.

"Total retail spend on the Xbox 360 platform (hardware, software and accessories) reached $475 million, the highest among current generation consoles," the company said.

Microsoft announced Wednesday that Kinect has sold 10 million units life to date — indicating it has sold some 2 million since the holidays.

The surge in hardware sales actually puts the video game industry in positive territory for 2011, with overall retail sales up 3 percent to $1.36 billion year to date.

On the software side, Activision-Blizzard's "Call of Duty: Black Ops" claimed the top spot for the fourth consecutive month. Capcom muscled in at number two with its new release "Marvel vs. Capcom 3" while Ubisoft's "Just Dance 2" slipped to third.

The month's other major new title — Sony's "Killzone 3" — had a mediocre start, landing in the number 8 spot.

The surge in hardware sales could help boost the software side of the business, say analysts. Many are expecting price cuts of at least $50 this year — with Wedbush Securities' Michael Pachter predicting the drop will likely come in June.

Another potential sales catalyst is the launch of Nintendo's 3DS system later this month. The handheld gaming device, which lets users play games in stereoscopic 3D without the need for special glasses, has been a phenomenal hit in Japan, where it was released in late February.

The company says it has learned from the constant sellouts the Wii faced when it was initially released and is determined to avoid that this time.

"Our goal is not to have that situation," says Nintendo of America president Reggie Fils-Aime. "Our goal is to be able to meet the needs of every consumer beginning with Day One of the launch."

The monthly brick and mortar sales numbers from NPD only represent 60 percent of the overall revenue in the video game industry. Used games, game rentals, subscriptions, digital full game downloads, social network games, downloadable content and mobile game apps all contribute to the bottom line of publishers — and are a growing force.

Downloadable content (DLC), such as add on packs to retail games, is an area seeing especially solid growth.

"Activision has dominated with over 20 million units of DLC sold for its 'Call of Duty' brand cumulatively, and we think that figure could exceed 10 million units in 2011 alone," says Pachter.

In fact, note analysts, non-retail figures could be the industry's saving grace this year.

"For the year, we continue to expect a mid-single digit decline in packaged goods software sales," says Sebastian. "[That will be] contrasted by a 25-30 percent increase inonline/social/mobile game sales."