Video-Game Sales Crashed and Burned in May

After a surprisingly strong April, the video-game industry crashed and burned in May.

Software sales, the most closely tracked number by investors, were off 19 percent according to the NPD Group, the industry's worst monthly performance since October 2006.

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Game sales came in at $375.8 million, more than $90 million short of the May 2010 figures. Analysts had been expecting a relatively flat month.

Tough competition, due to the release of last year's "Red Dead Redemption," and a paltry slate of new releases this May are being blamed for the numbers.

Overall, brick and mortar sales were down 13 percent to $718.8 million. Year to date, the industry is 14 percent off of 2010's retail sales pace.

“This month's story really is about a light new release schedule as compared to last year," said NPD analyst Anita Frazier. "There were 42 new SKU’s introduced in May as compared to 58 last May, and 72 in 2009. This is reflected in the share of dollars contributed by May releases, which was 28 percent in 2011 as compared to 41 percent last year.”

On the hardware side, things weren't much better, with Nintendo's 3DS handheld system continuing to struggle. The company is counting on the upcoming release of "The Legend of Zelda: Ocarina of Time 3D" to help the system regain momentum.

Microsoft and Sony saw sales of their systems increase and the Xbox 360 continued its domination of the sales charts. For nearly a year and a half, the system has consistently had month-over-month sales increases. That, in turn, has given Microsoft a firmer grip on the gaming market.

“Overall, the Xbox 360 platform has contributed 34 percent of year-to-date revenues (across hardware, content and accessories) generated by new physical retail sales, gaining 7 share points over last year,” said Frazier.

As expected, Take-Two Interactive Software's "L.A. Noire" led game sales, with Bethesda's "Brink" taking second place. Catalog sales ruled the remainder of the chart.

Unit sales were down for most gaming platforms, with the exception of the Xbox again, which saw a flat performance.

It was a vastly disappointing month for the industry, one that is particularly disheartening as publishers had hoped to keep investors focused on the energy and excitement of E3. But analysts say we may see more results like this before the year is out.

"We continue to believe that sustained software sales growth will remain elusive until hardware sales rebound for an extended period of time," says Michael Pachter of Wedbush Securities. "In our view, given the 3DS’ weak debut and the likely limited impact from May’s Wii price cut, are bound is unlikely to happen until Microsoft and Sony cut the price of their consoles. Although we had initially expected Microsoft to cut the price of the Xbox 360 at E3, given the phenomenal sales growth the console has seen this year, we believe the company will wait until the holidays or until sales decline before considering a price cut."

The NPD numbers do not reflect digital sales, a growing part of the industry's overall revenue. May saw the release of a new map pack for Activision's "Call of Duty: Black Ops" that, had it been included in the retail sales numbers would likely have been near the top.