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Analyst Cuts Software Sales Forecast On Lower Wii Performance

Analyst Michael Pachter with Wedbush cut his 2009 U.S. software sales outlook to reflect a 5 percent year-on-year decline, due mainly to lower Wii hardware and software expectations.
Video game industry analyst Michael Pachter with Wedbush Morgan downgraded his 2009 U.S. software sales outlook on Wednesday to reflect a 5 percent year-on-year decline, which he said was triggered by midyear "console fatigue." Pachter had originally forecast sales growth for the year, and called the expected decline "disappointing." "In our view, the decline in 2009 occurred as consumers experienced 'console fatigue' in the middle part of the year, and we think that the recent hardware price cuts and better release slate will drive double-digit growth in 2010," he said. Pachter added, "The biggest contributor to our lower forecast is a downward revision to our Wii hardware and software sales expectations. While it is likely that Wii sales will rebound as a result of the recent price reduction, we think it is prudent to forecast conservatively." Earlier this month, Nintendo said it expects to cut its earnings forecast and see an 11 percent fall in annual profits to 249.3 billion yen ($2.7 billion)-- the first decline in six years, thanks to Wii declines and a strong yen. NPD Group said that in 2008, video game software sales in the U.S. were $10.96 billion, a 26 percent year-on-year increase. Pachter said that he believes that the games industry "will return to sustainable growth in 2010," thanks in part to a surge in console sales. In September, both Sony and Nintendo cut prices of PlayStation 3 and Wii, respectively. Microsoft also lowered the price of its top-line Xbox 360 Elite. Pachter expects that beginning in November, the industry will see double-digit monthly software growth "at least through August 2010." Games he expects to drive growth over the next eight months include Call of Duty Modern Warfare 2, Assassin’s Creed 2 and Super Mario Bros. Wii all of which launch this year. Numerous publishers have delayed key titles from the 2009 to early 2010, and Pachter expects "no fewer than 16 games released in the first half of 2010 to sell more than 1 million units apiece, with five of these selling more than 3 million units." For the U.S. and Europe combined, Pachter expects video game software sales to be down 4 percent for the year. In May, he expected the two regions to reflect sales growth of 4 percent. NPD analyst Anita Frazier recently said in a blog post that she still expects the industry could end up with U.S. game revenues somewhere in the range of $19-$22 billion, although that figure not only includes software, but also hardware and accessories. Last year saw overall record sales of $21 billion. "I would say that it looks more like a year where sales could be more heavily weighted in the back months than average, so the industry ending up flat at $22B isn’t out of the question," Frazier wrote. But Gamasutra columnist Matt Matthews wasn't as optimistic in a mid-September analysis: "…The industry still wouldn't break $20 billion by the end of 2009. That's where we're putting our marker for now: total annual revenue for 2009 at just under $20 billion."

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