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Analyst: Mixed September NPD Means More Choppy Waters Ahead For Industry

September's small 5 percent gain in U.S. console game sales fell well below the double-digit expectations of most industry analysts, who are now revising their expectations for the
September's small 5 percent gain in U.S. console game retail sales fell well below the double-digit expectations of most industry analysts, who were surprised at the relatively weak performance from Halo: ODST, The Beatles: Rock Band and Guitar Hero 5. Faced with September hardware and software revenues practically flat overall, some game industry analysts are revisiting their optimistic viewpoint on the year, no longer predicting flat to modest growth -- but instead a shrinking 2009. Cowen Group analyst Doug Creutz now expects a 2.9 decline year over year for 2009. He says major franchise Madden is tracking 13 percent down overall this year, despite a recent month of growth. Analysts believe Electronic Arts in particular will have a hard time meeting its guidance, and that with a weak release slate the environment is particularly tough for THQ, too. Lazard Capital Markets' Colin Sebastian was one of the few analysts to make a very conservative estimate for September, foreseeing the subtle 5 percent increase. He remains cautiously optmistic on the industry's prospects, pointing to "healthy" hardware growth: "On an average sales per week basis, PS3, Wii and Xbox 360 sales increased 87 percent, 33 percent, and 31 percent, respectively," Sebastian points out. "Importantly, while September marked the rebound to positive sales growth following six months of declines, we believe that October could once again exhibit flat or slightly down sales based in part on tough ASP comps from music titles released last year," Sebastian adds. The analyst expects Modern Warfare 2 and Assassin's Creed 2 to drive "modest" growth in November and September, and warns that the sluggish software sales period in September and October could mean "mixed" quarterly results from many major publishers. Analysts in Japan expect Nintendo to cut its profit forecast 30 percent Kaufman Bros. analyst Todd Mitchell agrees with the "mixed" sentiment for the near-term. "While stronger-than-expected hardware sales bodes well for future software sales, there is no denying that software sales were disappointing," he adds -- with the caveat that NPD results don't include retailer Wal-Mart, which the analyst believes has been making significant gains in video games. "However, overall software trends are weak enough that we would expect downward revisions in overall industry and company-specific growth for the remainder of the year," says Mitchell. "After being cast into the wilderness for a year, we believe sentiment for the group had been swinging in a positive direction and with it stock prices. We believe September's NPD data is likely to put both on hold."

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