The fact that Wii software sales were down 26% in March when the hardware installed base has doubled in the last year is somewhat alarming.
Responding to the worse-than-expected March video game sales, Wedbush Morgan analyst Michael Pachter talked a bit about the Wii's software sales. While the tough comparison with last March's Super Smash Bros. Brawl did make it a challenging month, he felt that Wii software sales still could have fared better.
"...this year, the company had Wii Fit ($49 million) to help offset a somewhat weaker lineup. Also, given that the installed base of Wii consoles has doubled in the past year, we find it remarkable (and somewhat disconcerting) that Wii software sales were actually down year-over-year in March, dropping by $72 million, or 26%. The decline was approximately equal to the difference between Super Smash Bros. and Wii Fit, suggesting that Nintendo software sales were flat year-over-year on an adjusted basis, notwithstanding a doubling of the installed base," Pachter explained.
As for the overall industry, Pachter would seem to agree with NPD's Anita Frazier, who yesterday reminded everyone that the sky is not falling. Pachter pointed out that March was in fact the third highest in terms of sales in the U.S. game industry's history. However, because of the decline, investors will likely react negatively.
"We expect negative market reaction to the sales data. Overall sales were down double-digits for the first time since May 2006, and the year-to-date trend of –2% gives credence to conservative publisher views about the year. We expect investors to trim positions in most video game publisher and retail stocks, and think that lingering concerns about the economy will limit share price appreciation until we see a reversal to positive sales growth," he said.
Pachter doesn't think the industry will see significant growth again until August.
"As we parse data for the balance of the year, we notice that comparisons remain difficult through July. The April comparison (including... Grand Theft Auto IV) is positive 69%, with May at positive 41%, June (the second highest non-holiday month in history) at positive 61%, and July at positive 41%. Fortunately, there is a relatively solid lineup of titles planned for this Spring and Summer, including UFC, Harry Potter, The Sims 3, EA Sports Active, Tiger Woods, X-Men, Transformers and Splinter Cell. While we don't expect every month to be up, we do not expect a negative double-digit performance the rest of the year," he noted.
"With that said, it would be naïve to be pollyannish about the data. Negative sales can only mean that consumers bought fewer games this year than last, and will be read by many as a signal that the recession is upon us. It would be equally naïve to conclude that everything will reverse later in the year. However, as we look at the release schedule for the balance of the year, we are confident that the hard core consumer (who never left) will continue to buy games, and we think that a more robust offering of casual games, coupled with the introduction of Wii MotionPlus and a slew of new content designed for the Wii, will lure the more casual consumer off of the couch and into retail stores," he added.