Game Over, Man

By Rick Aristotle Munarriz | More Articles
August 14, 2009 | Comments (6)

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The videogaming industry isn't all fun and games.

Sales sank for the fifth consecutive month in July, according to marketing research specialist NPD Group. The metrics are even scarier than the streak, with hardware and software sales suffering a 29% drop year over year.

The biggest losses have come from the sale of the actual consoles and handheld devices that play the games, plummeting a sharp 37% during the month.

The sales slump is a bad break for an industry that had bucked the mainstream malaise by reporting gains during last year's rocky holiday season. The biggest declines these days are coming from the music-based games, which spells bad news for Guitar Hero parent Activision Blizzard (Nasdaq: ATVI ) and Viacom's (NYSE: VIA ) Rock Band.

Will August be the sixth month in this sorry streak? Electronic Arts (Nasdaq: ERTS ) should fare well with this week's debut of Madden 2010, but that franchise hits the market every August.

There are also plenty of potent titles like Activision's Call of Duty: Modern Warfare 2 on tap as we head into the holidays -- but, again, every year finds developers holding on to some of their promising releases until that time of year.

The industry's biggest problem is that the sharper drop in hardware sales telegraphs a weakness beyond any publisher's release slate. Have gamers begun to move on from their consoles? Are free ad-based casual games through Facebook or Apple's (Nasdaq: AAPL ) App Store more than enough?

This may be more than a slump. It may be part of a larger trend that will gradually wear away at the business that once thrived in moving $60 games onto $300 consoles.

Sorry, game makers. Even John Madden can't save you now.

Where do you see the future of gaming? Did it peak for keeps? Let us know in the comment box below.

The Steve Jobs Betrayal
You may already know that in the final year of his life, Jobs revealed a stunning betrayal — and told his biographer, "I will spend my last dying breath... and every penny of Apple's $40 billion in the bank to right this wrong." What was it that made Jobs so irate — and why could it make a few in-the-know investors some major profits over the coming months and years?

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Electronic Arts, Activision Blizzard, and Apple are Motley Fool Stock Advisor picks. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz loves playing video games, but he doesn't own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy got an extra life by traveling through the hidden warp zone in level 20.

Read/Post Comments (6) | Recommend This Article (12)

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Report this Comment On August 14, 2009, at 3:29 PM, MrMystery44 wrote:

I believe the future of gaming bright. It has not peaked for keeps. Not even close. New gamers are born every minute, and old gamers like me stay gamers for ever. Music based games might be a fad (except I don't think it will ever truely die off completely like most fads do), but gaming in general is not. I feel you have written an exceptionally short sighted article during a hard economic climate and during the low season to boot. As an entertainment industry, gaming is still in it's childhood.
Report this Comment On August 14, 2009, at 3:30 PM, TyrantBone wrote:

The video game industry is a fairly difficult industry to gauge in this manner. There's plenty of things you can miss, which can cause investors to bail too early.
The author of this story is correct, certain big name titles such as Madden and Call of Duty do come out every year. Granted Modern Warfare 2 will definitely mop the floor with last year's CoD game, but these games are annual.
The missing piece is that some games aren't annual releases. When these key titles are released, they cause a huge discrepancy on year over year comparisons. Mario Kart comes around once a generation of consoles (roughly 4-5 years), last year happened to be that year. Grand Theft Auto is also another title not released on an annual basis, it happened to land last year. Wii Fit was a huge hit, and there were several others that were released last year that won't show face this year.
In other words, I'm really not surprised there is a slump right now. Just don't go on thinking games won't rebound. Last year also saw the mega-title Gears of War 2 released, which should give a good match up to the line up this year. Software drives console sales, and software comparisons just didn't stack up this year. This should not be mistaken as a doom for the industry.
Final Words: I can name dozens of titles that aren't annual, but are also mega hits (Halo, Gears of War, Zelda, Mario, etc.). When you stack enough of these into one quarter, it creates potential to make the previous year look bad. Or in the case of right now, make next year look bad. In my opinion, investors need to have a bit more confidence in the game industry.
Report this Comment On August 16, 2009, at 12:16 AM, Weenis06 wrote:

This makes me laugh for a few reasons
A) Games are media they are art. When games are made it is up to the indiviual tastes of the customer in the end... soo
When the market is bad and people are tighter in the pocket the causal gamers are first and willing to reduce game puchases... sorry Wii! "ill get back to you later"
On the other hand Hardcore games tend to do better...! Thanks
The companys that create art and not product are a must and those that doen't see this will be throwing games out with crossed fingers like a man in a casino.
Back to wii ...the wii will improve in sales most likely and this is good casuals are important it brings new people to gaming and regaurdless of that they are improving the industry by setting asside graphics and focusing on different.
Any new ideas means improvments all around sucess drives competion to improve and failure and be studied and avoided.
B) finally these "music based games" doing bad has nothing more to do with then fact they cost 199 and they have similar if not identical gameplay everytime.
Reality is they are Rythm Games these games tend to come and go like fads. But also like Fads you can be sure theres going to be another one soon.
Maybe DJ hero lol maybe ddr will make a comeback who knows. Point is if rockband flops that has nothing to do with the status of all games.
Thats like saying I saw a bad movie so that means every other movie this year will be bad forever.
i can only speak for myself because like most art personal taste very from person to person.
while i agree 2008 and 2009 might have been a little slow i Know some of it is because
Diablo 3
Starcraft 2
Halo Reach
Finaly Fantasy 13 and 14
new Star Wars mmo
splinter cell convition
new mario bros
CoD
New MMOrpg from blizzard (annouced/ not revieled)
many more + suprise hits
2010 and 2011 hmmm if you look at that list and don't get why that means there a bright future.
Then you shouldn't post your opinions like facts that are backed by numbers from " the slowest months" while pushing aside the near 30% growth in a bad economy.
To me just make you sound like a casual gamer that read one monthly report and whated people to think your cool new iphone with 80% garbage flash games is the cause... what?
As an opinion I respect your post but as a theory based on "facts/data" this is garbage and is more pointless then my post about it.
sorry
Report this Comment On August 16, 2009, at 6:09 PM, Michael090909 wrote:

Rick- I think you should pick up this Sunday's NY TImes Magazine and rethink your position and maybe even buy some shares of Viacom fast. Not only is the the gaming industry is on the verge of taking another giant leap forward in the billions of dollars of sales from brand new users across multi genertaions -including the Woodstock generation,The Video Gaming Industry is going to transform and revitalize the music industry with the release on Sept 9 of the offiical Beatles RockBand. Millions of Beatle fans will be plunking down up to $450 to play virtual John, Paul, George and RIngo with their kids. Add up those numbers! If you want a download of All You Need is Love, you will have to buy XBox or you won't be able to get it. Abbey Road will be digitally downloadable as an interactive experience.WIth " a little help from our friends" the Beatles, now every rock band will want to rerelease their albums as interactive games. Pearl Jam albums that were previously downloaded for free, will cost up to $35 for an interactive experience. Other bands have signed up with exclusives with Activision's Guitar Hero.. Christmas begins even earlier this year for the gaming industry on 9/9/9.
Report this Comment On August 24, 2009, at 12:18 AM, DrowsyJay wrote:

Battlefield 1943 for PC delayed to Q1 2010: Another Failure By EA ~all it's going to take is one more new entrance (Game) to bury the BF franchise (loss of market share)
Battlefield Heroes is great and a fantastic opportunity for EA/Dice,it isn't enough. Electronic Art's must recognize hardcorewarmongering gamers need the B.F. & C.O.D gaming environment, the root
of this gaming environment stems from the interest of PC users.
EA must consider this from a Marketing/ Public Relations perspective,PC users build Websites, Clans, Promotions, and they also provide the most effective(reach) source of advertising(Word of Mouth).In-general PC gamers spend more quality time on PCs(Web) more than anyother platform, and In my opinion, The forced shift from PC to PS3
isn't going as intended.
Electronic Arts must figure out effective Consumer Relations
strategies and stay true to their base of origin.
Happy Hunting!
http://finance.google.com/group/google.finance.168725/browse...
Report this Comment On September 04, 2009, at 1:50 PM, 12345678910tood wrote:

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