Die-Hard Gamers Need a Kill Screen

The video game industry is still in a funk.

Industry watcher NPD Group reported August metrics last night. It wasn't pretty. Stateside sales fell 10% through the distribution channels that NPD tracks. Hardware took a 5% slip, while software companies went in for a 14% haircut.

The news is uglier than you think. Sales fell 16% last August, so we're looking at a 24% slide in two years. I've been warning about the industry's shortcomings for a while, and I just don't see crow in my diet in the near term.

There were a few upbeat signs earlier this month. Take-Two Interactive (Nasdaq: TTWO  ) surprised the market with a quarterly profit, raising its guidance along the way. Electronic Arts (Nasdaq: ERTS  ) bragged about a 5% uptick in August sales for Madden 11 over last year's installment. Net sales, earnings, and even comps were marginally higher at GameStop (NYSE: GME  ) in its latest quarter.

Buzz still exists over popular releases. Activision Blizzard (Nasdaq: ATVI  ) broke initial sales records with Call of Duty: Modern Warfare 2 heading into last year's holiday season. Take-Two fared well this summer with Red Dead Redemption and Mafia 2. Microsoft (Nasdaq: MSFT  ) is going to report blowout numbers when Halo: Reach hits stores next Tuesday.

Unfortunately, there's just not a whole lot of traction outside of the tent pole titles.

It's just flat out telling that Call of Duty: Modern Warfare 2 was one of last month's 10 best-sellers, even though the battle game has been out since last November. Heck, a few of the charting titles are as old as Super Mario games.

The biggest weakness, naturally, is coming from the handheld systems. PSP and DS systems and games aren't as attractive now that Apple's (Nasdaq: AAPL  ) iPod touch provides countless free or $0.99 app downloads. NPD reports that the portable gaming market has suffered a 25% hit over the past year, though console-related sales are still off by an unnerving 6%.

A year ago, gamers argued that it was the recession slowing sales. How dare I suggest that Facebook and Apple's App Store eat into the appetite for rich console experiences? Well, it's happening. Die-hard gamers may still be spending as much as they used to on hot titles, but casual players -- who apparently are more important to the industry than expected -- appear perfectly fine to be pitting plants against zombies on their iPhones and iPod Touch devices or fertilizing crops on Facebook.

Is it sad that the industry peaked in the 2008 era of fake plastic guitars, or will the new wave of motion-based controllers breathe new life into the industry? Until sales metrics pick up, I'll have to go with my fake plastic guitar gently weeping.

What will it take to get the industry back on its feet? Will David Gardner need to put out a Motley Fool video game where individual investors fend off unscrupulous brokers and talking heads spouting bad advice? Share your rescue plan in the comment box below.

Microsoft is a Motley Fool Inside Value selection. Take-Two Interactive Software is a Motley Fool Rule Breakers recommendation. Apple, Activision Blizzard, and Electronic Arts are Motley Fool Stock Advisor selections. Motley Fool Options has recommended a synthetic long position on Activision Blizzard. Motley Fool Options has recommended writing covered calls on GameStop. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Activision Blizzard and Microsoft. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Longtime Fool contributor Rick Munarriz will admit to still playing video games, though finding time is the rub. He does not own shares in any of the companies 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 has a disclosure policy.


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  • Report this Comment On September 13, 2010, at 12:48 PM, gcuevas wrote:

    Halo: Reach's developers, Bungie, seperated from Microsoft long before the game released and signed a ten year contract with ActivisionBlizzard, So ActivisionBlizzard will get profit and not Microsoft. Another popular game also came out from Activision, which is Starcraft2. Starcraft 2 is predicted sell over 7 million within a year and well have at least two expansion packs coming out, which means more money. ATVI also is coming out with Diablo 3, which is a popular franchise.

    People argue that smartphone apps and console game are big competitors; however, these apps are just a down graded games. Casual gamers would rather spend their time with a more quality game with more content then a smartphone app. Apps are just appitizers for the main course, console games. There are just to many variables to say that Phone apps are taking the Console game market share.

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