Where Are You Hiding, Diehard Gamers?

Even Microsoft's (Nasdaq: MSFT  ) highly anticipated Halo: Reach and a trio of annual EA Sports powerhouses from Electronic Arts (Nasdaq: ERTS  ) couldn't save the gaming industry last month.

Market watcher NPD Group claims that its channel checks show an 8% year-over-year decline in industry sales last month. Hardware sales slumped 19%, with software taking a more modest 6% hit. Accessory sales did inch higher -- likely the result of Sony (NYSE: SNE  ) introducing its new motion-based controller -- but once again I find myself chronicling the gradual fade of the video game industry as diehard gamers know it.

It's been nearly two years since the industry turned lower. It may not have kicked in with investors immediately. After all, niche retailer GameStop (NYSE: GME  ) continues to expand its small-box universe. Blockbuster titles still sell well, with Activision Blizzard's (Nasdaq: ATVI  ) Call of Duty: Modern Warfare 2 breaking initial sales records last November when it sold $550 million during the first five days.

However, something clearly is amiss. NPD doesn't cover all of the industry sales. It doesn't track digital distribution, used game sales, and rentals -- all areas that are likely growing. Even Best Buy (NYSE: BBY  ) is diving into the used game market these days, and Blockbuster is trying to take on GameFly with mail-delivered rentals. Those metrics don't necessarily help developers, though. They don't receive any money on hand-me-down resales, for example.

There is potential with digital distribution, as long as you're not GameStop or the other physical retailers. The rub there is that price points are substantially lower in that space.

When will the industry turn the corner? It probably won't be this month. Negative reviews have gunned down this week's EA release of Medal of Honor. It probably won't be next month either. Yes, Activision Blizzard is going to have a winner in Call of Duty: Black Ops, but it's going to be pitted against last November's franchise smash.

One can argue that the video game industry isn't dying, but leadership is clearly moving away from the conventional console makers and perhaps even the software giants. No one should have been surprised when Nintendo warned investors about soft results this year. Beyond Take-Two Interactive's (Nasdaq: TTWO  ) surprising profit in its latest quarter, the trends continue to point to casual gamers moving on to other diversions.

Satisfying diehard gamers is noble, but when the goal is mainstream growth it's simply not enough anymore.

Do you think the traditional video game industry will bounce back? Share your thoughts in the comment box below.

Best Buy and Microsoft are Motley Fool Inside Value recommendations. Take-Two Interactive Software is a Motley Fool Rule Breakers choice. Activision Blizzard, Best Buy, and Electronic Arts are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended a synthetic long position on Activision Blizzard. Motley Fool Options has recommended buying calls on Best Buy. 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, Best Buy, Microsoft, and Take-Two Interactive Software. 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 wonders why his son always kicks his ax when they have a Guitar Hero face-off. Rick 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, and it could beat Jordan in Expert mode if it had to.


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  • Report this Comment On October 15, 2010, at 3:49 PM, whitegangster wrote:

    Well die hard gamers are not in the highest tax brackets, the biggest gamers are gamers from the original generations of 64-Bit consoles with means a childhood in the 90's. So they may be in college or freshly out of college and so they are probably not in the highest tax bracket. X-box 360s, PS3's and Wii's are most likely all major purchases for a college student. Thing is that companies like MSFT and SONY are pumping out upgrades and new releases every year expecting the market to keep up. If we look at the the past decade the latest generation in consoles have been exploding in the market, and MSFT and SONY have been putting things out on the market faster than ever before. It was going to happen sometime, the hardcore gamers were going to run out of money (or credit) at some point. Guess it came a little earlier than expected.

  • Report this Comment On October 15, 2010, at 7:19 PM, militauro wrote:

    I think there are a number of reasons the industry is not growing as fast as expected. One reason I don't hear much mention on is the console lifecycle. In the past, consoles were refreshed about every five years and the unknowns about them create tons of hype. Every bit of news that was coming out for the PS3 and Xbox 360 were generating tons of excitement. I think this excitement drives sales for a while and it's not here this time. For example, users want to know how Madden looks and plays on the Xbox 360 after they've had the Xbox version for years. Or even Halo or Call of Duty jumping to the next generation of consoles, the excitement heats up. I'm wondering if this stagnant environment where minor console refreshes is affecting the excitement for gamers out there.

  • Report this Comment On October 16, 2010, at 1:39 PM, xplayman wrote:

    I agree with the this year not being so hot in the video game market but I disagree that the numbers are declining. Again, no one is tracking Digital Distribution. The 3 most popular DD Services are Steam, Direct 2 Drive, and the least popular which is Impulse. Then there is the growing OnLive Service that when it matures I believe will take on the industry by storm and even crush DD Services like Steam by Valve Software. If anything, the numbers are still growing. DD Services offer 24/7 Access, you don't have to leave your home, and (with OnLive only) you don't even have to wait for downloads. It's growing faster than ever, it's just that what's probably the easiest form to track because it's digital is not being tracked.

  • Report this Comment On October 18, 2010, at 5:05 PM, rcs1537 wrote:

    Where are all the great games at? that should be the real title of this article...

    they keep pumping out title after of title, which is just more crap after more crap...

    the video game industry has turned from making great in depth games, to making games only that barely satisfy, and have the user download and pay for more content.

    i was born in 1980 and i can defintely tell a difference in the way games have been made just the past 2 years... they dont make them like they used to. instead, it seems all about the money now, and less about the quality of the games.

    So basically, when they start making really great games again, then the video game industry will pickup.

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