Getting Back Into the Game

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The video game industry had a rare month of gains in November.

Market watcher NPD Group claims that its channel checks show an 8% increase in year-over-year sales last month, fueled by the debut of Microsoft's (Nasdaq: MSFT  ) Kinect motion-based controller and the record-breaking success of Activision Blizzard's (Nasdaq: ATVI  ) Call of Duty: Black Ops.

Console and handheld system sales climbed 2%, with new software inching 3% higher. How does that combine to deliver 8% growth? Well, the real driver this time was accessory sales, soaring 69% as folks snapped up Kinect add-ons and -- to a lesser extent -- Sony's (NYSE: SNE  ) PlayStation Move controllers.

Microsoft's Xbox 360 was in a good groove even before Kinect's release, but the $150 camera-based accessory still helped it land its sixth consecutive month of market leadership over its PS3 and Wii rivals.

Consume the data carefully. For starters, video game sales tanked 8% last November, so we're essentially back to where we were two years ago. There's also the lingering fear that while die-hard gamers will always be around, more mainstream casual gamers are spending their gaming hours on smartphone and Facebook apps. At the very least, the proliferation of free or dirt cheap diversions will keep console title prices in check.

There is some light at the end of the tunnel that has kept industry sales down through most months over the past two years. Analysts see Electronic Arts (Nasdaq: ERTS  ) , Activision Blizzard, Take-Two Interactive (Nasdaq: TTWO  ) , and bellwether retailer GameStop (NYSE: GME  ) posting improving profitability this fiscal year.

Pessimistic investors have beaten down the sector to the point that many of these companies now offer compelling valuations for companies that are growing again.

We'll have to see how December plays itself out. There are no marquee releases, but that's how it is every December. Developers make sure that their hottest games are out well ahead of the holiday shopping season. The real test this month will be if holiday shoppers flock back to video games this time around, and if folks buying Kinect and Move controllers are going to load up on the games that take advantage of the motion-based platforms.

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

Microsoft is a Motley Fool Inside Value pick. Take-Two Interactive Software is a Motley Fool Rule Breakers recommendation. Activision Blizzard and Electronic Arts are Motley Fool Stock Advisor selections. Motley Fool Optionshas 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, GameStop, Microsoft, and Take-Two Interactive Software. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz wonders why his son always kicks his axe 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 December 11, 2010, at 12:48 AM, rayleboeuf wrote:

    Just curious if World of Warcraft "Cataclysm" would be considered a significant release. Seems it has made plenty of money over the years.

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