May was pretty kind to the video game industry. According to reports, market research firm NPD stated that hardware and software sales jumped 49% year over year, coming in at over $815 million. That figure represents a decline of 3% compared to April, but that shouldn't worry investors in this sector -- video games continue to be hot.
Nintendo's Wii and DS platforms continue to dominate at retail. The Wii sold more units than Sony's (NYSE:SNE) PlayStation 3 and Microsoft's (NASDAQ:MSFT) Xbox 360 combined -- it moved 338,000 units while the Xbox 360 and PlayStation 3 sold roughly 155,000 and 82,000 units, respectively. The DS saw sales of well over 400,000 devices. The handheld is still rocking due in no small part to Pokemon fever.
As can be seen, Nintendo is the one to beat, but here's a statistic that I at least found telling. Unit sales of Sony's PSP portable gaming system rose 40% compared to the previous year's similar timeframe. A price cut was credited with catalyzing the performance, of course, and it made me wonder about the future of the Wii's popularity when Sony eventually gets around to its first round of price reductions on its PlayStation 3. I say "first round" because it'll probably take a few of them to bring the $600 system close to parity with the Wii.
Sony is still a strong brand with video game mindshare. Yes, it has been wounded, but I bet a lot of consumers out there are drooling at the prospect of owning a PlayStation 3. This isn't to say that people don't buy the Wii simply because they like it -- they do. But hardcore gamers certainly have that $600 cost at the forefront of their collective minds when deciding which next-generation system they want to initially adopt. The elasticity in this situation is rather obvious -- PlayStation 2 sold approximately 188,000 consoles last month, so the fact that there are still Sony fans out there is obvious. They just might not want to use up too many discretionary dollars.
Everyone knows that Sony would be hard pressed right now to change the PlayStation 3's retail cost, but the company needs to do something before the holiday season comes around to spur sales. Selling 82,000 units is simply embarrassing. And it doesn't make publishers like Activision (NASDAQ:ATVI), Electronic Arts (NASDAQ:ERTS), THQ (NASDAQ:THQI), and Take-Two (NASDAQ:TTWO) joyful, either -- they have a vested interest in seeing all systems sell so that they can make money programming for them. Bottom line, no one should be playing the video game thesis through Sony. Publishers like Activision (which I own) or EA are the way to go, since they have great software pipelines and don't have to worry about absorbing the losses from new hardware.
For now, Nintendo rules. It's going to be tough going for the company's competitors, but nothing can be assumed. When the price cuts from Sony and Microsoft come down the line -- whenever that might be -- the playing field will be altered, and a new winner could emerge. But it seems that video games still offer an exciting area for investors to play in.
Video game companies are on the move:
- Activision's Probe Goes Formal
- EA's Casual Competition
- Take-Two's Grand Theft Quarter: Fool by Numbers
Activision, Electronic Arts, and Nintendo are part of the Motley Fool Stock Advisor recommendation list. Yes, we love video games. Sign up for a free 30-day trial of the service with no obligation whatsoever. The Gardner brothers can help you build a long-term, wealth-building portfolio. Microsoft is a member of the Motley Fool Inside Value portfolio.
Fool contributor Steven Mallas owns shares of Activision. As of this writing, he was ranked 8,837 out of 30,414 rated players in the Motley Fool CAPS system. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.
