According to a recent Reuters article, the video game software industry experienced one heck of a hot July in the U.S. Sales for this sector rose approximately 28% last month vs. July 2003. The NPD Group reported that sales for software from January to June rose 4% overall year-over-year; if July is any indication, the rest of the year should see a solid upward increase.
This kind of a jump was certainly expected. After all, with consoles such as Sony's (NYSE:SNE) PlayStation 2 and Microsoft's (NASDAQ:MSFT) Xbox experiencing price deflation, a healthy expansion of software revenues was more than logical. Also, the fact that we had a blockbuster title in Activision's (NASDAQ:ATVI) Spider-Man 2 game slinging around the marketplace helped to boost things tremendously.
The article brings up an excellent point in terms of looking forward. There are some pretty huge titles waiting to see their moment in the spotlight. Nintendo (NASDAQ:NTDOY) will be releasing two new Pokemon cartridges for its Game Boy platform in mid-September, while the fall will see another caper of Take-Two Interactive's (NASDAQ:TTWO) Grand Theft Auto franchise. Probably the biggest of the bunch, and one of the most anticipated games in the history of the sector, has to be the next chapter in the Halo mythology. Not only is that going to sell a ton of copies, it will also most likely sell a lot of Xbox units, which will help Microsoft's market penetration.
Electronic Arts (NASDAQ:ERTS) is on the offensive by focusing on the defensive in Madden 2005. If ever there were a guaranteed game phenomenon, this is it. Football fans salivate every year around this time, waiting to get their hands on the gridiron upgrade. August video game sales will most likely be driven by this entry (as well as holiday sales, for that matter).
The one thing I hope is that this sales increase was achieved without any significant decline in margins for the industry. When one walks into any retailer that stocks video games, one is bound to see several titles being cleared out of inventory. As long as margins are kept relatively intact, I'm a happy camper.
Activision and Electronic Arts are the blue chips of this sector, and they are the stocks that long-term investors would do well to focus on. There will always be a healthy demand for video game products and services, so a well-diversified portfolio would not likely be hindered by the inclusion of such companies.
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Fool contributor Steven Mallas owns none of the stocks mentioned.
