Ahead of the Bell: Game Sales Show Deceleration

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NEW YORK - For the first time in more than two years, data from market researcher NPD group showed that U.S. video game sales growth slowed to the single digits.

The market researcher reported late Thursday that U.S. retail sales of video game hardware, software and accessories climbed 9 percent in August to $994.8 million. That is a sharp pullback from July, another seasonally slow month, when game sales soared 28 percent to hit $1.19 billion.

Some analysts, like Deutsche Bank's Jeetil Patel, called the weaker sales a "a blow to a sector that has bucked the retail consumer spending slump." Others, like Ben Schachter from UBS, stressed they "don't believe this represents a turn for the worst for the industry."

But there is no getting around the fact that video game software sales were well short of analysts' expectations. Game sales for the month climbed 13 percent to $489.1 million, below the $600 million that Wedbush Morgan analyst Michael Pachter had expected and the 20 percent increase Lazard Capital Markets analyst Colin Sebastian projected.

NPD said the industry's year-to-date growth is 32 percent, and is still on target to hit annual sales between $22 billion and $24 billion, compared with $18 billion in 2007.

August, noted Goldman Sachs analyst Mark Wienkes, traditionally accounts for around 6 percent of annual revenue for the video game industry, which still makes most of its money during the holiday season

"Madden NFL 09," by far the month's best-selling title, sold 2.3 million units, a 2 percent increase from last year's edition of the game. Patel saw the small increase a sign that the popular football franchise from Electronic Arts Inc. is weakening.

"While it is difficult not to argue the economy has caught up to the games industry, our surveys continue to show significant demand for the segment," wrote Soleil Securities analyst Daniel Ernst in a note to investors. He added he expects that a strong slate of new content launching ahead of the holidays, as well as an expected increase in Wii supplies, "will lead to a reacceleration of industry growth this fall and through the holiday season."

Because the Wii is still in short supply, Nintendo increased production for the console in July, but August sales most likely didn't benefit from this. And, to better compete with rival consoles, Microsoft Corp. cut the price of the Xbox 360 last on Sept. 5, making the cheapest version of the console $200, below the $250 it costs to buy a Wii. This will likely boost September sales for the console.