June 2004 NPD Video Game Sales Preview
We expect NPD Funworld TRSTS U.S. retail video game console software sales data for the month of June (five-week period ending July 3, 2004) to be released on Monday, July 19, after the market close. In this note, we attempt to forecast the sales figures before they are released. Our forecast is based upon a combination of channel checks and intuition, with a far greater dependence upon intuition. Our channel checks are conducted by visiting a very small slice of the over 25,000 retail stores that carry video games in the U.S. We note that for a given game, a difference of only one unit per store per week could result in a difference of 100,000 units in volume, or $5 million in retail sales for the month. Therefore, we caution readers to use our estimates as only one data point in a sea of information. May and June have historically been two of the slowest months of the year, with combined sales totaling only 9-12% of annual sales in each of the last several years. We do not expect a reversal of this trend in 2004, and forecast sales of $355 million (up 5% vs. June 2003s $339 million).
Over the last three months, sales have declined compared with last year, due to a greater percentage of sales of older catalog titles at lower prices and the difficult comparisons with the release of Nintendos The Legend of Zelda and Pokemon Ruby and Sapphire and Ataris Enter The Matrix. Despite weak sales so far (down 1% year-to-date), we continue to be optimistic that strong holiday sales will allow the U.S. console software market to deliver 10% year-over-year growth (up from 5% in 2003), and believe that the rebound in sales growth will start this month following the mid-May price cut on the PS2 to $149 and the release of several blockbuster games in June. We note that unit sales-to-date are up 1%, while ASPs have declined by only 1.5% (compared to our full-year forecast of a 10.25% decline). Year-to-date, ASPs are $30.61, and we believe that there is a good possibility that ASPs will stabilize at this level for the remainder of the year, given the likelihood for strong sales of several full-priced blockbuster titles later in the year.
The U.S. hardware installed base is currently at 60 million current generation consoles (including the GBA) as of the end of May 2004 (up from 56 million at year end 2003) and we forecast it to grow to 77 million by the end of 2004. Total console and handheld hardware unit sales are down 9% in the first five months of 2004 compared with the prior year, but we expect unit sales to accelerate during 2004 with the recent console price cuts and blockbuster games to be released. Following Microsofts cut in Xbox price to $149 on March 30, the Xbox outsold the PS2 on a monthly basis for the first time in April (297,000 units versus 189,000 units) but the PS2 regained sales leadership in May when Sony cut the price to $149. We believe that the next round of price cuts may come as early as this holiday season (current U.S. prices are Nintendo GameCube $99, Microsoft Xbox $149, and Sony PS2 $149), although we think it more likely that prices will hold steady for the remainder of the year. We also expect a strong unit contribution from Nintendos DS handheld, expected out this fall.
In June, we expect continued strong sales of Electronic Arts Fight Night (PS2, Xbox, GC) and MVP Baseball (PS2, GC, Xbox, PC), Ubi Softs Splinter Cell: Pandora Tomorrow (Xbox, PC), and Activisions Shrek 2 (PS2, GC, Xbox, GBA, PC). The top June releases should be Activisions Spider-Man 2 (PS2, Xbox, GC, GBA, PC), Ataris DRIV3R (PS2 and Xbox),
Electronic Arts Harry Potter and the Prisoner of Azkaban (PS2, Xbox, GC), and THQs Full Spectrum Warrior (Xbox). We also think that several sleepers (like VU Games The Chronicles of Riddick for Xbox and Midways Psi-Ops for PS2 and Xbox) could surprise. We note that there were three games that sold over 100,000 units in May, and we expect 12 in June.
This compares to last June, when eight games sold over 100,000 units. Although the number of games released is relatively flat year-over-year (57 SKUs this year vs. 53 last June), we think that the greater number of big propositions will more than offset spillover sales from last years Enter the Matrix (approximately $16 million in sales last June).
S2-120K,XB-80K
