October 2004 NPD Video Game Sales Preview
We expect NPD Funworld TRSTS U.S. retail video game console software sales data for the month of October (fourweek
period ending October 30, 2004) to be released on Thursday, November 11, after the market close. This date
is earlier than in the past due to NPDs decision to move the release date up from the third Monday of the month to
the second Thursday (we are hopefully optimistic that there will be no surprises this month unlike last months
restatement). 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.
Sales typically begin to build in October heading into the holiday season, with a significant amount of games typically
released for the holiday selling period this month and in November. We expect this trend to continue in 2004, and
forecast sales of $500 million (up 41% vs. October 2003s $355 million). Our forecast is highly leveraged to sellthrough
of the blockbuster Grand Theft Auto : San Andreas, which we believe was responsible for over $100 million in
sales.
Comparable sales for the last four months were up following three consecutive months of year-over-year declines.
We continue to be optimistic that strong holiday sales will allow the U.S. console software market to deliver 10% yearover-
year growth (up from 5% in 2003). We note that year-to-date through September unit sales are up 10%, while
ASPs have declined by only 1% (compared to our full-year forecast of a 6% decline). We expect ASPs to stay
relatively flat over the remainder of the year, given the likelihood for strong sales of several full-priced blockbuster
titles for the remainder of the year.
The U.S. hardware installed base is currently at 65 million current generation consoles (including the GBA) as of the
end of September 2004 (up from 56 million at year end 2003) and we forecast growth to 77 million total consoles by
the end of 2004. We expect console prices to remain stable for the balance of the year (current U.S. prices are
Nintendo GameCube $99, Microsoft Xbox $149, and Sony PS2 $149), with the next round of cuts likely early next
year. However, we note that there is an increase in promotional activities (bundling of free games) with the Xbox and
GC and the PS2 may follow. We expect momentum in handhelds to continue with the price cut of the Nintendo GBA
SP from $99 to $79 and the imminent launch of the Nintendos DS at $149 on November 21.
In October, we expect sales to be dominated by Take-Twos GTA San Andreas (PS2) as well as other top releases
during the month including Activisions Tony Hawk Underground 2 (PS2, Xbox, GC, GBA, PC), and Midways Mortal
Kombat: Deception (PS2, Xbox). We also expect last months top releases Nintendos Pokemon Fire Red and Leaf
Green (GBA) and Electronic Arts NBA Live 2005 (PS2, Xbox, GC) to be top sellers. We note that there were 20
games that sold over 100,000 units in September, and we expect 15 in October (compared to 10 last year).
Activision (ATVIBuy and Focus List)
Releases during October: 10/4 Tony Hawk's Underground 2 (PS2, Xbox, GC, GBA, PC), 10/26 Shrek 2 Beg For
Mercy (GBA).
We estimate that Activision generated approximately $32 million in sales for the month (compared with $27 million last
month and $19 million last October). We expect sales were led by Tony Hawk's Underground 2 which we believe sold
500,000 units combined in its first month. We expect that catalog titles Spider-Man 2, Shrek 2, X-Men: Legends, and
Shark Tale also sold well.
Atari (ATARBuy)
Releases during October: 10/3 Unreal Tournament Editors Choice (PC), 10/26 Roller Coaster Tycoon 3 (PC).
We estimate that Atari generated approximately $14 million in sales for the month (compared with $15 million last
month and $11 million last October). We believe that sales were led by catalog sales of Dragon Ball Z games. With no
other major mega-hit game, Atari sales should be broadly based.
Electronic Arts (ERTSBuy)
Releases during October: 10/12 FIFA Soccer 2005 (PS2, Xbox, GC, PC, PSX, GBA).
We estimate that EA generated $90 million in sales for the month (compared with $108 million last month and $86
million last October). We expect sales to be led by NBA Live 2005, which we estimate sold 500,000 units combined in
its second month of release (on top of the 296,000 sold last month). We expect Madden NFL 2005, Burnout 3
Takedown, and Def Jam Fight for NY to also continue to sell well. We expect to see continued strong sales of James
Bond, Harry Potter, Need For Speed Underground, Lord of the Rings and Medal of Honor as well as from its catalog
of sports games.
Midway Games (MWYHold)
Releases during October: 10/4 Mortal Kombat: Deception (PS2, Xbox), 10/11 Midway Arcade Treasures 2 (PS2,
Xbox, GC).
We estimate that Midway generated $40 million in sales for the month (compared with $5 million last month and $5
million last October). We believe that Mortal Kombat: Deception sold through 600,000 units combined in its first month
of release. We expect sales to be led by catalog sales of NBA Ballers, PSI-Ops, MLB Slugfest, SpyHunter, and Mortal
Kombat titles.
Take-Two Interactive (TTWOBuy and Focus List)
Releases during October: 10/4 Conflict: Vietnam (PS2, Xbox, PC), 10/5 Robotech Invasion (PS2, Xbox), 10/25 Grand
Theft Auto Advance (GBA), 10/26 Grand Theft Auto San Andreas (PS2).
We estimate that Take-Two generated $130 million in sales for the month (compared with $25 million last month and
$16 million last October). We believe that sales were led by GTA San Andreas, which we believe sold 2.2 million units
in its first month of release (this compares with 1.4 million units sold by GTA Vice City in its first month of release). We
expect continued strong sales of ESPN sports games: NFL 2K5, NBA 2K5 and NHL 2K5. We believe that Red Dead
Revolver, Grand Theft Auto, Max Payne, Midnight Club, and Conflict: Desert Storm led catalog sales.
THQ (THQIHold)
Releases during October: 10/4 LEGO Knights Kingdom (GBA), 10/11 Tak 2 Staff of Dreams (PS2, Xbox, GC, GBA),
10/12 WWE Survivor Series (GBA), 10/27 The SpongeBob SquarePants Movie (PS2, Xbox, GC, GBA, PC), 10/28
The Incredibles (PS2, Xbox, GC, GBA, PC).
We estimate that THQ generated $30 million in retail sales for the month (compared with $20 million last month and
$27 million last October). We believe that sales were led by The SpongeBob SquarePants Movie selling 200,000 units
combined, with a smaller contribution from The Incredibles due to the late month launch of the game. Since both
these games are tied with movie releases in November, we expect a significantly up tick in sales next month. We
expect continued strong sales of MX Unleashed, WWE, Nickelodeon, and Finding Nemo titles. We expect THQ to
continue to benefit from strong Nintendo GBA SP sales for the rest of the year. We estimate that THQ had 25 titles
sell over 10,000 units during the month, compared to 26 titles last month and 25 titles last October.
Market Share Analysis
Although it is difficult to estimate the total sales denominator for calculating market share, we expect Take-Two to be
the market share leader. If the denominator is $500 million, our estimate for each publishers market share is as
follows:
Market Share By Company (US Retail Sales)
Oct 2004E Oct 2003A
TTWO 26.0% 4.4%
ERTS 18.0% 24.3%
MWY 8.0% 1.4%
ATVI 6.4% 5.4%
THQI 6.0% 7.7%
ATAR 2.8% 3.1%
Conclusion
There may be some overall positive reaction to the October data, particularly if it meets or exceeds our estimate of
41% year-over-year growth. The month was marked by the release of several big games by a number of publishers,
and strong sell through for these games could imply continuing double-digit growth for the balance of the year. We
believe that most industry observers expect only 8 10% growth for the full year, and note that if our forecast for
October is close to the mark, overall industry growth year-to-date will be 7.6%. Because we expect a similar sales up
tick in November, we think that it is possible that overall sales will achieve the high end of the expected range for the
year.
We think that Take-Two dominated in October, with the release of the highly anticipated Grand Theft Auto San
Andreas. We also expect Electronic Arts to maintain strong market share, with a year-over-year increase in sales
driven primarily by the release of several big games last month and by continued strong sales of its other sports
games. We do not expect significant market reaction for our other companies Activision, Atari, Midway, and THQ
when the NPD data is released.
We expect NPD Funworld TRSTS U.S. retail video game console software sales data for the month of October (fourweek
period ending October 30, 2004) to be released on Thursday, November 11, after the market close. This date
is earlier than in the past due to NPDs decision to move the release date up from the third Monday of the month to
the second Thursday (we are hopefully optimistic that there will be no surprises this month unlike last months
restatement). 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.
Sales typically begin to build in October heading into the holiday season, with a significant amount of games typically
released for the holiday selling period this month and in November. We expect this trend to continue in 2004, and
forecast sales of $500 million (up 41% vs. October 2003s $355 million). Our forecast is highly leveraged to sellthrough
of the blockbuster Grand Theft Auto : San Andreas, which we believe was responsible for over $100 million in
sales.
Comparable sales for the last four months were up following three consecutive months of year-over-year declines.
We continue to be optimistic that strong holiday sales will allow the U.S. console software market to deliver 10% yearover-
year growth (up from 5% in 2003). We note that year-to-date through September unit sales are up 10%, while
ASPs have declined by only 1% (compared to our full-year forecast of a 6% decline). We expect ASPs to stay
relatively flat over the remainder of the year, given the likelihood for strong sales of several full-priced blockbuster
titles for the remainder of the year.
The U.S. hardware installed base is currently at 65 million current generation consoles (including the GBA) as of the
end of September 2004 (up from 56 million at year end 2003) and we forecast growth to 77 million total consoles by
the end of 2004. We expect console prices to remain stable for the balance of the year (current U.S. prices are
Nintendo GameCube $99, Microsoft Xbox $149, and Sony PS2 $149), with the next round of cuts likely early next
year. However, we note that there is an increase in promotional activities (bundling of free games) with the Xbox and
GC and the PS2 may follow. We expect momentum in handhelds to continue with the price cut of the Nintendo GBA
SP from $99 to $79 and the imminent launch of the Nintendos DS at $149 on November 21.
In October, we expect sales to be dominated by Take-Twos GTA San Andreas (PS2) as well as other top releases
during the month including Activisions Tony Hawk Underground 2 (PS2, Xbox, GC, GBA, PC), and Midways Mortal
Kombat: Deception (PS2, Xbox). We also expect last months top releases Nintendos Pokemon Fire Red and Leaf
Green (GBA) and Electronic Arts NBA Live 2005 (PS2, Xbox, GC) to be top sellers. We note that there were 20
games that sold over 100,000 units in September, and we expect 15 in October (compared to 10 last year).
Activision (ATVIBuy and Focus List)
Releases during October: 10/4 Tony Hawk's Underground 2 (PS2, Xbox, GC, GBA, PC), 10/26 Shrek 2 Beg For
Mercy (GBA).
We estimate that Activision generated approximately $32 million in sales for the month (compared with $27 million last
month and $19 million last October). We expect sales were led by Tony Hawk's Underground 2 which we believe sold
500,000 units combined in its first month. We expect that catalog titles Spider-Man 2, Shrek 2, X-Men: Legends, and
Shark Tale also sold well.
Atari (ATARBuy)
Releases during October: 10/3 Unreal Tournament Editors Choice (PC), 10/26 Roller Coaster Tycoon 3 (PC).
We estimate that Atari generated approximately $14 million in sales for the month (compared with $15 million last
month and $11 million last October). We believe that sales were led by catalog sales of Dragon Ball Z games. With no
other major mega-hit game, Atari sales should be broadly based.
Electronic Arts (ERTSBuy)
Releases during October: 10/12 FIFA Soccer 2005 (PS2, Xbox, GC, PC, PSX, GBA).
We estimate that EA generated $90 million in sales for the month (compared with $108 million last month and $86
million last October). We expect sales to be led by NBA Live 2005, which we estimate sold 500,000 units combined in
its second month of release (on top of the 296,000 sold last month). We expect Madden NFL 2005, Burnout 3
Takedown, and Def Jam Fight for NY to also continue to sell well. We expect to see continued strong sales of James
Bond, Harry Potter, Need For Speed Underground, Lord of the Rings and Medal of Honor as well as from its catalog
of sports games.
Midway Games (MWYHold)
Releases during October: 10/4 Mortal Kombat: Deception (PS2, Xbox), 10/11 Midway Arcade Treasures 2 (PS2,
Xbox, GC).
We estimate that Midway generated $40 million in sales for the month (compared with $5 million last month and $5
million last October). We believe that Mortal Kombat: Deception sold through 600,000 units combined in its first month
of release. We expect sales to be led by catalog sales of NBA Ballers, PSI-Ops, MLB Slugfest, SpyHunter, and Mortal
Kombat titles.
Take-Two Interactive (TTWOBuy and Focus List)
Releases during October: 10/4 Conflict: Vietnam (PS2, Xbox, PC), 10/5 Robotech Invasion (PS2, Xbox), 10/25 Grand
Theft Auto Advance (GBA), 10/26 Grand Theft Auto San Andreas (PS2).
We estimate that Take-Two generated $130 million in sales for the month (compared with $25 million last month and
$16 million last October). We believe that sales were led by GTA San Andreas, which we believe sold 2.2 million units
in its first month of release (this compares with 1.4 million units sold by GTA Vice City in its first month of release). We
expect continued strong sales of ESPN sports games: NFL 2K5, NBA 2K5 and NHL 2K5. We believe that Red Dead
Revolver, Grand Theft Auto, Max Payne, Midnight Club, and Conflict: Desert Storm led catalog sales.
THQ (THQIHold)
Releases during October: 10/4 LEGO Knights Kingdom (GBA), 10/11 Tak 2 Staff of Dreams (PS2, Xbox, GC, GBA),
10/12 WWE Survivor Series (GBA), 10/27 The SpongeBob SquarePants Movie (PS2, Xbox, GC, GBA, PC), 10/28
The Incredibles (PS2, Xbox, GC, GBA, PC).
We estimate that THQ generated $30 million in retail sales for the month (compared with $20 million last month and
$27 million last October). We believe that sales were led by The SpongeBob SquarePants Movie selling 200,000 units
combined, with a smaller contribution from The Incredibles due to the late month launch of the game. Since both
these games are tied with movie releases in November, we expect a significantly up tick in sales next month. We
expect continued strong sales of MX Unleashed, WWE, Nickelodeon, and Finding Nemo titles. We expect THQ to
continue to benefit from strong Nintendo GBA SP sales for the rest of the year. We estimate that THQ had 25 titles
sell over 10,000 units during the month, compared to 26 titles last month and 25 titles last October.
Market Share Analysis
Although it is difficult to estimate the total sales denominator for calculating market share, we expect Take-Two to be
the market share leader. If the denominator is $500 million, our estimate for each publishers market share is as
follows:
Market Share By Company (US Retail Sales)
Oct 2004E Oct 2003A
TTWO 26.0% 4.4%
ERTS 18.0% 24.3%
MWY 8.0% 1.4%
ATVI 6.4% 5.4%
THQI 6.0% 7.7%
ATAR 2.8% 3.1%
Conclusion
There may be some overall positive reaction to the October data, particularly if it meets or exceeds our estimate of
41% year-over-year growth. The month was marked by the release of several big games by a number of publishers,
and strong sell through for these games could imply continuing double-digit growth for the balance of the year. We
believe that most industry observers expect only 8 10% growth for the full year, and note that if our forecast for
October is close to the mark, overall industry growth year-to-date will be 7.6%. Because we expect a similar sales up
tick in November, we think that it is possible that overall sales will achieve the high end of the expected range for the
year.
We think that Take-Two dominated in October, with the release of the highly anticipated Grand Theft Auto San
Andreas. We also expect Electronic Arts to maintain strong market share, with a year-over-year increase in sales
driven primarily by the release of several big games last month and by continued strong sales of its other sports
games. We do not expect significant market reaction for our other companies Activision, Atari, Midway, and THQ
when the NPD data is released.
