May’s sales figures for consoles and games were down from the same month a year ago, but the fall-off moderated compared with previous months.Research firm NPD reported that game hardware sales fell by 20%. The Wii sold 334,800 units for the month, while the Xbox 360 sold 194,600 units and the PS3 sold 154,500 units. The Wii kept its position in first place, but its sales have fallen quickly due to its aging platform and improvements in the products of its two rivals. As usual, Sony’s PS3 held the third and last position, a sign that it is a failure compared to the PS2.

Game sales improved somewhat. Revenue rose 4% largely due to the release of new titles including “Red Dead Dimension” and “Super Mario Galaxy 2.”  The numbers were below analysts’ expectations.

The industry’s challenge now is the holiday season which begins in October. Each company will release new consoles and that will be the critical factor in getting shoppers to buy the games–that and the economy.

A slow holiday season will probably mean another year of dismal sales for the industry

Douglas A. McIntyre

Sony has not only lost money, it has lost its way. Once the “Apple” of consumer electronics, is had immensely successful franchises like the PS3 and Walkman. It does not have an iconic consumer device any more and its PS3 is usually hammered in monthly sales by the Microsoft (NASDAQ MSFT) Xbox 360 and Nintendo Wii.Stringer has made a number of strategic mistakes and will continue to pay for them.  For instance, he failed to cement the company’s position in the highly profitable game console business.   Sony’s consumer electronics business — PCs, television screens, and digital cameras — also is facing larger and often lower cost producers.

Sony has also inexplicably held its movie studio business. That may have made some odd sense when the media business expected to bundle content with devices. That business plan is a decade old and never worked. It has been replaced by Internet-based platforms such as Hulu which are agnostic about who provides them content as long as the financial terms are right.

Stringer will be damned as a CEO most of all for allowing Sony to be eclipsed by Apple and other companies.  Sony was the single brand most associated with revolutionary consumer electronics devices. That place, which it held during the 1970s and 1980s, has passed to other companies. Stringer was promoted to bring those days back and has not had even the most modest success in doing so.

Douglas A. McIntyre

Sales of games and consoles dropped 26% last month compared to April a year ago.  And, April 2009 was a month when numbers had already been cut down by the recession. Total revenue for games sold this April was $766.2 million, according to research group NPD.  Some of the drop was due to the fact that Easter was in April in 2009 which helped created a small uptick for the month lessening the impact of the weak economy.

Sales of consoles posted a 37% decline to $249 million. Much of this was due to a decline in sales of the Nintendo DS. The Japanese company sold 440,800 of the hand-held devices last month, compared with more than a million in April of last year.

Among consoles, the Nintendo Wii sold 277,200 units – about half the unit sales from March. The PS3 from Sony sold 180,300 units, while the Xbox 360 from Microsoft sold 185,400 Xbox 360 units. While Wii sales were down in April, Xbox 360 units shipped were up 6% and PS3 sales were higher by 43% compared with the same month a year ago.

One of the causes of the drop appears to be the large numbers of free games, many of which run on smartphones such as the Apple Inc. (NASDAQ: AAPL) iPhone. It is too early to tell if this is good news for Apple at least until it can register large revenue from game app downloads. So far, based on NPD numbers, that is not the case.

Apple has already disrupted the smartphone industry, and the video game sector could be next.

Douglas A. McIntyre

Nintendo’s problems go well beyond earnings. Its Wii console is now three- years-old and its portable DS has been in the market closer to a decade. Both have had modifications and updates, but they are still the basic platforms that they were when they were launched. In the meantime, two larger companies, Microsoft (NASDAQ: MSFT) and Sony (NYSE: SNE), have entered the market with the Xbox 360 and PS3. The Wii has consistently outsold them month after month, but $100 price cuts on the products have almost certainly pressured Nintendo’s sales.

Nintendo has begun giving away new controllers and hardware packages that normally cost $49.95 to lift sales. Its Wii Fit motion detector product revived sales somewhat a year ago, but its novelty is gone.

What is obvious is that Nintendo is unlikely to release a completely new handset in the near future. The Wii is popular because it is easier to use than the PS3 and Xbox 360. That gives it a large market among “casual gamers” who do not want to take days to learn the features of the product.

The market was bound to catch up to Nintendo because of the capital resources and development capacity of its two rivals. Their products can now play Blu ray disks and run HD video. That are also set up for multiplayer games which can be used on the internet. A player in India can compete with one in the US.

Nintendo probably has cut is price on the Wii has much as it can. It chopped retail prices by $50 late last year. The cost of its bill of materials probably bottomed some time again because the machine was a success for so long. That means its leverage with suppliers is limited.

What has been an extraordinary run for the company, on that made it the No.2 market cap company on the Tokyo exchange at one point, is over.

Douglas A. McIntyre

It now appears that the industry has began to emerge from nearly two years of damaging losses and falling sales.

According to market researcher NPD,  March video game sales were up 6% to $1.52 billion from the same month a year earlier  Much of the improvement came from higher sales of Nintendo game consoles. Despite the age of the Wii, it remains a best seller and its smaller brother the DS has also sold well.  Wii sold 557,500 Wii units, and DS sales were  700,800. Microsoft Corp.’s (NASDAQ: MSFT) Xbox 360 sold 338,400 units and Sony’s (NYSE: SNE) PlayStation 3 sold 313,900. Despite sharp price cuts, the Xbox 360 and PS3 cannot catch up to the Wii, perhaps because it targets casual gamers.

Among games,  “Battlefield: Bad Company 2″ from EA sold well as did “Final Fantasy XIII” from Square Enix. There are enough games being launched by the big publishers including EA and Activision Blizzard Inc. that there is some reasonable chance that the industry could do  better this year than last for several months.

Popular games will only prop up the industry for so long. The recession seems to be over, and the worst days of the video industry probably are as well.

Douglas A. McIntyre

The Japanese consumer electronics company will launch a version of its DS that will allow people to play video games in 3D without wearing the ridiculous glasses that many 3D forms of entertainment require. The new product should help Nintendo gain more ground over Sony and Microsoft.

According to Reuters, Nintendo plans to launch the product in June. Sony also plans to add some form of 3D capacity to its PS3, but it is not a portable device which may give Nintendo a substantial edge.

The 3D experience has been a commercial success in the movie business recently. The leader in that industry, IMAX, has seen demand for its products surge. The firm’s share price has gone from a 52-week low of just over $4 to $16.30. But, the IMAX experience in one where the consumer sits in a theater seat. Nintendo is gambling that people will want the a similar experience in a device that they can carry with them.

3D is no longer the fad that it has been for more than 50 years.  But, whether the public wants 3D on a tiny screen is still an open question.

Douglas A. McIntyre

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Microsoft (MSFT) and Sony (SNE) at least gained ground from the first month of this year. Their console sales were up over January. Xbox 360 were 422,000 units, up from 322,800. PS3 sales were 360,100 units, up from 276,900 in January. Nintendo’s Wii sold 397,900 units, down from 465,800 .

Nintendo has a huge lead in console sales for over two years. Industry experts believe that the Wii platform is losing steam because its sales levels have reached a point of market saturation and it has fewer features that the PS3 and XBox 360. Microsoft and Sony have been aggressively adding new options to their consoles and have sharply dropped retail prices to bring their costs to the consumer closer to the Wii’s.

For the time being, it looks like Nintendo is in trouble, at least until it does a complete overhaul of the Wii.

Douglas A. McIntyre

Video game sales are in the home and frankly video games are perhaps one of the cheapest forms of entertainment on a dollar per hour basis there is.  Recession-proof might be a stretch.  Sales will be strong and there will still be money made by the game publishers.  But the holy grail of ‘comparable sales’ is going to be a tough one on the console makers in 2008.  Here are just some of the articles today on the bet that game sales will or won’t hold up:

• Eric Savits of Barron’s wrote "Recession? Not In The Video Game Business"
• GamePro has an article "U.S. video game industry grows 43% over last year" saying that growth won’t be the same as 2007 but will still show growth in 2008.
• Reuters notes "U.S. game sales rise 28 percent in December"
• Silicon Alley Insider notes "December Video Game Sales Up 36%, Sony’s Lead Slips"

In hardware sales saw a 63% gain for the Sony PlayStation 3, a 123% rise in the Nintendo Wii, and up 15% in Xbox 360 sales. Hand-held device sales rose 54% for the Nintendo DS and 11% for the Sony PSP.

The next assured mega-hit title coming out is Take-Two’s (NASDAQ: TTWO) Grand Theft Auto IV.  But at some point (and likely some point soon) these console sales aren’t going show the same gains like in 2007.  This notion that World of Warcraft may potentially be coming to video game consoles might add literally millions of gamers to the MMORPG craze.  All of this would be good for video games.  Electronic Arts (NASDAQ: ERTS) has its waves of upcoming releases in the year and Activision (NASDAQ: ATVI) is looking interesting in the upcoming Activision-Blizzard merger.  Microsoft’s (NASDAQ: MSFT) Bungie Studios may soon be its own public company too. Interestingly enough, we expect another merger in this sector although maybe not in the classic scenario and that has been under review for our Special Situation Investing Newsletter. 

We think that GameStop (NYSE: GME) will actually hold up better thanoverall stores like Best Buy or Circuit City based on game title salesin 2008, but there just aren’t any new major platform launches on thehorizon for maybe another two years.  That varies from person toperson, but some feel we’ll have the same gaming systems until 2011.  Our notion is that video games might actually be somewhat recession-proof.  But with $1.76 as the high part of the guidance out of GameStop, at $50.00 this still leaves its P/E at 28.4.  If the economy gets any worse than we think can then investors might not be wanting to pay that multiple after a 400% stock rise since the start of 2005.  We have been very positive on this on for some time and we don’t think it will go to hell in a hand basket.  But it will take the U.S. not falling into a recession for us to stay very positive on GameStop today and this stock has been peaking since November.  GameStop also a competitor coming on strong as well.

GameStop shares have fallen from $60+ at the start of 2008 before it gave raised guidance that the street panned and shares now sit right at $50.00 (with a $49.72 close).  An 18% slide is significant, even if it is still up 100% from the 52-week lows.

Jon C. Ogg
January 18, 2008

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If you look at how strong the data is you’d wonder how many Wii systems Nintendo could have sold if it actually had them in stock. The NPD data for the latest release shows the following console sales for last month:

• Nintendo Wii at 981,000 units;
• Microsoft Xbox 770,000 units;
• Sony PS3 440,000.

We noted how American consumers are impatient, but this might just satiate at least some of the demands.  This is actually a pretty good number for Microsoft (NASDAQ:MSFT) but shows that Sony’s (NYSE:SNE) PS3 is a dud and still considerably underperforming.

Jon C. Ogg
December 14, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Sony (SNE) has sold only 4.3 million PS3s.

On the portable side of the ball, Nintendo has sold 48.83 million DS units, according to VG Chartz, compared to 22.84 million Sony PSPs.

Hard to find any good news in there for Sony.

Douglas A. McIntyre