Video Game Sales Get Split Decision

However, hardware problems weren't the only story. Industry leader Electronic Arts has been battling Take-Two on the sports game front. Take-Two, partnering with Sega, has cut into EA's market share by offering its line of ESPN titles at less than half the retail price of EA's sports games. EA responded to the threat by offering a number of promotions and, ultimately, slashing the price of its games, such as Madden NFL 2005.

The end result of that effort was increased unit sales -- but decreasing revenue. Unit sales of Madden jumped 32% in December over the same month in 2003, but the dollars generated from those sales fell 20% over the same period a year earlier.

Despite strong sales of its recently released Need for Speed Underground 2 title -- the best-selling console game in December, generating $86.3 million in retail revenue -- EA's overall retail sales fell 18% to $343 million. The results indicate that EA's third-quarter results will be toward the bottom of its guided range, several analysts said.

In October, EA predicted it would earn $1.11 to $1.21 a share in its holiday quarter on sales ranging from $1.4 billion to $1.475 billion.

Although EA's sales for the quarter were down 16%, according to NPD, that doesn't mean the company's quarter is a loss, analysts noted. NPD's data do not include sales of PC games, and EA had two potential PC game hits in the quarter in The Sims 2.0 and Lord of the Rings: Battle for Middle Earth. NPD's data also focus solely on U.S. sales, meaning it does not include overseas sales of FIFA Soccer 2005 or Need for Speed.

Despite the reported sales decline, EA's December results were actually "in line to slightly ahead of expectations," Friedman Billings Ramsey analyst Shawn Milne said in his own research note on Friday.

(EA has not been a recent investment banking client of Friedman Billings Ramsey.)

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