Video Game Sales Get Split Decision

Santa brought a mixed bag of sales for video game software publishers, according to data released Friday.

Activision (ATVI Quote), Take-Two Interactive (TTWO Quote) and THQ (THQI Quote) all posted strong or better-than-expected results, according to Wall Street analysts, citing data from NPD Funworld. But overall video game software sales in the U.S. fell 1% in December from a year earlier, and market leader Electronic Arts (ERTS Quote) saw its sales plunge 18%.

Analysts blamed the overall decline on a hardware shortage and the impact of a pricing war in the sports game segment. In recent days, Electronics Boutique (ELBO Quote), GameStop (GME Quote) and Toys "R" Us (TOY Quote) have all warned of disappointing December sales due in part to not having enough units of Sony's (SNE Quote) PlayStation 2, Microsoft's (MSFT Quote) Xbox and Nintendo's DS to meet demand.

"Hardware shortages clearly had a noticeable effect on industry sales during the 2004 holiday season," said Merrill Lynch analyst Karen Russillo, in a research note issued Friday. "As a reminder, last year's sales grew 13%, and that was up against a pretty strong 2002 holiday season."

An NPD Funworld representative declined to comment on the data.

As with other consumer business, the fourth quarter in general and the month of December in particular are crucial to the video game business, typically generating the lion's share of sales. Software sales are also often driven by hardware sales, as consumers buy games to play on their new platforms.

But sales of video game systems fell sharply in December, according to NPD's data, as cited by analysts. PlayStation 2 sales, for instance, fell 50% from December 2003 to 993,000 units. Sony has faced shipping problems as it has moved to replace its original PlayStation 2 with a new slimmed-down version.

Sony's problems contributed to bringing down total sales of console systems by 34%, with Xbox and Nintendo's GameCube also contributing to the decline.