Unhappy Holidays for Game Makers

Updated from Jan. 13

The holiday season was a tough time for the video-game software industry.

Just how tough became a little clearer on Friday.

Overall unit sales of game software in the U.S. fell a jarring 10% last month, according to data released by NPD Group and obtained by TheStreet.com. While the industry benefited from healthy prices for games for Microsoft's (MSFT) Xbox 360 and Sony's (SNE) PlayStation Portable, total game sales in dollars still fell 3.6%.

But what the Xbox 360 gave with one hand, it took away with the other. Retailers sold just 281,441 Xbox 360 consoles in December, a total that was far fewer than the number of original Xboxes or PlayStation 2s sold during the month. It also was fewer than the number of units of the device retailers sold last month in the nine days after it launched.

Game software sales tend to go hand in hand with sales of hardware. Game makers, which had previously warned of soft holiday results, blamed their predicament in part on the paucity of Xbox 360s in the market.

Among the big, publicly traded video-game software publishers, the winner in terms of sales and market share gains was Midway Games(MWY). Retail sales of the struggling company's games grew 83.7% from December 2004 to $36.3 million.

In contrast, the big losers were Atari (ATAR) and Take-Two Interactive (TTWO). Atari's December sales fell more than 38% to $34.1 million, while Take-Two's plunged 43.2% to $72.9 million.

Neither result is terribly surprising, however. Atari is in the middle of a turnaround and has been struggling for months. Meanwhile, Take-Two was lapping a year-ago period in which its results were dominated by the then-recent release of Grand Theft Auto: San Andreas, the latest iteration of its flagship franchise.