Handhelds Fuel Video-Game Sales

First-quarter sales of games and hardware rose 23%.
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The current video-game cycle may be coming to a close, but new data indicate that the latest handheld game machines, such as

Sony's

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PlayStation Portable, may give the industry a lift.

Retail sales of games and hardware in the U.S. rose 23% in the first quarter to $2.2 billion, according to a report from NPD Group. Fueling that growth was a 162% increase in sales of handheld machines and a 69% jump in software for the portable game systems.

In contrast, sales of consoles such as Sony's PlayStation 2 and games for those consoles grew at a much more moderate pace of 8% and 7%, respectively.

Sony released its PSP handheld last month in the U.S. and promptly sold more than half a million units worth more than $150 million at retail in the first two days. Meanwhile, Nintendo released its latest portable system, the DS, last fall and has also seen strong sales.

The new portable machines come at the expected tail end of the current generation of consoles. Sony,

Microsoft

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and Nintendo are all expected to unveil their next-generation consoles next month, and Microsoft's is expected to be on store shelves later this year.

During previous transitions between console generations, video-game software makers have seen their sales moderate or decline and their expenses rise. Development costs for the new consoles are typically far greater than that for the previous ones. But sales of games for the new consoles usually take a while to ramp up.

Many in the industry have been hoping that the new portable game machines -- coming as they have between console generations -- would be able to serve as a bridge between the current and next cycle. Investors' fears about the upcoming transition were already moderated somewhat last year. Video-game publishers' stocks soared last year as the game-software sales grew more than expected.

In the first quarter, total video-game software sales grew about 16% to about $1.26 billion. Portable-game software came in at about $265 million, comprising about 21% of total software sales, up from $157 million, or 14% of software sales in the year-ago period.

The top five selling games in the quarter were, in order, Sony's

Gran Turismo 4

for the PlayStation 2;

Take-Two Interactive's

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PS2 version of

Grand Theft Auto: San Andreas

;

Capcom's

Resident Evil

for Nintendo's GameCube;

Electronic Arts'

(ERTS)

MVP Baseball 2005

for the PS2; and Nintendo's

The Legend of Zelda: The Minish Cap

for the GameCube.

Total hardware sales grew about 47% to around $656 million in the quarter. Sales of portable machines equaled around $293 million, or about 40% of total hardware sales, up from about $111 million, or 35% of hardware sales, a year earlier.

Accessories for both consoles and portable machines also sold well, growing dollar sales 16% and 23%, respectively.

The overall video-game industry growth followed a soft quarter in the year-ago period. Overall sales fell 1% in the first quarter last year as console hardware sales plunged. NPD's data on video-game sales does not include sales of PC games or gaming-enhanced PCs.