Unhappy Holidays for Game Makers

Unit sales fell 10% in December as a sparse Xbox supply hurt purchases.
Author:
Publish date:

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) - Get Report

Xbox 360 and

Sony's

(SNE) - Get Report

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) - Get Report

. 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.

Industry leader

Electronic Arts

(ERTS)

gained share in the quarter, as sales of its games accounted for 21.1% of the overall market in December, compared with 20.6% in November and 20.2% a year earlier. But because of an the overall sales decline, EA's share gain translated into little increase in terms of dollar sales of the company's games; retail dollars spent on EA's games last month were up just 0.3% from December 2004 to $343.7 million.

The average price of a game rose 7% to $32.65 as retailers charged a premium for Xbox 360 and PSP titles.

In terms of hardware, December sales of the Xbox 360 brought the total number of units sold since its November launch to about 607,000. That's

far fewer than analysts originally expected.

In contrast, retailers sold nearly 415,000 units of the original Xbox and about 1.5 million PlayStation 2 consoles in December alone.

In terms of the handheld battle, Sony's PSP seemed to finally gain an edge -- if only a slight one -- over

Nintendo's

rival DS system in December. Retailers sold 1.12 million PSP units last month compared to 1.07 DS units.

Nintendo still held the edge in terms of overall handheld market share, though, thanks to its venerable Game Boy Advance, which outsold both of the new handheld systems last month.

Companies and analysts have been warning for weeks that the industry would show poor results for the holiday period -- the most important time of the year for the industry. Last week, Take-Two

posted fourth-quarter earnings that missed analysts' estimates and warned of a disappointing fiscal first quarter, which includes results from November and December. Last month, both

EA and

Activision

(ATVI) - Get Report

issued earnings warnings.

As originally published, this story contained an error. Please see

Corrections and Clarifications.