A Sizzling Summer for Gaming

Software sales were up 15% over the previous year and hardware sales 48%, but the torrid growth is unlikely to continue at the same pace

Perhaps it was too hot to go outside. Video-game-related sales in June saw a 25% increase year over year, to $844.5 million, according to NPD Group. Game software sales were up 15%, to $444.4 million, while hardware sales came in at $297.8 million, a 48% increase from 2005. "Increases of this size are very rare," says NPD's Anita Frazier. "I think that there are a lot of things that are working on the industry's behalf." Frazier says Father's Day and graduation gift giving, plus the availability of new hardware and software, combined to give the month its phenomenal sales numbers.

Will the boom last indefinitely? Not likely, as analysts note that some very specific sales drivers, such as games related to the Pixar (DIS) movie Cars, boosted sales in June. But with the next generation of software consoles slated for release later this year, the industry, which has been growing exponentially in recent years, is likely to post some very good numbers indeed.

On the hardware front, sales were bolstered in June by the successful launch of the Nintendo DS Lite, the company's sleek new version of their dual-screened portable, as well as strong sales from Sony (SNE) and Microsoft (MSFT) home consoles. The DS led the pack, with over 593,400 units moved during June (see BusinessWeek.com, 6/22/06, "Nintendo's New Brand Game").


 Sony's PlayStation 2 came in at No. 2, with a strong 311,900 units, beating out Microsoft's Xbox 360, which shipped 277,000 units. The 360 and PS2 caused helped give hardware the highest year-over-year growth for June of any category, with an 85% increase in sales, to $158.7 million.

That Sony's current-generation console is still outperforming Microsoft's next-generation Xbox 360 might be a surprise for some. But with two more next-gen consoles coming out before long, it's not likely the PS2 will be able to keep its strong sales. "I think by the end of the year, you're certainly not going to see that pattern anymore," says Jason Anderson, director of research at IDG. While not as much of a surprise as PS2 sales, the DS Lite's launch still exceeded expectations, he says. "That's essentially about as strong as the PSP in its launch month" a year ago, he noted. The powerhouse portable's continued sales may also be above initial projections.

Software-wise, Frazier says the industry was able to reach out to a multitude of audiences in June. The sales spike was led by portable software, which garnered $135.5 million for a year-over-year increase of 30%. "Content is very broad now, and I think that has a great impact on the industry," she says. Top-selling kid-friendly titles during June came from Nintendo with New Super Mario Bros. for the DS and from THQ with its multi-platform Cars. Games like these, combined with considerable sales of teen and adult-oriented titles, have given all types of consumers good playing choices, she says.


  It's not likely the rest of the summer months will see nearly as much growth as June. However, Frazier says she still expects positive numbers during July and the third quarter. "I expect it to have another mild increase," she says. "July is typically a slow month for the industry, but then you've got August right around the corner, and that's Madden month" she said, referring to the popular Electronic Arts (EA) NFL football game. American Technology Research's P.J. McNealy says the unexpected success of Cars and the DS Lite launch gave June some very specific sales drivers. That sales for the rest of the summer would be this high are unlikely, he says (see BusinessWeek.com, 6/22/06, "The Best Games for the Summer").

However the summer ends, this holiday season will see the release of next-gen consoles from both Sony and Nintendo. Although Nintendo has yet to finalize the launch date on their upcoming Wii gaming console, Sony has given an exact launch date of Nov. 17 for the PS3 (see BusinessWeek.com, 5/26/06, "Home Entertainment: The Next Generation").

Combined with the Xbox 360, sales of all the next-generation systems and their software should generate much revenue for the fourth quarter, already a consistent high point for game sales.

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