Video game sales have been disappointing for some time. The main cause for slow-moving sales has been the high price points for video game consoles (>$200) combined with consumers cutting back on discretionary purchases. In addition Saku Koivu Jersey , those consumers that are still actively buying video games are playing their favorite games longer than in previous years.
As a result, the earnings estimates for video game stocks haven't been moving in the coreect direction. However, companies in the video game industry are in a position to modify that trend and deliver upside surprises in the near future. Getting into these stocks before the analysts start raising estimates could deliver decent returns.
Software Sales Have Bottomed
While software sales in June were down 15% year-over-year, sales climbed 14% from May. May sales rose 4% from April.
What's more, hardware sales are on fire. Console makers have dramatically cut prices on the Xbox 360, Playstation 3 and Wii. Combined console sales increased by 54% year-over-year in June to nearly 1.2 million units. The price cuts will hurt the console makers' profit margins Guy Lafleur Jersey , but the owners of those new 1.2 million video game consoles will be buying games for their new systems.
That's good news for the software side of the business, which saves its best games for the second half of the year. For video games, the unofficial holiday season kicks off with the August release of Madden NFL 11. There are several other titles that will be popular with gamers. These titles include Halo:Reach, Gears of War 3 and Call of Duty: Black Ops.
Games like Madden, Halo and Call of Duty have become so popular that today's gamers continue to play those games for hundreds of hours past what was expected by the game developers. The longer game lifespan comes from the ability to play these games online with other gamers. Online play goes beyond the storyline written for these games. The game developers have a provided a virtual play area for gamers that want to team up with their friends and try to defeat other teams in various warfare scenarios or play a football game against a human opponent.
Online play is extremely popular, but it can damage the sales of new games. It is also essentially free. Video game developers haven't done a lot to monetize online play. Sure Maurice Richard Jersey , Call of Duty has offered additional maps for a charge, and the sports games are allowing advertising in their virtual stadiums. I think that is only a start. In my view, these online playgrounds will soon begin to charge a fee to play their online versions and begin to allow even more advertising. When the video game developers finally begin to charge for their online offerings, profit margins will expand well above current expectations.
Ever since the Wii came out, both Microsoft (MSFT) and Sony (SNE) have worked on their own technology that allows gamers to use body motion to play games. This year those plans are hitting the market. Gamers got a preview of Microsoft's Kinect and Sony's Move at E3. Both companies plan to roll out their motion-controlled devices in the fall of 2010.