Poor May sales have analysts reassessing 2010

Yesterday, the NPD Group belatedly issued its US retail sales figures for the month of May. Industry watchers had expected the month to show significant gains on a parade of big-name releases including Red Dead Redemption, Super Mario Galaxy 2, Alan Wake, UFC Undisputed 2010, Lost Planet 2, Prince of Persia, and more. However, the actual numbers were somewhat subdued, with software sales up just 4 percent and total industry revenues actually down by 5 percent.

Today, disappointed analysts responded to the numbers. In a note to investors, Pacific Crest Securities analyst Evan Wilson said the software shortfall (he had expected 15 percent growth for May) and recent news from the Electronic Entertainment Expo have made him rethink expectations for the rest of the year.

"As more details about the 2010 release slate emerged at E3, a few games were delayed out of the year," Wilson noted, "and now with the May sales disappointment, we are lowering our 2010 industry software growth estimate to down 5 percent from flat."

As for the reasons behind the decline, Wilson pointed to three segments in specific: Wii software, handhelds, and rhythm games, all of which he said were down double-digit percentages for the first five months of the year. Music games were particularly hard hit, down 53 percent from the first stretch of 2009.

Wedbush analyst Michael Pachter also noted the slumping Wii market in May, specifically calling out "poor Wii Play sales and seemingly sustained disinterest in the console." He noted that software attach rates for the system are declining, and publishers aren't supporting the console with a robust array of games, despite the system's installed base.

"We think that Nintendo will continue to dominate sales on its console, with its first-rate lineup of games, but fear that other publishers have prematurely abandoned the very large Wii audience and see further year-over-year software sales declines for the Wii for the next several months," Pachter said. "These declines will make year-over-year industry sales growth difficult to achieve."

Wilson noted other worrisome trends, including weaker-than-expected postlaunch sales of games (with Splinter Cell: Conviction being the latest example) and soft numbers for annualized sports titles. The year-over-year drop-off experienced by UFC Undisputed 2010 was particularly disappointing for publisher THQ, and Wilson noted that MLB 2K10 was selling about the same as last year's edition, despite significantly better review scores and a bigger marketing campaign.