sonycowboy
Member
OVERVIEW
On Monday afternoon, NPD Funworld released its May 2004 (four-week period ending May 29, 2004) TRSTS data for U.S. console video game software sales. Total sales were $245 million, down 22% sequentially from Aprils $315 million, and down 17% compared to May 2003s $295 million. Year-to-date sales are $1,699 million compared with 2003 year-to-date sales of $1,709 million (a year-over-year decrease of 1%).
The overall sales figures were significantly lower than our expectations of $265 million (down 10%). We believe that the lower sales level is due to a combination of a greater percentage of sales of older catalog titles at lower prices and the difficult comparisons to
last years Atari game, Enter the Matrix, which generated over $45 million in U.S. retail sales. There were no comparable blockbuster games this May. If the contribution from Enter the Matrix were eliminated, May 2004 sales would be approximately 2% lower than last years figure. We note that total unit sales were down 15% year-over-year (5.7% lower excluding Enter the Matrix), while average selling prices (ASPs) were down 3% from last year to $29.62 (3% higher excluding Enter the Matrix).
We think that it is important to view Mays results in the context of last years Enter the Matrix. Sales of the game represented 10% of all units and 15% of all dollar sales for the month, comparable to the impact of Take-Twos Grand Theft Auto: Vice City when it launched in October 2002. In October 2003, NPD monthly sales were down 14.6% as publishers struggled to overcome the tough comparison, although sales rebounded into positive territory for the four succeeding months. We expect a rebound in June, as games such as Full Spectrum Warrior, Harry Potter and the Prisoner of Azkaban, Splinter Cell Pandora Tomorrow, Driver 3 and Spider-Man 2 compare favorably with last Junes Lara Croft Tomb Raider and Resident Evil.
We continue to be optimistic that a number of blockbuster titles and strong holiday sales will allow the U.S. console software market to deliver 10% year-over-year growth (up from 5% in 2003), and believe that a sharp rebound in sales growth may start as early as June considering last months console price cuts and the upcoming release schedule. So far in 2004, ASPs have been relatively flat, with ASPs through May down only 1.5%. We believe that this reflects the firming up of the rate of ASP decline (approximately 7% in 2003, expected to level at between 5 10% in 2004). Unit sales are also relatively flat year-over-year, with only a 1% increase. Given the relatively low number of games released so far this year (190 SKUs compared to last years 239 through May), we believe that consumers may be waiting for the next big game, and expect unit sales growth to resume in the 20% range for the back half of the year.
May sales were led by continued strong sales of Electronic Arts Fight Night (PS2, Xbox, GC) and MVP Baseball (PS2, GC, Xbox, PC) and Ubi Softs Splinter Cell: Pandora Tomorrow (Xbox, PC). The top May releases were Activisions Shrek 2 (PS2, Xbox, GC,
GBA, PC) and Take-Twos Red Dead Revolver (PS2, Xbox).
There were only three games selling more than 100,000 units apiece in May vs. our estimate of eight and compared to seven last month. Of note, only one of the top three was a new release (Red Dead Revolver for PS2), while the others were released in April.
The top 200 games (out of 3,000 games sold in May) captured 58% of unit sales and 68% of dollar sales, compared with 60% of unit sales and 70% of dollar sales in April, while the top 10 captured 17% of dollar sales in May versus 25% last month. These figures reflect the relative lack of sales strength for new releases, and we expect higher contributions from the top sellers for the balance of 2004. The average selling price of all games (console and handheld, legacy and current generation) was $29.62, down 3% with last years $30.46 ASP, and lower than Aprils $30.20, also indicating that new releases were a lower portion of the mix than last month. We expect a greater proliferation of catalog games and a handful of $39.99 titles (notably, Harry Potter) to drive ASPs slightly lower over the next several months, with ASPs ranging between $29 and $30.
ANALYSIS
Acclaim Entertainment (AKLMHold)
Releases during May: None.
May Retail Sales--$3 million
WMS Estimate--$5 million
Acclaims market share decreased from 1.8% to 1.3% along with retail sales from $6 million to $3 million (compared with $5 million last May). Acclaim's sales were lead by All-Star Baseball 2005. Alias continued to sell poorly with only 4,000 units sold combined in
its second month of release. Older catalog sales were lead by All-Star Baseball, NBA Jam, ATV Quad Power Racing, Burnout, Mary Kate & Ashley, Legends of Wrestling, and Turok. The companys ASP for all units sold was $22.64, down from last years $29.41. This decline reflects a considerable shift in the mix of Acclaims sales toward lower-priced catalog games.
Activision (ATVIBuy and Focus List)
Releases during May: 5/4 Shrek 2 (PS2, Xbox, GC, GBA, PC), 5/11 True Crime (PC).
May Retail Sales--$17 million
WMS Estimate--$16 million
Activisions market share increased sequentially from 3.4% last month to 7.1%, along with retail sales from $11 million to $17 million (compared with $20 million last May). Sales were led by Shrek 2 which sold 243,000 units combined compared to our forecast of 150,000 units. The figure was significantly higher than the 120,000 units that THQs Finding Nemo (a 5-million unit seller) sold in its debut last May. Activisions ASP for all units sold was $32.96, down 4% from last years $34.20. We believe that Activision's future success remain tied to the performance of its upcoming games, including Doom 3 and Spider-Man 2, each of which we expect to sell more than two million units.
Atari (ATARBuy)
Releases during May: 5/4 Transformers (PS2).
May Retail Sales--$11 million
WMS Estimate--$11 million
Ataris market share increased sequentially from 3.3% last month to 4.6%, along with retail sales from $10 million to $11 million (compared with $54 million last May). Sales were led by Transformers, which sold 87,000 units compared with our estimate of 50,000 units. Catalog sales of Backyard Baseball and various Dragon Ball Z titles sold well. Ataris ASP for all units sold was $26.89, down significantly from last years $41.20. This decrease reflects an unfavorable shift in the mix of Ataris sales toward lower-priced new and catalog games compared with much higher selling prices recorded by Enter The Matrix last year. We believe that Atari's near term success depends upon the consumer reception to its DRIV3R game, which was released today.
Electronic Arts (ERTSBuy)
Releases during May: 5/1 UEFA Euro 2004 (PS2, Xbox, PC), 5/25 Harry Potter and the Prisoner of Azkaban (GBA, PC).
May Retail Sales--$41 million
WMS Estimate--$60 million
Electronic Arts market share decreased sequentially from 24.5% last month to 16.7%, along with retail sales from $77 million to $41 million (compared to $45 million last May). Fight Night and MVP Baseball continue to sell well with another 155,000 and 140,000 units sold respectively, while the company's other catalog titles performed significantly below our expectations. The companys ASP for all units sold was $34.52, down 11% from last years $38.88, but still higher than the industry average, reflecting Electronic Arts ability to maintain a favorable mix of sales toward higher-priced new releases.
Midway Games (MWYHold)
Releases during May: None.
May Retail Sales--$9 million
WMS Estimate--$13 million
Midways market share decreased sequentially from 5.9% last month to 3.7%, along with retail sales from $19 million to $9 million (compared with $5 million last May). The companys sales were led by NBA Ballers, which sold 157,000 units in its second month
of release. Sales of The Suffering and other catalog titles were significantly lower than we expected. Midways ASP for all units sold was $30.62, up sharply from last years $25.22. This increase reflects a considerable shift in the mix of Midways sales toward higher-priced new and catalog games this year. We believe that the early success of The Suffering and NBA Ballers indicates that Midway has executed well on its strategy of developing fewer, higher quality games, and we think that its recent sales performance
portends good things to come from the company over the remainder of the year.
Take-Two Interactive (TTWOBuy and Focus List)
Releases during May: 5/3 Red Dead Revolver (PS2, Xbox), 5/3 Serious Sam Next Encounter (GC), 5/3 Serious Sam Advance
(GBA).
May Retail Sales--$19 million
WMS Estimate--$14 million
Take-Twos market share increased from 3.8% to 8.0%, along with retail sales from $12 million to $19 million (compared with $13 million last May). Take-Two delivered results above our expectations, with Red Dead Revolver selling 222,000 units compared to
our 100,000 units forecast. Take-Twos ASP for all units sold was $32.57, up from last years $29.19. This reflects a shift in the mix of the companys sales toward lower-priced new and catalog games. We continue to believe that many investors await the release
of the next installment in the GTA series, GTA: San Andreas in October.
THQ (THQIBuy)
Releases during May: 5/25 Sonic Advance 3 (GBA).
May Retail Sales--$14 million
WMS Estimate--$20 million
THQs market share decreased from 6.5% to 5.5%, along with its retail sales from $21 million to $14 million (compared with $18 million last May). THQ sales were lower than we expected, with catalog sales weaker than we anticipated. Sonic Advance 3, released late in the month, sold through a relatively modest 21,000 units, contributing to the companys overall weak sales. We expect THQ to benefit from strong Nintendo GBA SP sales over the coming year. THQs ASP for all units sold was $24.42, down 5% from last years $25.72. We expect the companys ASP to increase in June, as we believe that the company is executing well on its plan to diversify into higher priced console games, and we expect this trend to continue over the coming months.
CONCLUSION
May overall retail sales were significantly lower than our expectations, coming in at $245 million compared to our estimate of $265 million. Only three titles sold over 100,000 units, compared with our estimate of eight, and only one of these was a new release. We were also disappointed with relatively weak year over year unit sales, which we believe is attributable to the relatively low number of SKUs released to date (down 20% year-over-year). We expect sales growth to resume in June, and anticipate that overall industry growth will rebound to 10% for the full year as the console installed base continues to expand, with strong sales of several blockbuster games over the rest of the year (such as Sonys Gran Turismo 4, Take-Twos GTA San Andreas, and Microsofts Halo 2). We expect video game sales in June to be driven by the new releases of Activisions Spider-Man 2 (PS2, Xbox, GC, GBA, PC), Ataris DRIV3R (PS2 and Xbox), Electronic Arts Harry Potter and the Prisoner of Azkaban (PS2, Xbox, GC), and THQs Full Spectrum Warrior (Xbox).
Although Electronic Arts sales disappointed us, we expect the companys sales growth to resume as its key releases are introduced during the balance of the year. Activisions, Acclaims, and Ataris results were about in line with our estimates and we do not expect significant movement in the share of any of these companies as a result of the May data. Midways and THQs results were lower than our expectations, while Take-Twos were better than we expected, though we expect that investors will continue to focus on the key releases from each company over the balance of the year. We continue think that our Buy rated companies (ATVI, ATAR, ERTS, THQI and TTWO) are in good position to grow market share in the coming year, and expect further share appreciation in the next several months.
May 2004 Market Share Rankings (Top 30 Companies)
Total (millions) 245 $
Company Projected $ 's Market Share
1 ELECTRONIC ARTS 41 $ 16.7%
2 NINTENDO OF AMERICA 25 $ 10.1%
3 TAKE 2 INTERACTIVE (CORP) 19 $ 8.0%
4 ACTIVISION 17 $ 7.1%
5 SONY (CORP) 14 $ 5.9%
6 THQ 14 $ 5.5%
7 ATARI 11 $ 4.6%
8 VIVENDI UNIVERSAL (CORP) 10 $ 4.1%
9 MIDWAY 9 $ 3.7%
10 KONAMI OF AMERICA 9 $ 3.5%
11 CAPCOM USA 8 $ 3.4%
12 UBISOFT (CORP) 8 $ 3.2%
13 EIDOS INTERACTIVE (CORP) 8 $ 3.1%
14 MICROSOFT (CORP) 7 $ 3.1%
15 SEGA OF AMERICA 7 $ 2.7%
16 NAMCO 5 $ 2.2%
17 KOEI 4 $ 1.7%
18 ACCLAIM ENTERTAINMENT (CORP) 3 $ 1.3%
19 MAJESCO 3 $ 1.1%
20 LUCASARTS 2 $ 1.0%
21 SQUARE ENIX USA (CORP) 2 $ 0.9%
22 TECMO 2 $ 0.8%
23 NATSUME 2 $ 0.7%
24 MULTIPLE VIDEO GAME MANUFACTUR 2 $ 0.6%
25 MASTIFF 2 $ 0.6%
26 BUENA VISTA GAMES 1 $ 0.6%
27 CODEMASTERS 1 $ 0.4%
28 BETHESDA SOFTW ORKS 1 $ 0.4%
29 INTERPLAY PRODUCTIONS 1 $ 0.3%
30 SONY ONLINE ENT. 1 $ 0.3%
On Monday afternoon, NPD Funworld released its May 2004 (four-week period ending May 29, 2004) TRSTS data for U.S. console video game software sales. Total sales were $245 million, down 22% sequentially from Aprils $315 million, and down 17% compared to May 2003s $295 million. Year-to-date sales are $1,699 million compared with 2003 year-to-date sales of $1,709 million (a year-over-year decrease of 1%).
The overall sales figures were significantly lower than our expectations of $265 million (down 10%). We believe that the lower sales level is due to a combination of a greater percentage of sales of older catalog titles at lower prices and the difficult comparisons to
last years Atari game, Enter the Matrix, which generated over $45 million in U.S. retail sales. There were no comparable blockbuster games this May. If the contribution from Enter the Matrix were eliminated, May 2004 sales would be approximately 2% lower than last years figure. We note that total unit sales were down 15% year-over-year (5.7% lower excluding Enter the Matrix), while average selling prices (ASPs) were down 3% from last year to $29.62 (3% higher excluding Enter the Matrix).
We think that it is important to view Mays results in the context of last years Enter the Matrix. Sales of the game represented 10% of all units and 15% of all dollar sales for the month, comparable to the impact of Take-Twos Grand Theft Auto: Vice City when it launched in October 2002. In October 2003, NPD monthly sales were down 14.6% as publishers struggled to overcome the tough comparison, although sales rebounded into positive territory for the four succeeding months. We expect a rebound in June, as games such as Full Spectrum Warrior, Harry Potter and the Prisoner of Azkaban, Splinter Cell Pandora Tomorrow, Driver 3 and Spider-Man 2 compare favorably with last Junes Lara Croft Tomb Raider and Resident Evil.
We continue to be optimistic that a number of blockbuster titles and strong holiday sales will allow the U.S. console software market to deliver 10% year-over-year growth (up from 5% in 2003), and believe that a sharp rebound in sales growth may start as early as June considering last months console price cuts and the upcoming release schedule. So far in 2004, ASPs have been relatively flat, with ASPs through May down only 1.5%. We believe that this reflects the firming up of the rate of ASP decline (approximately 7% in 2003, expected to level at between 5 10% in 2004). Unit sales are also relatively flat year-over-year, with only a 1% increase. Given the relatively low number of games released so far this year (190 SKUs compared to last years 239 through May), we believe that consumers may be waiting for the next big game, and expect unit sales growth to resume in the 20% range for the back half of the year.
May sales were led by continued strong sales of Electronic Arts Fight Night (PS2, Xbox, GC) and MVP Baseball (PS2, GC, Xbox, PC) and Ubi Softs Splinter Cell: Pandora Tomorrow (Xbox, PC). The top May releases were Activisions Shrek 2 (PS2, Xbox, GC,
GBA, PC) and Take-Twos Red Dead Revolver (PS2, Xbox).
There were only three games selling more than 100,000 units apiece in May vs. our estimate of eight and compared to seven last month. Of note, only one of the top three was a new release (Red Dead Revolver for PS2), while the others were released in April.
The top 200 games (out of 3,000 games sold in May) captured 58% of unit sales and 68% of dollar sales, compared with 60% of unit sales and 70% of dollar sales in April, while the top 10 captured 17% of dollar sales in May versus 25% last month. These figures reflect the relative lack of sales strength for new releases, and we expect higher contributions from the top sellers for the balance of 2004. The average selling price of all games (console and handheld, legacy and current generation) was $29.62, down 3% with last years $30.46 ASP, and lower than Aprils $30.20, also indicating that new releases were a lower portion of the mix than last month. We expect a greater proliferation of catalog games and a handful of $39.99 titles (notably, Harry Potter) to drive ASPs slightly lower over the next several months, with ASPs ranging between $29 and $30.
ANALYSIS
Acclaim Entertainment (AKLMHold)
Releases during May: None.
May Retail Sales--$3 million
WMS Estimate--$5 million
Acclaims market share decreased from 1.8% to 1.3% along with retail sales from $6 million to $3 million (compared with $5 million last May). Acclaim's sales were lead by All-Star Baseball 2005. Alias continued to sell poorly with only 4,000 units sold combined in
its second month of release. Older catalog sales were lead by All-Star Baseball, NBA Jam, ATV Quad Power Racing, Burnout, Mary Kate & Ashley, Legends of Wrestling, and Turok. The companys ASP for all units sold was $22.64, down from last years $29.41. This decline reflects a considerable shift in the mix of Acclaims sales toward lower-priced catalog games.
Activision (ATVIBuy and Focus List)
Releases during May: 5/4 Shrek 2 (PS2, Xbox, GC, GBA, PC), 5/11 True Crime (PC).
May Retail Sales--$17 million
WMS Estimate--$16 million
Activisions market share increased sequentially from 3.4% last month to 7.1%, along with retail sales from $11 million to $17 million (compared with $20 million last May). Sales were led by Shrek 2 which sold 243,000 units combined compared to our forecast of 150,000 units. The figure was significantly higher than the 120,000 units that THQs Finding Nemo (a 5-million unit seller) sold in its debut last May. Activisions ASP for all units sold was $32.96, down 4% from last years $34.20. We believe that Activision's future success remain tied to the performance of its upcoming games, including Doom 3 and Spider-Man 2, each of which we expect to sell more than two million units.
Atari (ATARBuy)
Releases during May: 5/4 Transformers (PS2).
May Retail Sales--$11 million
WMS Estimate--$11 million
Ataris market share increased sequentially from 3.3% last month to 4.6%, along with retail sales from $10 million to $11 million (compared with $54 million last May). Sales were led by Transformers, which sold 87,000 units compared with our estimate of 50,000 units. Catalog sales of Backyard Baseball and various Dragon Ball Z titles sold well. Ataris ASP for all units sold was $26.89, down significantly from last years $41.20. This decrease reflects an unfavorable shift in the mix of Ataris sales toward lower-priced new and catalog games compared with much higher selling prices recorded by Enter The Matrix last year. We believe that Atari's near term success depends upon the consumer reception to its DRIV3R game, which was released today.
Electronic Arts (ERTSBuy)
Releases during May: 5/1 UEFA Euro 2004 (PS2, Xbox, PC), 5/25 Harry Potter and the Prisoner of Azkaban (GBA, PC).
May Retail Sales--$41 million
WMS Estimate--$60 million
Electronic Arts market share decreased sequentially from 24.5% last month to 16.7%, along with retail sales from $77 million to $41 million (compared to $45 million last May). Fight Night and MVP Baseball continue to sell well with another 155,000 and 140,000 units sold respectively, while the company's other catalog titles performed significantly below our expectations. The companys ASP for all units sold was $34.52, down 11% from last years $38.88, but still higher than the industry average, reflecting Electronic Arts ability to maintain a favorable mix of sales toward higher-priced new releases.
Midway Games (MWYHold)
Releases during May: None.
May Retail Sales--$9 million
WMS Estimate--$13 million
Midways market share decreased sequentially from 5.9% last month to 3.7%, along with retail sales from $19 million to $9 million (compared with $5 million last May). The companys sales were led by NBA Ballers, which sold 157,000 units in its second month
of release. Sales of The Suffering and other catalog titles were significantly lower than we expected. Midways ASP for all units sold was $30.62, up sharply from last years $25.22. This increase reflects a considerable shift in the mix of Midways sales toward higher-priced new and catalog games this year. We believe that the early success of The Suffering and NBA Ballers indicates that Midway has executed well on its strategy of developing fewer, higher quality games, and we think that its recent sales performance
portends good things to come from the company over the remainder of the year.
Take-Two Interactive (TTWOBuy and Focus List)
Releases during May: 5/3 Red Dead Revolver (PS2, Xbox), 5/3 Serious Sam Next Encounter (GC), 5/3 Serious Sam Advance
(GBA).
May Retail Sales--$19 million
WMS Estimate--$14 million
Take-Twos market share increased from 3.8% to 8.0%, along with retail sales from $12 million to $19 million (compared with $13 million last May). Take-Two delivered results above our expectations, with Red Dead Revolver selling 222,000 units compared to
our 100,000 units forecast. Take-Twos ASP for all units sold was $32.57, up from last years $29.19. This reflects a shift in the mix of the companys sales toward lower-priced new and catalog games. We continue to believe that many investors await the release
of the next installment in the GTA series, GTA: San Andreas in October.
THQ (THQIBuy)
Releases during May: 5/25 Sonic Advance 3 (GBA).
May Retail Sales--$14 million
WMS Estimate--$20 million
THQs market share decreased from 6.5% to 5.5%, along with its retail sales from $21 million to $14 million (compared with $18 million last May). THQ sales were lower than we expected, with catalog sales weaker than we anticipated. Sonic Advance 3, released late in the month, sold through a relatively modest 21,000 units, contributing to the companys overall weak sales. We expect THQ to benefit from strong Nintendo GBA SP sales over the coming year. THQs ASP for all units sold was $24.42, down 5% from last years $25.72. We expect the companys ASP to increase in June, as we believe that the company is executing well on its plan to diversify into higher priced console games, and we expect this trend to continue over the coming months.
CONCLUSION
May overall retail sales were significantly lower than our expectations, coming in at $245 million compared to our estimate of $265 million. Only three titles sold over 100,000 units, compared with our estimate of eight, and only one of these was a new release. We were also disappointed with relatively weak year over year unit sales, which we believe is attributable to the relatively low number of SKUs released to date (down 20% year-over-year). We expect sales growth to resume in June, and anticipate that overall industry growth will rebound to 10% for the full year as the console installed base continues to expand, with strong sales of several blockbuster games over the rest of the year (such as Sonys Gran Turismo 4, Take-Twos GTA San Andreas, and Microsofts Halo 2). We expect video game sales in June to be driven by the new releases of Activisions Spider-Man 2 (PS2, Xbox, GC, GBA, PC), Ataris DRIV3R (PS2 and Xbox), Electronic Arts Harry Potter and the Prisoner of Azkaban (PS2, Xbox, GC), and THQs Full Spectrum Warrior (Xbox).
Although Electronic Arts sales disappointed us, we expect the companys sales growth to resume as its key releases are introduced during the balance of the year. Activisions, Acclaims, and Ataris results were about in line with our estimates and we do not expect significant movement in the share of any of these companies as a result of the May data. Midways and THQs results were lower than our expectations, while Take-Twos were better than we expected, though we expect that investors will continue to focus on the key releases from each company over the balance of the year. We continue think that our Buy rated companies (ATVI, ATAR, ERTS, THQI and TTWO) are in good position to grow market share in the coming year, and expect further share appreciation in the next several months.
May 2004 Market Share Rankings (Top 30 Companies)
Total (millions) 245 $
Company Projected $ 's Market Share
1 ELECTRONIC ARTS 41 $ 16.7%
2 NINTENDO OF AMERICA 25 $ 10.1%
3 TAKE 2 INTERACTIVE (CORP) 19 $ 8.0%
4 ACTIVISION 17 $ 7.1%
5 SONY (CORP) 14 $ 5.9%
6 THQ 14 $ 5.5%
7 ATARI 11 $ 4.6%
8 VIVENDI UNIVERSAL (CORP) 10 $ 4.1%
9 MIDWAY 9 $ 3.7%
10 KONAMI OF AMERICA 9 $ 3.5%
11 CAPCOM USA 8 $ 3.4%
12 UBISOFT (CORP) 8 $ 3.2%
13 EIDOS INTERACTIVE (CORP) 8 $ 3.1%
14 MICROSOFT (CORP) 7 $ 3.1%
15 SEGA OF AMERICA 7 $ 2.7%
16 NAMCO 5 $ 2.2%
17 KOEI 4 $ 1.7%
18 ACCLAIM ENTERTAINMENT (CORP) 3 $ 1.3%
19 MAJESCO 3 $ 1.1%
20 LUCASARTS 2 $ 1.0%
21 SQUARE ENIX USA (CORP) 2 $ 0.9%
22 TECMO 2 $ 0.8%
23 NATSUME 2 $ 0.7%
24 MULTIPLE VIDEO GAME MANUFACTUR 2 $ 0.6%
25 MASTIFF 2 $ 0.6%
26 BUENA VISTA GAMES 1 $ 0.6%
27 CODEMASTERS 1 $ 0.4%
28 BETHESDA SOFTW ORKS 1 $ 0.4%
29 INTERPLAY PRODUCTIONS 1 $ 0.3%
30 SONY ONLINE ENT. 1 $ 0.3%
