Video game industry caught in downward spiral

Wedbush Morgan analyst Michael Pachter has dubbed 2009 a “horrible year” for public video game companies.

“Although a small rebound to sales growth in September sent a signal that the console cycle is not quite dead yet, investor confidence remained shaken when October sales again reverted to a year-over year double-digit decline,” Pachter explained in an industry note obtained by TG Daily.

“Historically, video game publishers have traded at a premium to the overall market, as investors generally accepted that the video game industry’s growth prospects were superior to those of the market as a whole.

“But clearly, conventional wisdom has been challenged throughout 2009, as monthly software sales declines have become the norm, leading many investors to believe that the industry is in a state of secular decline.”

Pachter attributed the slide in sales growth to the industry’s struggling music genre and console price fatigue. ?

“[However], the [recent] console price cuts triggered a rebound in unit sales, and we expect solid hardware unit sales in November and December, with the Xbox 360 and DS likely flattish year -over -year, Wii and PSP sales down significantly and PS3 sales up. 

??”While we expect software sales growth to return to positive territory in November, we [forsee] a reversion to negative sales growth in December, as the music category appears to be down significantly.

??”Once we’re past the holidays, we expect solid sales gains each month through October 2010. If we’re right, we think that multiples for the group will begin to expand, and we anticipate that the video game publisher group will outperform the market as a whole substantially during the first quarter of 2010.”?

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