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Video game slide persists

Sales fall in 2010 for the second year in a row. Both hardware and software suffer.

January 14, 2011|By Alex Pham, Los Angeles Times

If the video game industry were an arcade, you would be hearing the disappointing bloops that signal the player to try again.

For the second year in a row, U.S. video game sales posted a decline, down 5.7% to $18.6 billion in 2010 from $19.7 billion in 2009, which was a decline from $21.4 billion in 2008, according to a report released Thursday by the NPD Group.

Both consoles and games were walloped as consumers curtailed spending in an uncertain economy. Console sales fell 12.5% to $6.3 billion in 2010, while software sales fell 5.6% to $9.4 billion.

"Hardware sales were down 12% in units, likely due to no price cuts and the continuing recession," said Michael Pachter, an analyst with Wedbush Securities. "And the decline in hardware drove the decline in software sales."

The slump followed reports last week that U.S. music sales were also down in 2010, off 2.4% in terms of units, according to Nielsen SoundScan. It was the first drop in music industry sales since 2003.

But the news could have been worse for games. When sales of PC games, downloadable games and online games were thrown in with console game sales, sales were down just 1% from 2009. A report released Wednesday by New York research firm eMarketer estimated players spent $510 million last year buying "virtual" goods for social games such as Farmville.

"The increasing number of ways to acquire the content has allowed the industry to maintain total consumer spend as compared to 2009," NPD analyst Anita Frazier said.

Another bright spot occurred in a category that is often overlooked — video game accessories, which in years past included extra game controllers or keyboards. This year, however, accessories took off, gaining 13% to $2.9 billion as Sony Corp. introduced its Move motion controller for its PlayStation 3 and as Microsoft Corp. began selling its Kinect controller for the Xbox 360.

Kinect also fueled sales of the Xbox 360 in December, some of which came bundled with the new motion- and voice-sensing controller. Xbox 360 sales jumped 42% to 1.86 million units in December, from 1.31 million in December 2009.

Sales of Nintendo's Wii, however, suffered a 38% dive to just 2.36 million units in December, down from 3.81 million a year earlier. Sony's PS3 also declined, albeit less precipitously. It sold 1.21 million PS3s in December, down 11% from 1.36 million.

With the exception of the Xbox 360, declining console sales will put pressure on manufacturers to lower their prices, particularly for the Wii, which sells for $199.99 and is rapidly losing steam, analysts said.

"The Nintendo Wii business looks increasingly like a gift purchase business, which means they will have to have a price cut in order to sustain it during non-gift-giving seasons," said John Taylor, managing director of Arcadia Investments.

alex.pham@latimes.com

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