August 2009 data on video game sales reveal disappointing results. Market research company NPD Group recently came out with data on the gaming industry which indicates that sales of gaming software declined by 15% in August 2009 compared to the same period last year. This was historically one of the weakest periods on record for the gaming industry.

The industry witnessed a slump in sales for a six-month period as well, which makes it even more difficult to assess whether the gaming industry will be able to register growth this year. The overall sales of the gaming sector for year to date 2009 declined 14% to $9.07 billion.

On the other hand, “Madden NFL 10″ underperformed and sales declined compared to last year. This apart, unit sales of Playstation 2, Playstation 3 and Xbox 360 declined by 15% compared to the year ago period.

To combat the weakness in the gaming market, leading hardware companies Sony (SNE) and Microsoft (MSFT) have reduced the price of their Playstation 3 and 360 Console, respectively. The price cuts increased PlayStation 3 unit sales by 72% in August to 210,000 units compared with July, while Microsoft’s Xbox 360 units increased 6% from July to 215,400 units.

This sequential increase in sales of gaming units may be positive news for gaming companies, although it is likely to hurt their margins and profitability. On the other hand, we do not expect this sequential growth rate to be sustainable, particularly as we are going through a recession and gaming devices may be considered to be low-priority items in the current market scenario.

So people may be a bit cautious about spending on something which is not a necessity. Price cuts may have created temporary demand for the game manufacturers, but sustaining that demand will be a challenge.

Zacks Investment Research
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