EEDAR - Retail Sales Preview - Guitar Hero sales falling

Analyst Comments from Jesse Divnich, Director of Analyst Services, EEDAR.

Last Month’s Success

We are extremely pleased with last month’s success on our sales forecast. Last month EEDAR forecasted sales to be up 36% over last year; actual was 35% (Source: The NPD Group).

The prior month EEDAR forecasted sales to be up 1%; actual was -6% (Source: The NPD Group).

Our individual publisher forecasts have also had similar success with our forecasts being 90% accurate on our directional analysis on the major publishers for the past 4 months.

While the November month is considered by most Analysts to be the most difficult to forecast, we believe, again, our forecasts should come in-line with results.

Software Sales

For November, we expect software sales to be $1.34 billion, up 3% year-over-year. Keeping in mind that November 2008 only had two days of the holiday season compared to nine days last year (Black Friday occurred on the 23rd last year).

This is a rare event as the last time we had a nine day total holiday season in the November month was in 2001. For reference, 2002 posted massive growth from August through October, but experienced a similarly low year-over-year growth in November, which only had the usual 2 days of the holiday season.

Our forecast models and retail channel checks are indicating that the same phenomenon will occur this year.

Interesting Facts

§ November 2007 had 188 new releases; 2008 will have 210; an 11% increase over last year (EEDAR Database).

§ We expect 47 titles this year to surpass 100,000 units.

§ The Sony PSP is the only next-generation home/portable system that is expected to produce negative year-over-year software growth.

Hits

Call of Duty: World at War, Gears of War 2, Left 4 Dead, Resistance 2, and Animal Crossing: City Folk were all titles that delivered sales at or above expectations.

On Call of Duty: World at War: We expect sales to be up, slightly, series-over-series at 2.1 million units for the month, which we consider to be an impeccable accomplishment given the run-away success Call of Duty 4 had last year. Keep in mind that our forecast includes the PS2 and Wii version, which did not exist last year.

For the entire holiday season, however, we expect sales to likely be flat to down series-over-series, and especially be down in the long-term. We believe the success of Call of Duty 4 help front load a lot more sale into the first few weeks for Call of Duty: World at War and also believe that Call of Duty: World at War won’t achieve the similar post-holiday success that Call of Duty 4 had. Nonetheless, this title is performing well above our expectations and that of the markets.

On Gears of War 2: We expect sales to exceed 2 million units for the month, and maintain our guidance that Gears of War 2 will be the best selling SKU this holiday season.

On Left 4 Dead: We expect sales to come in at 300,000 units, which we considered to be incredible, bearing in mind the game is primarily focused on one feature (Co-op). We believe Left 4 Dead’s success will open the eyes of a lot of publishers and developers and expect more titles in 2009 and 2010 to have stronger co-op features to build on Left 4 Dead’s success.

Most Analysts—including yours truly—doubted that Animal Crossing: City Folk would achieve any type of success in the market. Retail channel checks, however, are indicating that we should expect sales north of 200,000 units. While it may not be selling at the same levels of Wii Fit, Super Smash Bros. or Mario Kart, we believe it at least met Nintendo’s expectations.

Misses

We believe Mirror’s Edge, Need for Speed: Undercover, WWE SmackDown vs. Raw, and Guitar Hero: World Tour, will post disappointing sales.

We believe that low quality scores and low replay value are to blame for Mirror’s Edge’s poor sales. However, If EA can improve quality and release a sequel during a less congested time-period (off-holiday), we believe that Mirror’s Edge 2 could achieve some market success.

We believe that a combination of brand fatigue, lower quality scores, and a highly competitive holiday schedule all played a role in hindering sales for both Need for Speed: Undercover and WWE SmackDown vs. Raw. We expect a 20% decline in the WWE series in November and a 10% decline on Need for Speed, compared to last year.

Guitar Hero reaching its peak

Probably the most talked about issue this month is the lack of sales for Guitar Hero: World Tour.

Currently, we expect unit sales to decline by more than 50% series-over-series for November.

This is coming off the October month where series-over-series units declined by more than 60%. We do believe that supply issues on the complete band kit were a problem, but our sources at VideoGamePriceCharts.com indicate that reseller prices on ebay.com are beginning to dip below retail MSRP, which is a strong indication that demand and supply are currently in equilibrium. Even if supply was not an issue, series-over-series unit sales would have still been down over 40%.

To further add to the problem, a lot of retailers had black Friday deals on Guitar Hero III to deplete excess inventory, which hindered and cannibalized sales for Guitar Hero: World Tour.

It is pretty clear that the series has already reached its peak among the mass-market audience.

Of course, we are not suggesting that the Guitar Hero (or Rock Band) franchise will be disappearing anytime soon.

In fact, we expect Guitar Hero and Rock Band releases for the next 10 years as they will always have a large and loyal market base, just as DDR is still today a very profitable franchise for Konami, even though that series reached its peak a long time ago.

Hardware Sales
We expect sales next-generation home/portable unit sales to increase by 2% year-over-year. The majority of those sales will be driven by a 47% increase in Wii units year-over-year. Both the PS3 and the PSP will post double digit year-over-year declines. We expect the DS to post an 11% decline in units, but we believe DS sales were impacted, more than any other console, because of the shift from a nine day holiday season month to two days.

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