Kaufman Previews November Video Game Sales Results (ATVI, ERTS, TTWO, THQI)

Kaufman Brothers recently released an industry report on the Cable, Satellite, and Interactive Media sector, specifically a preview of NPD's November video game sales data.

Companies focused on in their report include, and are limited to, Activision Blizzard (NASDAQ: ATVI), Electronic Arts (NASDAQ: ERTS), Take-Two Interactive (NASDAQ: TTWO), and THQ, Inc. (NASDAQ: THQI).

Kaufman says that the industry trends see a more difficult cycle for third-party publishers, and stock selection is more critical.

November will see a decline of 13% for video game sales, to $2.53 billion. Of this, Software sales should be up modestly 3% to $1.49 billion, however, this increase will be offset by a 10% drop in Accessories to the tune of $230 million and a 33% drop in hardware sales to $810 million.

A big factor in Kaufman's software sales estimate is Activision’s Call of Duty: Modern Warefare 2 (editors note: this game sold 4.7 million copies its first weekend X $60 per game = $310 million…yipes). Other players on the list are Nintendo’s Super Mario Bros. for Wii, and Ubisoft’s Assassin’s Creed II.

The firm also notes that the Wii will see a dramatic pull back in sales, as people that wanted the gaming system probably have one by now. Lower Xbox360, PSP, and PS2 sales drag hardware sales down, slightly offset by a resurgence of PS3 sales.

Kaufman's estimated 3% rise in software sales is down from a 10% rise predicted at the beginning of the month. The Wall Street consensus currently calls for 2% rise, with estimates ranging from between (7%) and 4%. Kaufman’s projected top 10 sellers for November are (in order):

1. Activision’s Call of Duty: Modern Warfare 2 (Xbox);
   
2. Activision’s Call of Duty: Modern Warfare 2 (PS3);
   
3. Nintendo's New Super Mario Bros. (Wii);
   
4. Ubisoft's Assassin's Creed II (X360);
   
5. Nintendo's Wii Sports Resort (Wii);
   
6. EA's Left 4 Dead 2 (X360);
   
7. Nintendo's Wii Fit Plus (Wii);
   
8. Nintendo's Legend of Zelda: Spirit Tracks (DS);
   
9. Assassin's Creed II (PS3);
   
10. Sony's Uncharted 2: Among Thieves (PS3).

In the Hardware group, Kaufman sees Nintendo with a stronghold on the top two spots, selling 1.35 million DS units and 1.1 million Wii units. They see a 65% increase in PS3 sales, and a 36% decline in Xbox 360 sales. Downers also include PSP, (22%), and PS2, (34%).

For December, Kaufman lowered their software forecast to $2.75 billion, flat with the 2008 level. The firm also sees a 2% drop for Q409, and 7% drop for FY09.

Factors which the firm believes are working against the industry are:

• record-high teen unemployment;
  
• lower-cost digital alternatives making a run;
  
• a drop in the music genre; and
  
• tighter inventory management

Concluding the note, Kaufman said that "the next shoe to drop could be pressure on ASPs due to price cuts at some of the largest retailers."

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