Metue.com

Sony and Nintendo have generally been moving in different directions, one finding success while the other floundered and restructured.   Heading into the current quarter, with consumer spending weak and a strong Yen threatening margins, there were hints that might be changing (at least for the very near term).

Earnings results in, it has.  Both Sony and Nintendo reported Thursday and both struggled. 

At Nintendo, revenue fell 40% to 253b Yen.  Earnings plunged 61%.     Unit sales of Nintendo’s otherwise infallible Wii fell 57% globally compared to the same period last year. 

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Amidst solid annual earnings last April, French game publisher Ubisoft waved a caution flag and warned its year over year sales results would likely slip for the quarter ended June 30th .   Maybe they should have grabbed a megaphone to broadcast the revenue warning too.

Today, the company reported first quarter sales 12.6% below guidance. (release (PDF))

For Q1 2009-10, Ubisoft’s sales came in at EUR 83m, down 50.6%.

The company blamed a combination of market conditions and surprise sales trends for the result. Casual games for the DS were among those singled out

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Analysts predicted June would turn out weak gaming sales compared to last year. They got what they predicted and then some.  According to NPD data released Thursday, the sector returned its fourth consecutive month of year over year sales declines with total revenue dropping 31% to $1.17b.

The reversal of fortune has provoked some to proclaim the recession has finally caught up with the industry so often deemed “recession resistant.”    Other’s are taking a more measured view. 

The truth probably lies somewhere in between: the industry results reflect the combination of slowing purchases (the economy) and also, a comparatively weaker product slate.  Product shortcomings are particularly evident in the software segment where recurrent top ten hits (e.g. Nintendo’s “ever-green” titles) are getting stale, and new releases haven’t yet matched the same high bar.  A similar phenomenon was apparent last month in May’s result.

Referencing the difficult comparisons year over year, NPD’s analyst Anita Frazier attributed part of the fall in June to trouble in matching this year’s offerings to last year’s record setting results.  (June 2008 sales were up 61% over June 2007).  She also commented that June was one of the first months where she thinks “the impact of the economy is clearly reflected in the sales numbers.”

A comparative look at the numbers does seem to support Frazier’s remarks. The data, paints a picture that’s more tempered than steep revenue declines indicate on first glance but it also indicates areas of concern. 

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If there is any one question essential to a corporate turn-around it’s: “who are we?”  If a company’s management can’t answer that, there’s no place to go. A company without a clear identity, a place with only a muddled mission or an abstract sense of direction, is a company with no chance to get back on course.

At MySpace, where things are in dire need of refreshment, new chief Owen Van Natta is asking exactly that question, and he’s bringing in more new staff to help sort it out.

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For a top game publisher to abandon a console platform before the midway point in the hardware’s lifecycle is extremely unlikely.  Hardware makers and software publishers have a sometimes conflicted but always mutual need for each other’s services.  It’s symbiotic; especially once they’re both invested.  Even so, the two aren’t above venting frustrations.    

That happened Friday.  In an interview with the UK Times, Activision’s CEO Bobby Kotick went to the press for leverage.  Like a diplomat threatening war (with no real intention of starting one) he fired a shot at Sony to let the company know in no uncertain terms there’s concern about the PS3 platform’s anemic sales.

According to Kotick, Activision paid Sony in the neighborhood of $500m last year in fees and he wants a better, make that much better, return on investment.  He wants Sony to cut the price on the console to help stimulate demand.  He thinks it’s too expensive to develop for and too expensive for consumers. He wants change.

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At the gaming industries big convention, E3, a lot of the buzz was software driven. The chatter and talk was about the games on the horizon.  Who’s building what, how well it plays, how fast, and how fun.   Looking to last month, the industry didn’t generate the same kind of excitement in the retail stores during May.

According to the latest batch of retail data released Thursday by tracking firm NPD, sales fell off 23%, to $863.4m on the month.  It was the third month of declining sales activity and the first month the industry turned out a revenue result below $1b in total since August of 2007.

Normally at Metue.com we publish a review of the NPD findings right away. This month, we took a few extra days to give it a closer look.

May is a historically weak month for games and to a certain extent, some weakness was expected.  NPD and a number of industry analysts had largely predicted a down result.   They note that year over year comparisons in the industry often don’t match because of differing product supply levels and the variable scheduling of when hotly anticipated new software releases hit the market.   One year could be boosted by a just released blockbuster (like last year) while another coasts on solid (but not comparable) sales of older catalog hits. 

In May, those cyclical elements and the quality of one year’s slate versus another were surely in play, but we think there may be clues in the data that show the results are a little more complicated.

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In February, Blockbuster announced plans to roll out a pilot program for mail-order video game rentals sometime in the second quarter.   It was confirmed that this would be an add-on to the company’s “Total Access” movie rental program, not a standalone offering, but otherwise details were sparse. Today, Blockbuster provided an update. The company said in a statement that a pilot of the game rental service will begin June 30th in Cleveland. 

Subscribers opting-in to participate will be able to add Wii, PS2, PS3 and Xbox 360 games to their online rental queue for an incremental monthly fee.   The fee, which hasn’t been disclosed, will only be charged for billing cycles in which the customer actually rents games.

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