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Armchair Analysis: Fueling a Decline

Posted by: Peter Skeritt at 4/11/2011 7:31 AM
The watchword for April is going to be "caution". 

As fuel prices continue their skyward climb, other costs of living are beginning to see some effect. Food prices are now climbing, as are the costs of certain services. Consumers are spending more money on necessities and the pool of leftover cash is dwindling. This lack of disposable income is bound to have an adverse effect on sales of console video game hardware and software this month and, coupled with a fairly limited number of games released, sales numbers could be miserable. 

What are the problems?
  • 3DS hangover: Although we don't have firm sales numbers for March yet, trends are indicating that demand for the 3DS has cooled considerably as we approach the middle of the month. The hardware's high price point is one major detractor, and when combined with a weak software lineup, it's a "wait and see" formula for Nintendo's new handheld. 
  • Quiet month: With the exception of three major releases on April 19th (Mortal Kombat, Portal 2, SOCOM 4), the rest of the month is fairly subdued when it comes to software releases. While there are definitely more games than these three that are slated to hit stores this month, the overall buzz is hushed compared to March and its plethora of games.
  • Gas over $4: The $4 per gallon mark is perceived by many to be a psychological barrier when it comes to consumer spending. Once that threshold is passed, spending shifts more to necessities and less on entertainment or frivolous purchases. Some areas in California are well over $4.50 already, and Chicago's average is $4.11. As oil and gas prices climb, that takes potential revenue away from video games. The effect will be felt. 
It's not too early to predict a YOY (year-over-year) sales decline for April, even at this early date. What may be even more interesting will be to see how sales look for the balance of the second quarter, which ends on June 30th. It's possible that a heavy release month in May and console price cuts in June will limit the damage that inflation could wreak on video game sales, but it's certainly not a guarantee as fuel prices usually don't peak until late May... and there's no end in sight currently for these increases. 

One last thing to keep an eye on for April is the sales battle that will take place between Mortal Kombat, Portal 2, and SOCOM 4 starting next week. It's safe to say that most consumers won't be able to afford all of them, so which one comes out on top? All signs point to a strong performance by Mortal Kombat as it's multiplatform and has been preceded by strong positive buzz prior to release. Portal 2 has been making gains of its own over the past couple of weeks with increased numbers of reservations. SOCOM 4 appears to be the weakest link of the three. It's platform-exclusive and it's unclear as to whether the IP has the same strength and visibility that it had during the PlayStation 2 era. The SOCOM franchise also has to overcome its last game, which was poorly received by critics and consumers alike. We'll see how this unfolds when sales numbers for April are released next month, but I can't see all three games being sales successes this month. 

Look for more Armchair Analysis soon, as sales numbers for March are due in the next week or so. In the meantime, feel free to sound off with your own analysis in the Comments section!