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Once thought to be somewhat sheltered from the effects of the global economic recession due to their escapist appeal, video games have recently begun to show signs of sluggish sales in the United States. Last month's hardware and software sales numbers, released by the NPD Group, show a massive decline in sales when compared with April 2008, a year earlier.

Total video game related sales produced .03 billion at the cash registers last month, compared to .24 for April 2008, a decline of 17 per cent. Most of the decline can be attributed to weakness in software sales, which were down 23 per cent compared with the previous year.

NPD commentator Anita Frazier struck an oddly optimistic tone when she stated that the drop in hardware sales was expected due to 2008 being an exceedingly strong year. However, the only thing keeping the year-over-year contest even remotely close was the launch of the Nintendo DSi, which sold more units this past April than any of the other consoles combined. Without it, the hardware numbers would have been a complete disaster.

"Despite being compared against last year, when several big title releases drove both software sales and hardware acquisition, April 2009 was down only 5 percent on a unit sales basis, with the remainder of dollar sales decline coming from reduced average selling prices. Easter fell in April this year which undoubtedly helped cushion the decline.

While the continued difficult economic environment is a factor to consider, our monthly Consumer Spending Indicator study still shows that video games is the category that consumers tell us they're least likely to cut their spending on in coming months."

Analysts had to look hard for bright spots in the sales numbers outside of Nintendo. Sony's ageing Playstation 2 console enjoyed a minor resurgence following a price cut that brought the budget console below 0 USD. Sony's high-end Blu-ray equipped PS3 did not do as well in April, however, selling fewer units than it did in April of 2008. Many analysts have suggested that the bloom may well be off of the Nintendo Wii, after it experienced its second significant decline in two months.

The video game industry finally appears to have been affected by lowered consumer confidence in the wake of economic uncertainty. While it may be true that American families are spending more time indoors and holding off from planning expensive trips to Disneyland, sales figures suggest that they may be tightening their digital entertainment purse strings as well. Competition will be fierce at this year's E3 conference in Los Angeles, but we expect software and hardware manufacturers to maintain a relatively conservative outlook heading into 2010. For investors that means industry consolidation, risk aversion and a prolongation of the current hardware cycle. For gamers it means bigger-budget, low risk sequels that do not represent a major financial risk to publishers. Look for more installments from hit franchises like Shadow of the Colossus and Grand Theft Auto in 2010.

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