Report blames used games for core sales decline

A new report by analyst group Cowen and Company has praised the introduction of the "online pass" popularised by Electronic Arts, suggesting that it could result in higher industry margins over the next 18-24 months.

The report specifically blames second-hands sales for a 20 per cent drop in Xbox 360/PlayStation 3 sales in 2009, compared to PlayStation 2/Xbox sales in 2003.

Although the Wii and portable formats are recognised as driving most of the industry growth in the current generation the report points out that "most of the publishers' margin-driving hit games" are released for the 360 and PS3.

The combined US PS2/Xbox userbase in 2003 was put at roughly 30 million units, resulting in around 106.9 million units of software sold - according to NPD data. The combined PS3/360 userbase in 2009 is estimated to be almost identical to 2003's equivalent but software sales have been only 85.5 million

Analysts Doug Creutz and Adam Nolly also contend that average second month sales of new PlayStation/Xbox software has fallen by 62 per cent since 2001. In a study of 20 new titles Final Fantasy XIII was found to have the worst second month drop-off, with a fall in sales of 93 per cent, with Operation Flashpoint: Dragon Rising and Halo Wars also above 90 per cent.

The report highlights "stubbornly high hardware price points" as one reason for the drop in both overall and second month sales, but identifies second-hand sales as the core problem.

In the US retailer GameStop is identified as benefiting most from the increase in the used games market. The company has seen used game sales rise from $403 million in 2003 to $2.39 billion in 2009 - estimated to be 85 per cent of the total second-hand market in the US.

Rather than being adversely affected by competition from casual games and new platforms such as the iPhone, the report suggests that demand for traditional games has risen "robust" over the last decade, but with used game sales accounting for a disproportionate percentage of this increase.

The report suggests that online passes are an effective way to increase both new game sales and digital content sales. The analysts predict that the online pass will be grudgingly accepted by both GameStop and consumers, with the former expected to accept that it is preferable to a faster move towards digital distribution.

Although analysts in general have been in agreement that online passes are a useful way to combat second-hand sales, in a recent VentureBeat interview Nintendo president and CEO Satoru Iwata blamed the quality and originality of new games for recent decreases in sales.

"Looking at the product line-ups this year, these titles might have been big hits three years ago. But now this year, they are not selling that much," he said. "In other words, people get tired of games more quickly than they did before."