Video Game Sales on Track for Record Year

Blasting its way into the mainstream, the video game industry is defying predictions of slack consumer spending and appears on track to hit record sales this year of $12 billion.

Supported by a growing base of consoles in U.S. homes, game software sales grew by more than 20% over the Thanksgiving weekend compared with the same period last year, according to the Interactive Entertainment Merchants Assn.

Hal Halpin, president of IEMA, said he expects to report a 23% increase in software sales for the year. His Wilton, Conn., trade group represents Wal-Mart Stores Inc. and other retailers that account for 90% of the industry’s business.

The IEMA projection of $12 billion in total sales, which includes software and console revenue, compares with less than $10 billion last year. By comparison, Hollywood box-office receipts last year totaled $8.4 billion.

Driving sales of games are the popularity of Sony Corp.’s PlayStation 2 and Nintendo Co.’s Game Boy Advance. Sony sold nearly 533,000 consoles during the Thanksgiving week, or 60% more than in the same period last year. That brought the total number of PlayStation 2s in North America to 14.5 million, according to Sony spokeswoman Molly Smith. Sony estimated that it would see sales of 20 million PlayStation 2s by March 31.

“We’re well on track with our projections,” Smith said.

Also moving briskly was the Game Boy Advance, which sold 1 million units in the 10 days ending Sunday. Year-to-date sales of the hand-held system are up 140%, according to Nintendo spokeswoman Perrin Kaplan.

Microsoft Corp. did not release sales of its Xbox console.

Although the results are early, and sales could peter out over the next three weeks, analysts remain confident about the industry’s momentum.

“We’re going to have a phenomenal Christmas, and last week just bears that out,” said Michael Pachter, a research director at Wedbush Morgan Securities who visited 37 video game retailers across the country last weekend. “The stores were just jammed, and everybody was buying.”

Consumers snapped up copies of “Grand Theft Auto: Vice City” for PlayStation 2 and “Splinter Cell” for Xbox, said Peter Roithmayr, vice president of merchandising for Electronics Boutique, a West Chester, Pa., chain that specializes in computer and video games.

Also popular were “Tony Hawk 4,” published by Activision Inc. in Santa Monica; “Mortal Kombat: Deadly Alliance,” from Midway Games Inc. in Chicago; “WWE Smackdown: Shut Your Mouth,” from THQ Inc. in Calabasas; and “Bond 007: Nightfire,” from Electronic Arts Inc. in Redwood City, Calif.

With more than 1,000 games introduced this year, competition for retail shelf space has been fierce, leading some analysts to predict that software publishers may begin discounting titles before the holidays end, according to a UBS Warburg report released this week.

Console companies also are spurring sales by offering systems bundled with software at discount prices. Nintendo, for example, has been selling a bundle that includes its GameCube console, “Super Mario Sunshine” game and a memory card for $189, about $30 less than if the items were bought separately. Microsoft is selling its Xbox with two free games from Sega Corp.

“What we’re seeing more of are bundles and promotions, a lot more than last year,” said Mike Wallace, an analyst with UBS Warburg. “From an industry standpoint, things are going well. But from a competitive standpoint, it’s a lot tougher because there are so many more games out this year.”