A report issued by Wedbush Morgan Securities analyst Michael Pachter makes predictions that the sales slump suffered by the video games industry over the holiday season will continue until well into 2006, due to waning demand for current-generation games and a lack of next-generation systems and titles to make up the difference.
"Although the data may be perceived positively and may initially alleviate investor uncertainty about the effects of the console transition," said Pachter in the report, "we think that the 19.4% decline in unit sales for current generation software indicates that a far more dramatic and persistent slowdown in software sales is on the horizon."
Pachter cited the high software-to-hardware sales ratio for the Xbox 360 as a reason why the November and December sales were as high as they were: "If not for the remarkably high attach rate for Xbox 360 software (4.27 units of software for each hardware unit sold in December; 4.08 ratio since launch), we believe that the December results would have been worse," said the analyst.
As further support for his theory, Pachter expressed doubts that the Xbox 360 could make up for a deficit in the six-month sales total equivalent to 2005's. "We think that it is important to note that total U.S. console and handheld software sales over the first six months of 2005 were approximately $2.36 billion; the current rate of next generation software sales implies that Xbox 360 software will total less than 20% of this level over the next six months, indicating the potential for year-over-year sales declines for the foreseeable future."