The Next Great Game

Call of Duty’s longterm sales effect may be diminishing, says analyst

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The lack of huge hits isn’t the only culprit for low game sales at retail recently — Call of Duty‘s “shortened tail” has also been a key factor, says PiperJaffray analyst Michael Olson.

He forecasts that Call of Duty: Modern Warfare 3, the most recent entry from Activision’s popular multiplatform first-person shooter franchise, isn’t maintaining the same long tail with sales that 2010′s Call of Duty: Black Ops enjoyed.

Olson says that while Black Ops was the fifth largest selling title in March 2011 (four months after shipping), Modern Warfare 3 will likely be the eighth largest selling game in March 2012, and will sell less than half of what its predecessor pushed a year ago.

“We believe big name titles are no longer able to sustain ‘fat tails.’” says the PiperJaffray analyst. This ‘thinning tail’ phenomenon is driven by 1) casual gamers leaving the market, 2) a steeper pre-sale and up-front curve, and 3) cannibalization from the pre-owned market.”

Due to the shortened and thinned tail of Call of Duty, among other factors, Olson agrees with fellow analysts that The NPD Group will report a significant drop in software revenues at U.S. retail on Thursday, when it releases sales data for March 2012.

He predicts that software revenues fell by 26 percent year-over-year in March 2012 to $545 million — Wedbush’s Michael Pachter expects a 23 percent drop, Cowen and Co.’s Doug Creutz expects a 22 percent drop, and Sterne Agee’s Arvind Bhatia expects a 25 to 30 percent drop.

All of the mentioned analysts concur that last month’s releases, which include Mass Effect 3 and Street Fighter X Tekken, were weaker than the titles shipped in March 2011 (e.g. Pokemon Black/White, Dragon Age II), resulting in significantly lower software revenues from retail in March 2011.

If the analysts’ predictions are correct, the game industry will have suffered four consecutive months of declining software revenues. Sterne Agee believes game sales will continue to endure a double-digit decline in April, but will improve in May thanks to big releases like Max Payne 3 and Diablo III...

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