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Video game retail sales plunged in Apr 2013. According to market research firm NPD, sales decreased 25.0% to $495.2 million from $630.0 million reported in Apr 2012. However, sales in dollar terms were almost half from $992.5 million reported in March and declined massively from $810.0 million reported in Feb, 2013.

Software sales declined 17.0% year over year to $254.3 million in April. This was much worse than $602.4 million reported in March and $369.9 million reported in February. Although sales decline was massive in the month, NPD noted that new games launched in Apr 2013 jumped 118% in unit sales and 130.0% in dollar sales.

Injustice: Gods Among Us from Warner Bros. Interactive was the top-selling game in the month, pushing March topper BioShock Infinite from Take-Two Interactive (TTWO - Snapshot Report) to the #3 position. Dead Island: Riptide from Deep Silver took the #2 spot. Activision Blizzard (ATVI - Snapshot Report) had two games in the top-ten list namely Call of Duty: Black Ops 2 and Skylanders Giants.

Currently, both Take-Two and Activision carry a Zacks Rank #3 (Hold).

Hardware sales fell a massive 42.0% year over year to $109.5 million from $221.6 million reported in March. March hardware sales were lower than $244.2 million reported in February.

Microsoft’s (MSFT - Analyst Report) Xbox 360 was again the top-selling console. However, it sold just 130,000 units in April compared with 261,000 units sold in March. This was also much less than 302,000 units sold in February. On a year-over-year basis, Xbox unit sales declined 45.0%.

As per NPD data, Nintendo’s 3DS handheld sales grew 52.0% year over year last month. However, PlayStation developer Sony ( ">SNE )  did not provide any sales data.

The huge decline in hardware unit sales primarily reflects a matured console market. Moreover, customers postponed their purchases as both Sony and Microsoft are slated to release their new console hardware by the end of this year.

According to NPD, total US video game sales were $802.0 million in Apr, 2013.

Our Take

We expect video game sales to remain sluggish over the next few months. Although we believe that the ongoing transition from the physical to the digital platform will ultimately benefit the video game industry (due to the cost effectiveness), low priced digital games have failed to offset the rapid decline in high-priced retail sales in recent times.

Moreover, declining software sales remain a concern. We believe that the rapid adoption of free-to-play games will continue to cannibalize retail software sales in 2013. Further, the highly fragmented video game market will continue to witness increased competitive pressures, which will hurt overall profitability.

However, we believe that the highly anticipated launch of new hardware consoles from Microsoft and Sony will boost the sagging video game retail sales market by the end of 2013.

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