Analyst: Summertime Woes or The Beginning of the End?

With most analysts having expected software sales growth of twenty-something percent for August, when the NPD data for the month revealed software growth of "just" 13 percent, some saw this as a negative sign for the industry. Considering that hardware sales were nearly flat too, has the slumping U.S. economy finally put a chink in the "recession proof" armor of the video game industry?

Deutsche Bank's Jeetil Patel is somewhat concerned. In a section in his latest note called "Summer Time Woes... or the Beginning of the End?" he comments that the "sluggish August sales [will] lead to more caution ahead."

Patel continues, "After starting off with roughly 40-50% growth in the first six months, August video game sales came back down to reality with a hard dose of consumer spending woes. The interactive entertainment software sector came in weaker than expected, as evidenced by the 13% software sales growth for the month of August (after 41%Y/Y growth last month). Even hardware sales took a hit, only up 8%Y/Y in August, after double digit growth in the past 5 months, +17%Y/Y last month and 48% in August of last year. ... While August data came in light, we remain cautious on the video game space and believe a flight to quality will end up playing out better than a broad-based basket approach to the video game names."

And while NPD's Anita Frazier acknowledges that this was the first month in 27 months in which the industry posted single-digit percentage growth (9%), she's still expecting the industry to have a big fall/holiday and a huge year overall. "Despite smaller growth this month, the industry is up 32% year-to-date and remains on target to achieve annual revenues in the range of $22 to $24 billion," she said.