No Recovery For Video Games

Just when it looked like consumer spending might pick up, one of the hottest retail sectors, at least a year ago, video games, fell apart.

In July, the industry had a 29% drop in revenue to $849 million, according to the NPD Group. Hardware sales dropped 37% to $281 million. Microsoft (MSFT) was the only company that did well as sales of the Xbox 360 rose 17%.

Nintendo is still the king of the consoles, but not by as much as in the past. In July, consumers bought 252,200 Wiis, compared to only 202,900 Xboxes and 121,800 Sony (SNE) PS3s.

The news continues to be awful for Sony which was the industry leader several years ago with its PlayStation 2 model. The division that produced the console helped push Sony earnings to record levels. That unit now loses money an and it is hard to imagine a turnaround at the company without more successful sales of the PS3. Sony’s other major businesses of selling digital cameras and TV screens are under pressure from lower cost producers in China, Taiwan, and Korea. Sony’s film studio delivers unpredictable profits based on how many blockbuster films it has each year.

Nintendo is doing fine and Microsoft hardly relies on its game operation to contribute to earnings. Sony cannot say those things.

Douglas A. McIntyre