"Its introduction next month will likely boost the video-game market and could spur Sony to cut PlayStation prices

A new report published by Wedbush Morgan Securities (WMS) on its forecast for total video game hardware and software sales in the U.S. and Europe for 2005 sheds some light on how the video game market is shaping up for this year and beyond, including possible price drops on current hardware.


Increase in software sales driven by new hardware
Looking at the combined software markets of the U.S. and Europe, WMS is expecting 5 percent dollar sales growth for 2005; the report notes that it is covering these regions together because WMS believes that "the U.S. and European markets represent over 95% of sales for U.S. interactive entertainment publishers, and in many cases, represent close to 100% of sales."

Much of this software growth is expected to come from game purchases associated with new hardware such as the Nintendo DS, Sony PSP and the upcoming Xbox 360. In fact, the hardware market will see a significant increase in 2005, rising from 35 million units sold in 2004 to an estimated 40.6 million units this year. WMS is expecting combined unit sales of 13 million next generation consoles and handhelds, with software sales of almost $1.3 billion during 2005. Software sales for these new consoles/portables are expected to account for more than 8 percent contribution to WMS' predicted 5 percent growth rate.

Price cuts
The Xbox 360, which WMS predicts will sell 1.5 million units in the U.S. and 1 million in Europe, will play a large part in boosting the video game market this holiday season—the new system is expected to contribute as much as $380 million to software sales in 2005. In addition, its introduction could lead to a price cut on older hardware, such as the PS2 and the GBA SP, which would in turn also boost the market. The PS2 could drop to $99 and Nintendo could slash the SP from $79 to $59, according to the report. However, WMS does not see any further price drops in 2005 for the DS ($129) or the PSP ($249)." [more]