Lower price points spark sales of software, games

Discount Store News, Nov 17, 1997 by Robert Scally

Software may be stuffing more stockings than ever this holiday season. Despite the tact that an unprecedented number of titles will be fighting for shelf space, a number of signs point to the possibility of a bright holiday selling season for software sales, especially for Sony PlayStation and Nintendo 64 titles.

Last year, more than 16,000 software titles were published and at least that many will be published this year, each one vying for a place in the market, according to PC Data, a Virginia-based market research firm that tracks software sales.

The importance of the fourth quarter to sales of software cannot be overstated, said Ann Stephens, PC Data's president.

Nearly 40% of all game software and almost one-quarter of all business programs sold last year were sold in the fourth quarter, Stephens said. "The fourth quarter is very, very, very big for software," she added.

Last year's fourth quarter sales accounted for 32% ($3.4 billion) of an estimated $10.6 billion in overall software sales in the United States and Canada for 1996, according the Software Publishers Association.

The overall dollar sales of software climbed by more than 8% from 1995 to 1996 according to the SPA, despite evidence from other surveys that show that price points for software, especially CD-ROMs, are falling.

Last year, after a weak third quarter, fourth quarter 1996 software sales were up 28% over the same quarter in 1995, according to the SPA. Unit sales in North America were up 42% in fourth quarter of 1996 compared with the same period in 1995.

So far this year, computer superstore retailers such as CompUSA and some specialty retailers including Minneapolis-based Funco Inc. are seeking strong sales from software, Stephens said.

Funco provides a particularly good example of the trend. Same store sales jumped 25% for Funco's second fiscal quarter ended Sept. 28 and were up 23% for the first half. The chain is opening a number of new stores in new markets and its stock price has risen steadily since the first of the year. Funco attributes its increased sales and profitability to the strong growth of the video game industry led by Sony PlayStation and Nintendo 64 titles.

Some software suppliers are already crowing about the strong sales of some potential hit titles.

CROC: Legend of the Gobbos, Fox Interactive's first original character game, has resulted in worldwide orders, excluding Japan, of more than 500,000 units for the PlayStation version alone, according to the company. The PC and Saturn versions of CROC will reach retail stores this month.

"We are very enthusiastic about console sales, not just in the fourth quarter but into January and February," said Jon Richmond, president of Fox Interactive.

Mass merchants such as Wal-Mart are also stocking plenty of titles for Sony PlayStation and Nintendo 64.

At last month's opening of a new Wal-Mart concept store in Covina, Calif., the video games display case with its built-in PlayStation and Nintendo demonstration station dominated one side of the consumer electronics department, which also included music and video.

Wal-Mart is breaking out of its corral format in the electronics area, a move that allows the video game section to attract the attention of the kids and teenagers that are its main target audience.

In many locations, CompUSA keeps its video game demonstration kiosks near the front of the store, a move that helps to immediately snare the attention of kids who walk in with their parents.

Toys "R" Us periodically offers to buy back old video game disks and cartridges as a means of building traffic and demand for new titles.

Software sales may grow overall as the market penetration of personal computers in the United States and Canada increases as price points fall and technology becomes more affordable.

The number of PCs in American homes was estimated at 38% in 1996, up 4% from 1995's 34%, according to the Software Publishers Association. Nearly two out of five U.S. consumers had at least one PC in use by the end of last year.

Christmas 1997 will mark the first holiday season that complete computer systems selling for $999 will be on the market, and most of the computer industry is waiting to see how well these low-end machines sell.

"I think retailers are pretty optimistic," PC Data's Stephens said of the 1997 holiday selling season.

Many consumers may be motivated to buy the low-priced computers because they will perceive the units as a good value, said Bruce Ryon, vp and general manager of technology at MediaMetrix, a firm that tracks computer and software ownership and use.

"I think there's the perception that these machines are adequate," Ryon said. "The $999 computer of today is the $2,000 or $2,500 computer of two or three years ago."

"Sales of new computers always helps drive the sales of software," Stephens said.

Games are just one type of software that mass merchants sell, and the overall gain in computers will help stimulate sales of all types of computer programs.