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open quote Following the recent NPD sales report, which revealed software sales plummeting 15% for the month of June, Wedbush Morgan Securities analyst Michael Pachter tried to figure out exactly what the heck has been going on. June marks the fourth negative month of decline this year, but why?

Pachter said part of the problem stems from Nintendo now bundling two games in with the Wii, and many consumers buying clearance software with their new, cheaper Xbox 360s. The bigger issue, however, is the rise of online multiplayer gaming, which obviously gives any game more replay value, which in turn means that those players are less inclined to go out and buy new software.

"...we think that the overall decline was due to a very large number of people playing multiplayer online games for free on PlayStation Network, and for an annual fee with unlimited game play on Xbox Live," Pachter noted. "We estimate that a total of 12 million consumers are playing Call of Duty Modern Warfare 2 for an average of 10 hours per week on the two platforms’ respective networks, and the continued enjoyment of this game (along with an estimated 6 million Halo online players, 3 million EA Sports players, and 5 million players playing other games, such as Battlefield, Red Dead Redemption, Left 4 Dead and Grand Theft Auto) has sucked the available time away from what otherwise would be spent playing newly purchased games."

He continued, "We see this as a continuing problem, and think that unless and until the publishers come up with a business model that appropriately captures the value created by the multiplayer experience, we are destined to see a migration of game playing away from packaged goods purchases and toward multiplayer online. While the shift has been great for consumers, who are enjoying an unprecedented, and largely free, game experience, it has been devastating for publishers and shareholders, who are seeing sales and profits decline."

Ultimately, Pachter says Activision will have to lead by example and push the industry and its online games in the paid direction. Gamers will not like it one bit, but if the experience is as compelling as Modern Warfare 2, then gamers will probably pay. Pachter's advice is no doubt music to Bobby Kotick's ears, who's already said that he'd like to turn the entire Call of Duty business into a subscription.

"We think that it is incumbent upon Activision, with the most popular multiplayer game, to take the first step to address monetization of multiplayer. It is too early to tell whether that will be a monthly subscription, tournament entry fees, microtransaction fees, or a combination of all three, but we expect to see the company take some action by year-end, when Call of Duty Black Ops launches," Pachter commented.

"The company has the greatest experience of the Western publishers with multiplayer subscriptions, given its huge success with World of Warcraft, and we expect Activision to apply a WoW-type model to its Call of Duty franchise. It is likely that Activision will ease the pain of consumers, and will continue to offer some form of free multiplayer, at least for a while, but we believe it is imperative that the company begin to capture some value from the huge number of hours spent – 1.75 billion hours on Xbox Live alone through mid-April, and we estimate that this figure is approaching 4 billion hours combined through today on Xbox Live and PSN. We are quick to point out that the average single player game has an expected play time of under 30 hours, suggesting that a staggering 133 million units of equivalent game play have been spent (so far) playing Call of Duty online, with Activision only seeing revenues from the original 20 million units sold, plus an estimated 8 million map packs sold."