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Exclusive Analysis: Console Tie Ratios Reveal Market Dynamics
Exclusive Analysis: Console Tie Ratios Reveal Market Dynamics
April 22, 2009 | By Matt Matthews

April 22, 2009 | By Matt Matthews
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[In his Gamasutra-exclusive analysis, Matt Matthews uses new NPD data to reveal the U.S. tie ratios for PS3, Xbox 360, and Wii as of March 2009, with the PS3's tie ratio sneaking above the Wii's into second place overall.]

It has been several months since we looked at tie ratios for the three main consoles – the Nintendo Wii, the Microsoft Xbox 360, and the Sony PlayStation 3.

Our last major look was in November 2008, where we were able to pick up on first- and third-party software sales in the United States for each of those platforms. The NPD Group, which tracks U.S. retail video game sales, has provided us with exclusive data on the tie ratios for these three major platforms as of the end of March 2009.

In these figures we see launch-to-date Wii software sales catching up (but not quite surpassing) those of the Xbox 360, effects of the revitalized Xbox 360 hardware sales, and an uptick in the PlayStation 3's tie ratio.

Tie Ratios Defined

First, let us recall that a tie ratio is the number of software units sold for a system divided by the total number of systems sold. This ratio is an average number of units of software per console owner. The term attach rate is often confused with tie ratio, although we believe they are different. (See the note at the end of this article for an elaboration on this point.)

It is worth recalling the words of Anita Frazier, analyst for the NPD Group, who spoke to the issue of tie ratios and how they “can be an indication of the health of a system”, but can also be used in misleading ways.

She expanded, saying that “as a system gets further along in its lifecycle and perhaps hardware sales start to diminish, the tie ratio tends to go up because software sales are the bigger draw. If a hardware system is doing gangbuster sales, then the tie ratio can go down even if there are lots of overall sales.”

We'll need that last point in particular for the figures below.

Tie Ratio Trends

The launch-to-date (LTD) tie ratio trends for the three key consoles are shown below. In the first figure we consider the launch-aligned tie ratios for the first 29 months of each system's lifetime. This does not show the entire lifetime of the Xbox 360.



First, we believe there is a high margin of error in the first month data point, so it is there simply as an acceptable starting point for each system. The data along each curve is taken from the set of publicly available tie ratio data available in press releases and various news articles, along with the latest March 2009 data.

As the figure above shows, Xbox 360 owners have traditionally purchased more software than their Wii or PS3 counterparts. The Wii's tie ratio does not include Wii Sports, which is packaged with the system, so one might very well consider Wii owners as having more software on average than the numbers show.

Furthermore, the Wii's tie ratio does include Wii Play, which some consider as much a peripheral as a unit of software (since it is a Wii remote packaged with a set of games).

For most of its lifetime, the Wii has had a slightly higher tie ratio (i.e. more software per owner) than has the PlayStation 3. Recently that situation has reversed itself. As of March 2009 the PlayStation 3 had a tie ratio of 6.5, just above the 6.2 tie ratio of the Wii.

For comparison, at the same point in its lifetime, its 29th month on the market, the Xbox 360 had a tie ratio of 7.5, or one full game more per owner on average.

There are a couple of reasons which may explain why the PlayStation 3 has pulled ahead. First, the Wii had an extraordinary run of hardware sales through the second half of 2008. As Ms. Frazier noted, exceptionally high hardware sales while software remains strong can slow or even drop a system's tie ratio.

Moreover, the PlayStation 3 has experienced five straight months of diminishing year-on-year hardware sales rates. The existing owners certainly haven't stopped buying software, but the slowing PS3 hardware market has probably contributed to the increase in that system's tie ratio.

The figure below extends the data above to show the Xbox 360's entire 41 months on the market.



At the beginning of 2008 the Xbox 360 tie ratio stood right at 7.0, and over the course of eight months it grew to 8.0 in August 2008. Yet from that point through March 2009 the Xbox 360 tie ratio climbed a mere 0.3, from 8.0 to 8.3.

The difference here is probably the resurgent Xbox 360 hardware sales that Microsoft has seen since it dropped the price of the system in September 2008. Hardware sales are up 10% during September 2008 to March 2009 from the same period a year earlier. And, even in the face of strong hardware sales during the first quarter of 2009, that system's tie ratio has risen from 8.1 to 8.3.

Total Software Sales

While the tie ratios above tell us that Wii owners have purchased two fewer games per system than have Xbox 360 owners, that isn't the full story.

Remember that Nintendo has sold 19.6 million Wii systems in the United States while Microsoft has sold 14.9 million Xbox 360 systems. The PlayStation 3 lags both systems significantly at only 7.5 million systems, according to the latest NPD Group figures.

Using this data and the tie ratio data available to us, we can see how much software has been sold for each system over time.



The Wii and the Xbox 360 software unit sales figures are extremely close: 121 million and 124 million, respectively. However, the Xbox 360 had an entire year of sales prior to the launch of the Wii. With the smaller installed base, the PlayStation 3 has sold about 49 million units of software since it launched.

Here is one way to view those figures. At the end of November 2006, when the PlayStation 3 and Wii launched, the Xbox 360 had sold just over 23 million units of software.

Since that time, the Wii has moved over 120 million units of software, the Xbox 360 has sold just over 100 million units, and the PlayStation 3 just under 50 million.

Tie Ratio vs. Attach Rate

The term tie ratio is generally used by analysts like Ms. Frazier of the NPD Group and Mr. Michael Pachter of Wedbush Morgan Securities as it has been used in this article: a ratio of software to hardware units. Those numbers are, naturally, numbers larger than 1.

However, comments by those analysts (and others) leads us to believe that the term attach rate is more commonly used to show the number of software units (or accessory units) there are per hardware unit.

These are numbers between 0.0 and 1.00, interpreted as percentages. So, for example, Sony recently gave Gamasutra data showing that Grand Theft Auto IV had a 26.9 percent attach rate versus 23 percent on the Xbox 360. In brief, a console has a tie ratio while a game (or accessory) has an attach rate.

[Thanks, as always, to the NPD Group for graciously providing its data about the video game industry.]


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Comments


Kim Pallister
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Hmm... the analysis seems a bit misleading a for a number of reasons:



1) If it's based on NPD numbers, then it's North America only? The consoles' successes vary widely between territories, perhaps their tie ratios do as well?



2) Doesn't appear to capture downloadable titles and content, which is going to sway things again.



This is interesting but needs to be a more complete picture.

E Zachary Knight
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Kim,



1. Yes it deals only with US sales data. But there is not a steady stream of worldwide data available for the progress these consoles are making. I know of no unbiased and accurate sales data report for worldwide sales of consoles and games.



2. NPD deals only with physical retail sales data. None of the consoles release full download data for each download service. If they did, then that data could be incorporated into the charts and tie ratios.



So, until there is accurate sales data for worldwide sales and accurate and complete sales data for downloadable games, you will have to be content with statistics based off the US data that is regularly available.

Tom Krausse
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I think, at least, the author should have included a separate chart showing the Wii's stats with Wii Play included. Reports usually place it as one of the best selling titles on the system. While I agree that it's status is debatable (owing to the packed in controller), doing sales figures while ignoring a top selling game doesn't make sense.

Ken Masters
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@ Tom Krausse:



The figures do include Wii Play. Wii Sports isn't included because it's not tracked by NPD. However, Wii Play is, and thus, are included in the figures. I personally think it should be included irregardless of being bundled with a controller.

Matt Ponton
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Tom,

You might be confused.



The author said, "The Wii's tie ratio does not include [*]Wii Sports[*], which is packaged with the system, so one might very well consider Wii owners as having more software on average than the numbers show."



"Furthermore, the Wii's tie ratio [*]does include Wii Play[*], which some consider as much a peripheral as a unit of software (since it is a Wii remote packaged with a set of games)."



Wii Play was accounted for. Wii Sports was not.

Tom Krausse
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My bad, I apologize, I read the sentence wrong

Christopher Plummer
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I would like a more useful analysis please! Any intern can figure out a tie ratio. How about an estimate of the units being resold yearly, and the affect the revenue from these trade-ins have on the tie-ratios of the next-gen consoles? Thanks in advance.

E Zachary Knight
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Christopher,



That would require some form of data being made publicly available. Currently no used game retailer p[ublishes any numbers on the number of games and systems traded in and resold. Until those numbers are available, it would be nearly impossible to provide an accurate analysis on it. Anything that is provided will simply be guessing.

Jerome Russ
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I found this article interesting. As for finding the tie-in ratio, anybody could do it. But, who wants to? Thanks for providing this information!

Christopher Plummer
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Ephriam,



That's exactly my point. Let's hold Internet journalism to the same bar that we would other journalists. Gamasutra please continue to find information that we care about. The fluff pieces that gloss over the details and intricacies of this generation disappoint me. Lots of journalists do their own research and talk to insiders in order to get around that pesky problem of information hoarding. I'm not going to make an exception for game journalists.



GameStop is sitting on a *bleep*ing gold mine of info right now. They know more about gamers than anyone else, and I don't blame them for not sharing. But isn't that where the press is supposed to come in? I'm sure I'm not the only one who wants more insight into the breakdown of the software sold than just a ratio, which I can figure out for myself, especially since the used sales are growing faster than the new sales.

Neil King
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I am not convinced that trade in information will affect these figures too much. There are still the same number of consoles and games in circulation even if they get traded in and resold. I guess someone may own more second hand titles than new ones, but then someone else will no longer own those so it should average out over the consoles lifetime.



I would be more interested in figures regarding scrapped consoles - but then I expect that is impossible to find out. Dead consoles or broken/scratched games which get repurchase should ideally be excluded for tie ratios, but we can't have everything ;-)

E Zachary Knight
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Christopher,



What? You think gaming news sites have not been requesting that information since the beginning? They want it. But they can only get it if those retailers are willing to share it. Its not like the press can get a court order for Gamestop to disclose that private data.



But Gamestop does share data for new console and game sales with NPD. That is where this data used here comes from.



As for your insinuation that used sales are grower faster than new sales, that is a hard pill to swallow. Since we have no actual data on used games sales, you are just assuming that to be the case.



But hey, if you want more insight into game sales, you could always purchase the data from NPD yourself, contact Gamestop, Amazon, the 100s of other used game stores across the country and get them to share their used sales data with you and compile and publish those numbers yourself. That is if it is as easy as you seem to think it is.

Christopher Plummer
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Ephraim,



The NYTimes might request information about the conditions in Iraq or Afghanistan. Guess what happens when they grow weary of getting the run around? They send someone out there and they start doing findings of their own. Gamasutra has a pretty good reputation for in-depth articles, I found this one to be a fluff piece. I hope that next time they actually want to talk about tie ratios they bring some "news" to the table that makes them relevant again.



Anyways, here's an article that states, from GameStop, that its used sales increased 32% while new sales increased 19%. It's also in their publicly available financial filings http://online.wsj.com/article/SB123249378212700025.html

E Zachary Knight
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Christopher,



I don't think it works that way. Sure they could send reporters to Gamestop locations around the country, talk to customers and employees, but they really won't get the type of information you are requesting.



They could send people to Gamestop HQ and try to do the same, but I doubt they would be able to get in the door. So not much to do there besides hang out in the parking lot and talk to people when they are trying to go to lunch or go home. Tehy most likely will escorted off the grounds before they gained any actual information.



Reporters have been trying to get inside information from businesses for years now and short of meeting a whistle blower or getting a court order, they don't ever get anything beyond public information. Most employees in positions privy to the type of information you want have signed NDAs and could lose their jobs if they gave it to the press.



as for your Gamestop article, I think you missed the part where they said that the used portion of the business only makes up 23% of their revenue. You also missed the dollar amounts next to the percentages you quote. New sales revenue was $1.9 billion and used sales revenue was $543.5 million. Sure the increase *percentage* was greater but the actual dollar amount was lower.

Christopher Plummer
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Ephriam (sorry about misspelling your name before),



I didn't miss any of that. I said that used game sales were growing faster than new game sales, which is what GameStop said. You do realize that revenue includes sales of consoles right?



I guess we can do some of the journalists work for them in the comments then.



According to that article, New Sales revenue was $1.9 billion for the 9 weeks ending the holidays. And according to the NPD press releases, in the months of November and December the hardware allotments looked like this:



Wii - 4,190,000

NDS - 4,610,000

360 - 2,276,000

PS3 - 1,147,000

PSP - 1,398,000

PS2 - 616,000



I took the liberty of multiplying all of those out by their sale prices at the time and adding them together ($249.99, $169.99, $299.99, $399.99, $169.99, $129.99). It comes to $3.3 bln.



Gamestop said that they did full year sales of $8.8 bln in 2008, of which 22.4% are from used sales(see the article I linked before); so $7.7 bln of new sales. Meanwhile the NPD says the industry did $21.3 bln at retail. So we can say that GS took 36% of the NPD pie, which puts them at $1.2 bln for those 9 weeks referred to in the numbers from above posts.



This would mean that the sale of new games were actually an estimated $700K, which is pretty close to the $543.5 million for the same products, used and marked down. There are consoles in the latter so they may skew it a little bit, but that's about as far as I've gotten.



You're already closing the door on avenues that could bring some light to the situation. I don't think anyone expects a journalist to steal the info or get the exact data, but I do think that it is part of their duty to investigate and uncover some of these hidden details.

Matt Matthews
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Christopher: Please be careful. GameStop is an international corporation. The $8.8B you are citing is for their global revenue, not the U.S. You will have to dig a lot deeper than you've done here to get apple-to-apples comparisons.

Matt Matthews
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Again to Christopher: Also, you'll need accurate ASPs for those consoles if you want new console hardware revenues after multiplying by the number of systems. For example, the ASP for the Xbox 360 is not $300. Close, but not quite, and different enough to throw off your figures by a good bit.

Christopher Plummer
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Yea, I didn't mean to mislead anyone. I heard Pachter say that it was $290 in the Bonus Round. I only used those numbers because they were easy to follow. I don't have information on accessories either so they weren't accounted for either. I'm definitely not trying to crack the case here, just pointing out that there are leads to follow if one was inclined to investigate further.



I completely disregarded that GS was global too. Good call.

Kim Pallister
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@ Ephriam:



The data may not exist, but that's no excuse for not at least caveating that these factors aren't taken into account. At the very least, the article should have called out that the numbers are US only (mentioned but not exactly called out) and indicated that the global picture might be somewhat different.



Additionally, I don't think it would be unreasonable to expect at least some hypothesis of how things might vary if these other factors were taken into account (e.g. MS's poor showing in Japan might make the relative tie ratios of the other two vendors appear better; or MS's strong showing on Live sales might improve their relative outlook).



@Christopher: While the used game sales would be interesting, I think it's outside the scope of this article, which was looking at tie ratios. If it's being used to draw conclusions about success of those vendors or the publishers shipping content on those platforms, then the used game sale is no different than a non-existent sale. Either way there's no revenue booked. (I agree it would be nice to see the analysis though!)

Christopher Plummer
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Kim,



I just see it as a useless metric by itself, especially now that used games and trading in games has become a lot more popular. The software to hardware ratio gives us the amount of software sold per console, on average. But this really doesn't give us an accurate picture because software is being resold to the same amount of hardware out there, and these sales aren't accounted for.



If we want to know who sells the most we can compare the total sales - there is no need for a ratio for that information. If we want to know about which customers are buying the most software, and by how much, then I think its irresponsible to leave this stone unturned. If there were a bigger difference between what you get from a new game and a used game then it might not make much of a difference, but as far as the customer is concerned they are identical.


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