NPD: Behind the Numbers, July 2011
August 15, 2011 Page 1 of 4
[Gamasutra analyst Matt Matthews breaks down sales figures for July -- the new "lowest month since October 2006" at U.S. physical video game retail -- examining trends in software and hardware, including in-depth information on 3DS, Kinect and PlayStation 3.]
One could be forgiven for thinking that the industry was passing through some sort of lowest point when retail video game sales for May 2011 were reported as “the lowest month since October 2006” according to NPD Group analyst Anita Frazier. And yet the miserable results for July 2011 were worse, with Frazier crowning it the new “lowest month since October 2006.”
Indeed, the U.S. retail estimates published by the NPD Group last week have only tiny bits of good news hidden among all the gloom. Software, hardware, and accessories: all of these were down, year-over-year, and the the prospects for August are similarly grim.
Below we'll try to explain some of the currents underneath the turbulent surface of the top-line figures and point out some expectations for the coming weeks and months. The software segment, in particular, requires some of our attention as does the effect of hardware pricing for the four newest systems on the market today.
The Numbers, At a Glance
No segment of the retail video game market was spared in July 2011. Even the accessories segment, which had been positive for much of the year, showed an 8% decline in retail dollar sales over the figures from July 2010.
And here we must make a quick aside to point out that the NPD Group revised its total July 2010 figures slightly from the results reported in August of last year. The combined retail sales for console and handheld hardware, software, and accessories was revised upward from $846.4 million to $855.3 million, a difference of nearly $9 million. Such revisions regularly occur, and we let them pass without comment, but this adjustment seemed significant enough to warrant a bit of elaboration.
The $9 million increase came entirely from a revision of the accessories segment. That pushed the July 2010 results from -0.5% to +0.5% year-over-year (compared to 2009). A subtle change, to be sure, but without that revision to the 2010 figure the July 2011 accessory sales figure would have come in at only -1% instead of -8%.
The hardware segment was particularly strongly affected by the downturn in July, with an estimated 25% drop in hardware unit sales compounded by a 6% drop in average selling prices for that hardware. The result was a staggering 29% drop in hardware revenue.
Software also saw a decline in both unit sales and prices. The average price for software in July 2011 fell below $34, the lowest we have seen in the years for which we have records. The nearest comparable month we know is April 2009, when the ASP for software was again around $34. However, in that month nearly 15 million units of software were sold, while the total in July 2011 actually appears to have fallen below 10 million.
The key revenue estimates published by the NPD Group are gathered below for ease of reference.
The NPD Group highlights to the media that the data above represent retail revenue figures, and that there are separate estimates for video game content sold through other means. They are providing quarterly estimates of those extra-retail sales, including mobile games, downloadable content, and casual games, along with other segments. Our latest analysis of the full market figures released by the NPD Group was given in last month's overview.
These extra-retail sales are becoming more important, and analyst Anita Frazier of the NPD Group commented that “growth in these areas, combined with a flat to modest decline in new physical sales should result in 2011 showing growth over 2010.”
We remain dubious on both counts, but are willing to be convinced. Retail sales for video games were down in July of this year, a month in which preliminary estimates by the U.S. government appear to show growth in general retail sales (but not video games). Moreover, we are waiting for more publishers and platform holders (including players like Facebook and Google) to show confidence in the NPD Group's estimates for the extra-retail segments before assigning them the same respect we have for the retail estimates.
For his part, Wedbush analyst Michael Pachter believes that “overall sales are up this year,” adding that downloadable content “is becoming big business.” Publishers like EA and Activision are increasingly focusing on using such means to increase the profit margin they can realize from a single sale at retail.
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