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NPD: Behind the Numbers, July 2011
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NPD: Behind the Numbers, July 2011

August 15, 2011 Article Start Page 1 of 4 Next

[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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Bob Johnson
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No mention of YoY drop in 360 sales? No speculation that YoY drop in accessories is signaling the start of Kinect decline?

This might be first evidence of Kinect decline. Some have stated Kinect dies out by summer. It seems entirely reasonable that it would have a much shorter half-life than the Wii. Kinect is too close to the Wii in types of gaming experiences and the Wii already sold into a huge portion of the user base. Plus Kinect software isn't as compelling as nintendo first party Wii software.

Matt Matthews
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Bob, I agree that there is a possibility that Xbox and Kinect sales will continue to be down. However, sales in July 2010 were spiked by demand for the new S model and clearance sales for old Xbox 360 models (as the S model moved onto shelves in quantity). That skews the comparison enough that I wouldn't want to draw too many conclusions about the YOY decrease.

Morover, as the PC/Xbox promotion reaches an end, there is also a possibility of a decline in Xbox 360 sales. We can't yet know how much that will affect things, but we should keep an eye out for it.

The software situation for Kinect is certainly a concern, but Microsoft's thrust at E3 was very strongly focused on Kinect software. We'll see if the titles are strong enough, and numerous enough, to provide a sustaining effect.

Bob Johnson
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Yes the 360 promotions have been very aggressive. All the more reason to think the YoY decline is signaling the start of the 360s decline. Plus the 360 has Kinect now to help sell systems yet still the YoY decline.

The Kinect software looks weak. At E3 there was a handful of on rails titles for the core. The same sort of Wii games that were laughed at by gamers and that did not do well. Nothing that I saw makes me thing they will do better on the 360/Kinect.

MS also showed off a Wii golf clone which comes 5 years after Wii Sports was released with the Wii. And if you believe this notion that Wii software is mostly sold only to new buyers or that Wii owners don't buy a ton of software then that will also extend to most Kinect buyers as well.

The 8% accessory YoY drop is a sign as well. I thought Kinect was propping that up despite falling Wii/DS numbers.

Bob Johnson
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I just feel it is natural too that the 360 starts its decline downward a bit. Its sales peaked with the S then with Kinect. And it rode those ponies for awhile. That gave it a big shot in the arm for the past year. The aggressive promotions have only fed those ponies.

And as for Kinect, well, it has many of the same problems the Wii technology had and many of the same problems developers had with the Wii. The tech doesn't work with lots of current game designs. Developers need to make from the ground up titles for Kinect. The tech has limited gameplay uses. Developers don't know how to use it well. The tech is flakey compared to buttons presses and analog sticks movements. Developers want to make games across all platforms.

And by being a Wii-do or Wii copycat or Wii muse of sorts (4 years later to boot) with similar hurdles to overcome and worse by not having a big world class 1st party developer behind it, it is going to burn out much faster. I say it is already doing so.

Kinect's lottery ticket is a system seller of a game is made and released this xmas. I don't see it. There's some stuff that might do ok. The Sesame STreet license for example might sell quite a few copies to parents.

There's always that chance for any system. Spending alot on marketing always helps too.

And for the 360, well maybe the Sony price drop keeps the 360 rolling along as MS will probably match it. And there are 3 big first/3rd person games out this fall. YoY comparisons are high though.

kevin Koos
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All systems should be on a downward path right now, kinect just breathed and extra year into the 360 sales. I have been playing my 360 since 2006 its great but we are basically using 2004 technology and its almost 2012, its time to move on from this generation. PS3 is really hurting at least in the US, might have waited to long for the price drop...