NPD: Behind the Numbers, August 2011
September 12, 2011 Page 1 of 4
[Gamasutra analyst Matt Matthews examines yet another underwhelming month at U.S. physical video game retail, delving into price cuts for PlayStation 3 and 3DS, and pointing out that the absence of Madden isn't the only reason for August declines.]
One could be forgiven for thinking that a month with two major hardware price cuts would be a time for celebration of higher packaged good sales in the video game industry, but August 2011 just didn't work out that way. While the Nintendo 3DS dropped from $250 to $170 and Sony's PlayStation 3 shed another $50 to $250, consumers largely kept their wallets closed according to the latest NPD Group estimates of retail sales.
Truly, the price cuts had their immediate intended effect – the 3DS sold 235,000 systems and the PlayStation 3 moved over 215,000 – but software and accessory sales did not immediately follow.
In part, this can be attributed to the absence of Madden NFL 12 from the August software list, but Wedbush Securities analyst Michael Pachter noted that using last year's Madden sales as a proxy demonstrates that software revenue still would have been down this year.
This month we'll examine the hardware price cuts in detail, and ask both what they mean for the immediate market and where they are likely to head going into the end of 2011.
We'll also look at just how beleaguered the physical software market was in August, and how it is getting more and more difficult to argue that the packaged gaming industry is just in a temporary slump.
Before we dive in, however, we take our monthly run through the top-line figures and take stock of the industry's revenues so far in 2011.
Industry At A Glance
Looking back over the transition from July to August at retail, it isn't uncommon to see hardware revenue decline while console software revenue is either flat or grows about $10 – $40 million. The summer months typically have slower retail sales, regardless.
August 2011, by these expectations, was turned completely on its head. Hardware revenue was up $26 million from July, due in part to stronger PlayStation 3 sales and much improved Nintendo 3DS sales. However, console software went the other direction, dropping nearly $68 million from July's figures.
The drop in software revenue, as we've seen many times before, came from a combination of lower unit sales (here from about 10 million units in July to just 8.4 million in August) and a decline in software prices (from an average of $34 to under $32).
For its part, the accessory segment maintained its strength, with sales flat year-over-year and actually up slightly from July.
The chart below shows the monthly and year-to-date revenue figures, for easy 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.
Earlier this year we held out hopes that the industry would pull out a year with retail revenues similar to 2010, around $18.6 billion. However, as that chart above makes abundantly clear, the revenue picture for 2011 looks quite grim compared to last year. If retail sales are flat for the remainder of the year, then total retail sales will come in around $18.1 billion in 2011.
We think that's unreasonably optimistic. All the great software releases are piled up from September through Christmas, and nothing in the past few months gives hope that the American consumer is about to buy games with utter abandon. Instead, we expect that many notable games will go ignored at retail by consumers while the biggest names (like Call of Duty and Just Dance) soak up the money that consumers are likely to spend.
That need not mean lower overall sales, but in this case we believe that to be the case. Call of Duty: Modern Warfare 3 could be bigger than Black Ops was last year, but it likely can't be large enough to make up for the games that will be left on shelves as a result.
Here's the year-to-date “rainbow graph” we've often brought out for taking stock of the annual revenue. We're currently tied with 2007 for revenue, and this year the industry won't have tremendous Wii hardware and software sales to save it.
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