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The whole market,
including Nintendo, Microsoft, Sony, and all the third parties, is
struggling. The big question left for this year is not whether the
industry will contract in 2009 but by how much. Let's run down some
key measures.
Music Games
– The collapse of the music game market is now well-known, but
October's sales figures brought with it new evidence of the crisis
the genre is experiencing.
Not only did Guitar Hero 5
and The Beatles: Rock Band
fail to make the top 20 chart, but those games almost didn't make it
into the top 10 games on any given platform. Only the Wii version of
The Beatles: Rock Band
made that platform's top 10 list, at #7, behind Cabela's
Big Game Hunter 2010 by
Activision.
With DJ Hero
sales coming in just over 120,000 units across four platforms, the
evidence for consumer fatigue grows each month.
Software Unit Sales – At the end of October 2009
just over 150 million units of software had been sold in the U.S.,
down 8.5% from the same time in 2008.
Even given the scale of the
Call of Duty: Modern Warfare 2
launch, this deficit will be extremely difficult to make up by the
end of the year. Nearly 103 million units of software were sold in
November and December 2008.
Software Prices
– The average sale price (ASP) for software so far in 2009 is
$39.03. At the end of October of last year the average price of
software in 2008 was $40.84. During 2008 the price of software rose
as consumers purchased millions of music game bundles and Wii
Fit balance boards. The
single-month software ASP in October 2008 was $47.29, over $3.50
higher than it was in October 2009.
Together the drop in software
volume and price has contributed to a 12.6% drop in total software
revenue during 2009.
Hardware Unit Sales
– The Xbox 360 is the only console whose YTD sales are up in 2009.
The PlayStation 3 is still down for the year, but its price cut gives
it a chance to post annual growth by the end of the year. Wii system
sales were so extraordinary in 2008, it seems unlikely that it will
best that record this year. (Regardless, it will still have very
strong sales.) The PlayStation 2 is still riding its slow decline.
Nintendo DS sales are still up over the same time in 2008 while PSP
sales are off by 34%.
Hardware Prices
– Every console has seen a price cut or adjustment this year. The
PlayStation 2 dropped to $100, the PlayStation 3 to $300, and the Wii
to $200. The Xbox 360 Elite had its price cut to replace the old $300 Pro model. Only the handhelds have seen prices increase in 2009 with
the introduction of newer, more advanced models. As a result of these
changes, the price of the average system sold in 2009 has dropped to
$214 from $231 at the same point in 2008.
Taken together, the contraction
in the hardware market and the drop in hardware prices have put total
hardware revenue down by nearly 17% for the year.
It is true that some of the
biggest releases of the year – namely Call of Duty:
Modern Warfare 2, Assassin's
Creed 2, and New Super
Mario Bros. Wii – have yet to
be released, and the figures above do not reflect those revenues.
However, the deficit at this point is so severe that it's difficult
to comprehend how total revenues will come in above last year's
figures.
To put it as simply as we can, if
we simply copied last years November and December to this year, the
total revenue for the year would only come to $19.6 billion. Given
that seven of the last eight months have shown double digit declines
from 2008, and external factors like unemployment have only gotten
worse since the beginning of the year, reaching $19.6 billion –
much less $20 billion – would be amazing.
[As
always,
many thanks to the NPD Group for its monthly release of the
video game industry data, with a special thanks to David Riley for
his
assistance and Anita Frazier for her analysis. Additional credit is
due to Michael Pachter, analyst
for Wedbush Morgan Securities, for his perspective and information.
Finally, many thanks to colleagues at Gamasutra and commenters on
NeoGAF for many helpful discussions.]
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Is it more significant that casual/non-traditional gamers (Wii hardware and software buyers) are more likely to cut their spending on games?
Or is it more important that some 75% of the people who have lost their jobs are male and many of those are core gamers (20s and 30s)?
This is always a tricky decision. If you cut the price too soon, you risk leaving money on the table. If you cut the price too late, you risk losing market share to the competition. Nintendo more than Sony or Microsoft relies on hardware sales for profit. Hardware sales margins have been integral to Nintendo's product strategy, while Sony and Microsoft are willing to suffer losses in order to earn a continuous stream of software royalties.
As I point out in my recent blog post, there are a number of factors that are conspiring to put downward pressure on Nintendo sales. The company has a number of options available to it to counter these pressures, a price drop being one of them. Frankly, I don't feel that the current price drop is enough to counter further long term market share erosion. By this time next year, Nintendo will need to either have a much more significant price drop or a significantly improved console, if it hopes to maintain its market lead.
RE: "We clearly can't put all the market's present difficulties should be laid at the feet on Nintendo, but when one company accounts for half of the revenue in an industry for a whole year, that company's fortunes the next year will likely determine much of the direction of the market. "
That may have been true this year, but it is less likely to be the case next year as Microsoft and Sony introduce new product strategies that will help drive overall industry sales in 2010.
Finally, you mention (on page 5) that "the collapse of the music game market is now well-known, but October's sales figures brought with it new evidence of the crisis the genre is experiencing."
The genre is not collapsing. It is following the product life cycle curve and the current decline is part of a natural adjustment that everyone should have expected. See my blog post "Explaining the Decline of Guitar Hero and Rock Band" for a discussion on how the product life cycle affects the music genre, and particularly the instrument-simulation sub-genre.
I like the y/y graph at the beginning. If the Wii had performed like a normal console and not had the best sales of any console ever by a long margin, I'd guess we'd have had a fairly linear growth from 2006 to 2007 and from 2007 to 2008, which would make 2009 look like a success instead of a failure. The 'decline' of the industry was really just a coming back to what were unsustainable sales over a 2 year period, it seems unlikely we'll ever see something like that again.
What do you mean by this: "By this time next year, Nintendo will need to either have a much more significant price drop or a significantly improved console, if it hopes to maintain its market lead."
By "significantly improved console", do you mean an HD Wii? If so, how do you figure that it would gain them any market share? I never understood that as several people list that as the catalyst to "save" the Wii. Also, Nintendo's market lead is in no danger nor will it ever be. I think it's far too late to even entertain that.
Odd that it's so popular online, compared to retail sales.
Still, I don't understand why people would expect it to sell much. Not only is it a port of a DS game priced at $39.99 (more than the DS game new), it's going to be on the iPhone soon for what, $9.99?
That's part of what killed Vice City Story sales. People knew it would be out in a few months later for $30 less on another platform.
I think a real GTA title actually designed for the PSP, and not quickly ported to any other system, would actually sell well. But PSP owners are rather touchy about how the GTA has been handled on the PSP.
Nintendo's lead was already slipping with the SNES, and it had nothing to do with CD-based media. But it had everything to do with fighting in a red ocean (competing with Sega) and losing market share in a console war.
No one is doing anything at the moment to counter Nintendo's disruptive strategy. Until Sony and Microsoft gain some portion of Nintendo's expanded audience, the only threat to Nintendo is Nintendo itself.
So Nintendo's lead will slip away because "the video game industry can turn around very quickly"? Very profound and scientific indeed, Mr. Wesley. Perhaps you should really give a serious explanation to back up that claim rather than simply spewing what you wish would happen.
Also, I have no "wish" to see something happen either way. I have no financial stake or personal interest in the fortunes of any of these companies. I praised the Wii when it was first unveiled, even though a number of analysts claimed that it would have the lowest market share, and I focus on many of the Wii's positive features in the book. That, however, should not blind us to the reality of various market pressures that affect hardware sales.
I did this math in another post, but thought it bore repeating.
Nov 06- May 08 (first 18 months of the Wii) there were 20 Nintendo released games in the US
June 08 - Nov 09 (next 18 months of the Wii) there have been 8 Nintendo released games in the US (not including the 5 'New Play Control' games)
20 vs. 8 (and Wii Fit Plus, which is a great game, but not entirely new is one of the 8)
To solve the problem Nintendo needs more games. It wasn't failing before when it had games, it started losing steam when it stopped releasing games. The problem isn't the graphical capabilities of the system, it's the lack of Nintendo leadership in the games.
Over the first 18 months we got Zelda, Mario Galaxy, Wii Sports, Wii Fit, Smash Bros. and Mario Kart (that's just 5 of the 20!).
Over the last 18 months we got Animal Crossing, Wii Sports Resort, Wii Music, and Punch-Out
Would WiiHD increase sales?
Sure some, but it isn't going to win over anyone who is adamantly against Nintendo. The Nintendo fans will like it, and there will be upgrading, but it's not going to win fans, there will simply be different things that the anti-Nintendo camp complains about.
What Wii needs is more games.
Top of the line games, and so far, only Nintendo has answered the call to make top of the line games on the Wii.
New Super Mario Bros. Wii came out this week and it appears to have immediately energized the system, it's easy to see why, it's a great game, a classic Nintendo quality product of the biggest IP in gaming. If there were 4 or 5 more top of the line Nintendo games over the last 18 months, Nintendo wouldn't have lost momentum and been trying to get it back.
I really believe the solution is to go back to what made you successful, not to try and be like everyone else, that's never been a winning solution.
http://www.zenfar.com