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[In Gamasutra's detailed NPD U.S. console/game sales analysis for October 2009, we examine Sony's post-PS3 price drop results and PSP Go launch, Nintendo's Wii price cut timing, and a possibly grim outlook for the rest of 2009.]
Earlier this year conventional wisdom held that the video game
industry would make a dramatic turnaround in the back half of 2009.
However when the NPD Group released October 2009 retail sales data
last week, the dire reality of the market was plain for all to see.
In every segment of the market – hardware, software, and
accessories – the revenues were down significantly, and the overall
total was down 19% relative to October 2008.
Given the recent hardware price cuts by Sony and Nintendo, it was
no surprise that there was a drop in hardware revenue. For example,
the increase in PlayStation 3 hardware sales over the past three
months has just begun to offset the loss in revenue from the system's
price cut.
Software prices continued to decline with respect to prices a year
ago and software unit sales were down as well. The combination of
these factors drove a software revenue loss of 18% or over $126
million dollars. Only the accessory segment was close to flat
year-on-year, contracting only 2%.
As of the end of October the year-to-date revenue figure stood at
$11.4 billion. Even with the biggest two months of the year still to
go, some analysts now expect the industry to post at least a 5%
decline for the year.
We retain our conservative outlook and expect a decline of at
least 8.5%, putting the final annual total revenue at $19.5 billion. Clearly if revenue comes in above that, we'll be pleased to be wrong.
Below we break this month's sales out into three highlights.
First, we'll examine Sony's fortunes as its PlayStation 3 experiences
a resurgence in sales but its PlayStation Portable languishes. Second
we'll examine the trend of Wii sales and how the DSi has helped
maintain strong sales for Nintendo's handheld platform. Finally,
we'll look at just how deep the hole is for this year, and how
contraction from 2009 has become a virtual certainty.
Sony: Two Steps Forward, One Step Back
October was Sony's third month running with better year-on-year
sales of its flagship console, the PlayStation 3. Just over 320,000
units of the new PS3 Slim model were sold, an increase of 69% from
the same month in 2008.
When we first examined PS3 sales after the August 2009 price drop,
we
suggested comparing the PS3 in 2009 to the Xbox 360 in 2008.
During the three months from August to October 2008, right after
price drops and the introduction of the Xbox 360 Arcade, Microsoft
sold 913,000 systems with an average retail price of around
$270-$280.
With the average price of the PS3 just above $300, Sony has sold
over 1.02 million PS3 systems during the same three months of 2009.
While PS3 sales did drop month-on-month from September to October,
the increased level of interest suggests that Sony's PS3 Slim should
do very well during the holiday months of November and December. It
seems possible that year-to-date (YTD) PS3 hardware sales could
nearly double by the end of the year.
The software situation has, likewise, also turned around for Sony.
According to figures from Michael Pachter, analyst for Wedbush
Securities, dollar sales of PS3 software have increased year-on-year
for each of the past two months: up 135% in September and 12% in
October. Some of the scale of that increase can certainly be
attributed to a weaker performance of PS3 software in 2008, but keep
in mind that most other platforms are seeing year-on-year declines in
software this year.
While Sony's console fortunes are turning around, there is not
much good news for its handheld, the PlayStation Portable (PSP), in
particular the newer and smaller PSP Go.
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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