[Gamasutra analyst Matt Matthews goes behind April's NPD U.S. console retail numbers -- why the surprising 26 percent drop, and what does it mean for the months ahead?]
After a one month respite, the latest retail videogame figures reported by the NPD Group last week showed that April 2010 sales fell by nearly every measure. Analyst expectations were cautious, with some expecting small increases in software dollar sales and modest gains in console hardware sales.
In the final tally, April's software dollar sales fell by 22% year-over-year while console hardware sales fell by 16%. Even the accessories segment – which has shown reliable growth in past months – contracted by nearly 9%.
Surveying the scene, we are left with several key questions. What happened to software sales in April? Why did hardware slow down so much? What do the possible explanations for April's results tell us to expect for May?
Hardware took the biggest hit in April's figures, showing a year-over-year decline of $143 million or 37%.
As we've explained many times before, the declining prices of console hardware have driven down hardware revenue generally in the past few months, but a decline of this magnitude cannot be fully explained by that factor alone.
In fact, it's worth noting that the average price across all hardware actually went up slightly in April 2010 relative to April 2009. At first this seems impossible, given that Sony's PlayStation 3 and the Nintendo Wii have both gotten price cuts in the past year and consumers have increasingly opted for the least expensive Xbox 360 model.
The explanation turns out to be quite simple: current-generation hardware accounted for only 33% of all hardware units in April 2009 but over 53% in April 2010. As these are precisely the systems nominally priced at $200 or more, their prominence pushes up the average price in the hardware category.
As for software, we know that dollar sales dropped 22%, but the full story is more complex. According to Michael Pachter, industry analyst for Wedbush Securities, software prices increased 7.3% over April 2009, which means that unit sales actually declined at a rate greater than the 22% seen in just dollar sales alone. We'd conservatively estimate that software unit sales dropped by 25%.
We can say more, however. According to comments from Anita Frazier, analyst for the NPD Group, the portable segment itself (including portable hardware, software, and accessories) contributed 61% or just over $160 million of the $268 million decline in total industry revenue.
Given the Nintendo DSi and Nintendo DS Lite sales figures released by Nintendo last May, the PSP hardware unit sales released by the NPD Group that same month, and reasonable hardware price estimates we can estimate that over $100 million of that lost revenue came from losses in the portable hardware segment specifically.
We estimate that portable accessories account for less than $10 million of the lost revenue, leaving well over $50 million in lost software revenue in the portable segment, from April 2009 to April 2010.
Given that the losses in each of the hardware, software, and accessory segments are known, we can produce the following picture from our estimates. The figure below shows how much of the $268 million loss in April 2010 can be attributed to each segment and subsegment of the market.
We'll have even more detail to add below, but we believe a key takeaway from the figure above is the loss contributed by console software. Yes, the portable segment contributed much of that hit, but it is also a smaller segment in general. The console software segment should be robust now with an installed base of over 60 million current-generation systems, but the sales figures do not give the impression of a healthy console software market at retail.
For reference, the table below summarizes the monthly and year-to-date revenue figures reported by the NPD Group as of April 2010.
As the figure above shows, the only segment to show growth so far this year in the accessories segment. That may well be a clue to the changing revenue picture.
The figures above are for retail revenue in the U.S. only and do not reflect sales of software or downloadable content (DLC) through online stores for consoles like the Xbox 360, Wii, and PlayStation 3.