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NPD: Behind the Numbers, August 2010

September 13, 2010 Article Start Previous Page 4 of 4

Xbox 360 S Model Tracking Ahead of PS3 Slim

Prior to the launch of the new Xbox 360 S in June of this year, sales of Microsoft's console were already up 6.7% in 2010, year-to-date. For a console finishing its fifth year, that's a significant accomplishment.

After three months of Xbox 360 S hardware sales, the system is up a staggering 34%, year-to-date.

While sales in August were still short of the 400,000 unit level we favored after seeing the July figures, we can still say with confidence that consumers are buying the new model on its own merits and not simply snapping up clearance-priced older models.

Given the launch of the PS3 Slim model last year, we felt it might be useful to compare the sales bump for that system to that for the Xbox 360 S model.

The table below shows the year-over-year PS3 sales growth for August – October 2009, and the corresponding YOY growth for the Xbox 360 from June – August 2010.

The Xbox 360 S model clearly demonstrates growth quite similar to that of the PS3 Slim, even though the comparison isn't perfect. In particular, the first month of the PS3 Slim was just barely in August 2009, when some systems arrived in stores just before the end of the NPD Group's reporting period. So, while sales were up modestly, the full effect was not felt until September.

Sony's Slim boosted its annual system sales by 66%, up from 2.95 million to 4.90 million. Were Microsoft to realize a similar rate of growth by the end of May 2011, they would have realized sales of 8.07 million systems annually, up from 4.86 million in the previous 12-months.

(For a bit of perspective, the Nintendo Wii still realized sales of 8.99 million systems in the past 12 months, even with its recent weaker sales.)

Naturally, Microsoft should also realize stronger software sales in the coming months as a result of the higher hardware sales. Again, looking to Sony's experience as a guide, Sony saw its software sales increase by over 25% in the year following the launch of the PS3 Slim.

By our estimates, based on Microsoft's periodic press releases about its software sales and analyst comments on growth rates, that would put Microsoft's software sales in excess of $3.2 billion during the 12 months after the launch of the Xbox 360 S model.

None of the above estimation takes into account Microsoft's first ace in the hole: Halo: Reach. According to analyst Doug Creutz of Cowen and Company, sales of that title could reach 3.6 million units in September alone. Sales at that level could add $250 million to Microsoft's software revenue, and just from a single title. We also expect that hardware sales for September will easily exceed 400,000 units.

Microsoft's second ace is its ability to drop its hardware prices at the time of its own choosing. Provided its hardware sales remain strong through the end of the year – and we see no reason for them to slow down – it can easily afford a $50 price drop on all its systems in early 2011. We feel the Xbox 360 offers a superior value, and at $150 the Arcade model could do exceptionally well throughout next year.

Whether Kinect, the new motion control technology launching on the Xbox 360 in November 2010, will represent a significant factor in the system's sales remains unclear to us. (For the sake of completeness, we are also not clear on Sony's strategy for its Move system.)

[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 helpful analysis. Additional credit is due to Michael Pachter, analyst for Wedbush Securities, for his perspective and instrucive conversations. We also wish to thank Doug Creutz of Cowen and Company for his insights. Finally, many thanks to colleagues at Gamasutra and particularly regular commenters on NeoGAF for many helpful discussions.]

Article Start Previous Page 4 of 4

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Notable August 2009 releases: Batman Arkham Asylum, Shadow Complex, FF:Dissidia, Madden 10 (this will cancel out madden 11 pretty much), Trials HD, Marvel vs Capcom 2, Wolfenstein, Champions Online, Gears of War 2 GOTY Edition.

DanielThomas MacInnes
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"It would indeed be unfortunate if the contraction at retail gave the impression that the video game business overall was contracting. It seems plausible to us that the whole market, in all its forms, is actually growing. How ironic that the overprotective secrecy regarding online sales and extra-retail revenue streams could lead investors and analysts to precisely the wrong conclusion."

This could become a difficult paradox. While I do believe it is crucial to understand the growth and impact of online sales, the temptation will be strong to jump on these numbers as "proof" the video game market is growing, when in may, in fact, be contracting. What we need is data across many years, in order to understand where online is growing, and whether its momentum is rising or falling.

We could add online sales (Live, PSN, Wii Shop) to retail, proclaiming that sales are up, up, up. But if we don't know online sales from past years, how do we know its impact on the market? Perhaps customers are moving from retail to online, perhaps online represents a small niche market, perhaps its impact does not affect retail. As always, we are going to need more data, and that will require much more time.

The main question - are customers buying $10 games online instead of $50 retail titles - is very important, and I'm sure the economy plays a role. But the quality of retail titles is critical and will remain so. If people are not buying $50 retail games, then most likely it is because they don't believe those retail games are worth the investment.

That said, I do agree that reliable, impartial tracking of online sales are needed, the sooner, the better.

Sylvester O'Connor
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I agree Daniel. I can say that one thing that I have noticed is that many people that I know that are in the industry and that are not are buying way more used games overall as opposed to full priced new games. The $60 price tag is making people think more economically. I know several people that just played Uncharted 2 because the price has dropped dramatically to $34.99 at Gamestop. I am hoping that they can somehow figure out a way to equat online sales into their equations or it will continually look like software sales keep declining.

DanielThomas MacInnes
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Exactly. We're not buying as many games because 1) the economy is a wreck and everyone expects it to get worse (next year will be a circus, ugh), and 2) hardly any games are worth playing.

For the HD Twins, there are nothing but Quake clones and Tomb Raider clones. I am so sick to death of all the gun games. If I owned a 360, I'd be perfectly happy with Modern Warfare 2 and the new Halo. Ditto for PS3; in fact, I'd probably just use the PS3 to watch Blu-Rays. I'm a classic arcade gamer who loves everything from Atari to Dreamcast, and nothing on the Twins interests me at all.

And Nintendo....will somebody tell these people that they need to MAKE SOME MORE GAMES?! What is the deal here? Did Nintendo release only three games this year?! Mario Galaxy 2 has its fans, sells well, but is pretty flat by 2D Mario and Nintendo standards. Sin & Punishment was just DOA, and bogged down with too much junk. And Metroid: Other M is an effing disaster. It's absolutely the worst Metroid game ever made, which is fine by Yoshio Sakamoto, because he doesn't want to make video games, anyway. He wants to make movies. To hell with cinematic games.

Where are the motion control games? Where's the fully fledged sword fighting game? Where the hell is my light saber game? Where is the game where I shoot a bow and arrow? Where's the game where I fly an airplane and shoot things? Where's the water racing game? Yes, I know....please don't say "Zelda." I want action and arcade games, not gimmicky puzzle games that treat me like a baby.

I'm not buying any games because money's tight and there's nothing worth buying. Right now I'm focused on building up my Sega Saturn library. Seriously, I'd rather have a Saturn than any of the 7th Gen consoles. I'm looking forward to the holiday season, and I'm looking forward to 3DS, but that's it.

E Zachary Knight
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Don't blame Nintendo for the lack of great motion controlled games or the lack of great games period. Blame the 3rd party devs who are still ignoring the Wii for anything other than cheap party games.

But there are some good games out there, but they are few and far between.

Mike Siciliano
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"Sin & Punishment was just DOA, and bogged down with too much junk."

Ahhhhhhhhh. I really liked Sin & Punishment. I mean a lot. Much better than the first one. Story made no sense though. Makes me wonder why there was even an in-game story to begin with.

"Where are the motion control games? Where's the fully fledged sword fighting game? Where the hell is my light saber game? Where is the game where I shoot a bow and arrow? Where's the game where I fly an airplane and shoot things? Where's the water racing game?"

Tell me about it. The other day I got an itch for a full-fledged, motion-controlled baseball game and what did I find? Nothing. After tons of research and digging through forum threads on "Wii baseball games" it turns out that MLB Power Pros is the best baseball game that isn't motion controlled, but if you want motion controls, you're out of luck. Wii Sports is still the best. That makes me sad.

Oh, and where's my Wave Race? I want it.

Russell Carroll
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S&P - Ditto, really liked!

Baseball - Totally hear you! (though MLB Power Pros is also a fantastic game for baseball fans, I'm 3 years in on the game and enjoying it more and more...seriously!)

Wave Race = MIA (Seems like a game that Monster Studios could have done well, and it would have been a better thing to work on than ExciteBots, which I found a disappointing follow-up to the great ExciteTruck)

On the quoted comments:

Swords - Red Steel 2 mostly fits that bill, and can be had for $20 now. Dragon Quest Swords is kind of fun swords on rails (too bad it was before Motion+). Otherwise yeah, waiting for Zelda, and why is LucasArts refusing to make a LightSaber game for the Wii? Seriously? WHY?

Flying - Skycrawlers - Get it, play it. Another of those games people missed out on that came out earlier this year, it's a lot of fun with motion controls that make the experience better.

Mike Siciliano
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I picked up Sky Crawlers day one. Very good game.

DanielThomas MacInnes
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Ah, that's right! I keep forgetting about that one. Sky Crawlers is never mentioned, so I just assumed it wasn't very good. But I haven't seen any copies around since last year, so I haven't had a chance to see for myself.

Thomas Lo
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It is probably very foolhardy to say that the 360 will have the same kind of sales boost the PS3 did when it reached a lower pricepoint. For one, the 360 is farther along in its lifecycle and always had less fully featured versions of its console at the pricepoint of the slim. Also the slim's seeming rectification of RROD may mean a lot of existing console owners are repurchasing systems. This is lent credence by the fact that 360 software sales are flat.

Also, the 360 is lacking in any new franchises or triple-A titles. I don't think a third iteration of Halo on the 360 is going to rock console sales, that audience is tapped out (as evidenced by the last game's lesser reception versus Halo 3). The 360 is now on a downward slope and will mainly use pricecuts to reinvigorate the market now.

The same is true for the Wii which is bleeding large segments of its userbase as software purchasers (what other explanation is there for decreasing software sales despite strong hardware sales). New purchasers of wii software are not making up for the loss of old ones.

The PS3 remains a tiny pinprick of hope for growth and a lot of eyes are on Gran Turimo's ability to move consoles this fall as a Triple A title. It is likely with it's release that the PS3 will finally surpass the 360 in worldwide console marketshare. What remains to be seen is if it can keep this momentum in the face of a lack of new Triple-A content and a market that may be waiting for the next big thing.

Jerry Hall
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Well, if anymore of these 61% reviewed games like "Kane & Lynch 2" are in the pipelines, expect sales to be lower until Nov.