[Gamasutra analyst Matt Matthews examines U.S. retail video game sales during April -- a month that turned 2011 year-to-date growth from negative to positive -- and delves into pricing strategies and other challenges for major consoles.]
For the first time since February 2009, the U.S. video game industry posted its first double-digit growth rate according to retail sales figures released by the business tracking firm, the NPD Group. Building off the particularly weak sales figures recorded a year ago, overall sales were up 21.5 percent in April 2011.
The growth was driven by continued strength in Xbox 360 and PlayStation 3 hardware, the addition of Nintendo 3DS hardware sales, and a rapidly expanding accessories segment. Year-to-date, the industry is up 2 percent overall, however software is still down 4 percent in terms of dollars and 1 percent in terms of units.
Below we will examine the trends going on beneath the surface, including a discussion of hardware and software unit sales, and the accessories segment. Then we'll take an extended look at the issue of hardware pricing, drawing on a historical comparison to the last generation of hardware and looking at the recent PSP and Wii hardware price cuts.
Growth and Contraction
The market has been going through a period of swift and dramatic changes, and we now take stock of the larger trends and the underlying movements which are driving them. First, let's look at the top line revenue figures, covering all three primary segments – hardware, software, and accessories.
According to the latest figures from the NPD Group, total video game revenue at retail for the first four months of 2011 is up 2.3 percent year-over-year. One has to look back three years to April 2008 for the last time that kind of year-to-date growth happened. That was a memorable month: Grand Theft Auto IV launched on the PlayStation 3 and Xbox 360 while Mario Kart launched on the Nintendo Wii.
Even so, revenue in 2011 is still far below that historical high point. Below is a comparison of total industry revenue for the first four months of each year since 2006. As you can see, the year-over-year growth from 2011 to 2010 is marginal – around 2.3 percent or less than $100 million – while the growth in 2008 was a far more substantial 31 percent or $1.3 billion. So while a gain is a gain, it's still modest compared to the height of the retail business just a few years ago.
Just last month the year-to-date (YTD) retail industry revenue for 2011 was behind that of 2010 by about 1.3%, so the move to positive YTD growth can be attributed primarily to the single month of April. Scanning back through the historical data, April 2010 was a very weak month with a mere $766 million in total revenue, by far the weakest month of revenue since the industry generated only $643 million at retail in October 2006.
The NPD Group breaks the total revenue figure up into three segments: hardware, software, and accessories. Each of these has had its own dynamics over the past few months, and we should look at them separately.
In the hardware segment, it has been established for some time that the Wii market is cooling rapidly while the Xbox 360 market has heated up significantly and the PlayStation 3 market has continued at a slow burn. The figure below makes this point graphically.
Despite having no price cut since August 2009, the PlayStation 3 is continuing to eke out growth over last year. The same is true for the Xbox 360 which hasn't had a proper price cut since September 2008, although the top-line model was cut to $300 from $400 in August 2009.
While we can attribute some of the Xbox 360's growth to the ongoing success of Microsoft's Kinect initiative, the case is harder to make for the PlayStation 3. It would be advantageous for Sony to attribute that growth to its own motion-control system, PlayStation Move, but there is simply little indication that there is any causation.
The Xbox 360 has reached its peak rate of sales since its launch, with an annualized rate of 7.1 million systems, based on sales since May 2010. The PlayStation 3, by comparison, is running at about 90 percent of its peak rate of 4.9 million systems (achieved in the 12 months from September 2009 to August 2010).
With January – April sales falling to half the level demonstrated in 2008, the Wii is truly on a downward trajectory. We will deal with pricing and the Wii's successor – "Project Café" – in the next section, but we can say for now that the Wii has had an extraordinary and successful run that is in its final phase.