[Microsoft and Sony might sound supremely confident about 2012, but what do the numbers say? Gamasutra analyst Matt Matthews examines U.S. hardware sales data.]
Microsoft may be riding high after record sales in 2011, and it may feel confident that 2012 "will be a bigger year," but the facts so far at retail in the U.S. are not on Microsoft's side. Xbox 360 hardware sales are down 24 percent so far this year compared to the same January-February period in 2011.
For its part, Sony is basking in the "overwhelming enthusiasm amongst gamers" that accompanied the U.S. launch of its new PlayStation Vita handheld system. However, I expect they are at least a little concerned that the initial couple weeks resulted in sales of just over 220,000 systems.
Today I want to focus on the U.S. retail hardware picture, saving the software and accessories segments for later this week.
In the coming year, we will hopefully see lots of movement in the hardware market. The main events will come in June when Nintendo will likely announce its final Wii U launch plans, and Microsoft will release information about a hardware refresh which I believe will appear next year.
In the interim, both Microsoft and Sony will announce price cuts for their current consoles; I expect Sony to move first in April, followed quickly by Microsoft. Finally, we will begin to get a feel for the long-term prospects for both the Nintendo 3DS and the Sony PlayStation Vita as the former begins its second year and the latter its first.
Sales of the PSP and PS2 are already insignificant, and I wouldn't be surprised to see them completely disappear this year.
To give you a concrete focus for my comments, let me give a picture of where the hardware market is today in 2012 versus where it was in 2011. Consider this graph:
The totals for this year are in the foreground with, where possible, last year's figures as a shadow in the background. The relative change in the sales rate is given in red for each platform, where this makes sense.
This breaks the hardware market down into three natural categories: newer platforms like the 3DS and the Vita, the two HD consoles (with sales falling less than 25 percent), and everyone else (with declines of more than 50 percent).
That first group -- the 3DS and Vita -- is of particular interest because it is on these platforms that the future of the handheld segment rests. I should clarify that I mean the traditional dedicated gaming handheld segment, because I believe that an increasing fraction of the general population is playing games on portable devices like tablets and smartphones and these are not considered part of the traditional definition.
In 12 retail months (which in this case is slightly less than 12 calendar months) a total of 4.5 million Nintendo 3DS systems have been sold, putting it ahead of every major system except the Wii and GBA, as shown in the diagram below.
Remember that the 3DS started off with a bang, but sales slowed down significantly through the summer of 2011, and it was only after the August price drop that sales came roaring back to very healthy levels. With that kind of handicap for part of the year, it's extraordinary that it ended where it did.
Essentially Nintendo is negotiating the end of a very successful platform -- the Nintendo DS -- and moving all the potential consumers over to the replacement system.
Take a moment to look back up at the January-February chart and note that if we combined Nintendo DS and Nintendo 3DS sales for the first two months of this year, sales of that combined platform would only be down only 14 percent compared to last year. Sure, still down year-over-year, but distinctly better than every other platform that was out a year ago.
If Nintendo can make good on its promise to keep a steady supply of great software headed to the 3DS, then I think the system will eventually fill roughly the same space that the Nintendo DS has for the past several years.
Turning to the other newer system, it is now fair to say that the PlayStation Vita did not live up to expectations in February. Wedbush analyst Michael Pachter appeared dismayed with the results, saying that they "made no sense" compared to the global 1.2 million sold-through figure that Sony had previously reported. Based on those remarks he had expected Sony to sell through 325,000 units in February in the U.S.
In my own predictions, I had expected the PlayStation Vita to do around 200,000 units but actual sales came in around 225,000 units. Neither Sony nor the NPD Group released an explicit figure, but the figure I'm giving here is within 5,000 units of the exact figure based on statements made in company press releases and by Anita Frazier of the NPD Group.
Here in the U.S., the system was made available initially in a $350 First Edition Bundle and then a week later in $250 and $300 packages. While we don't know how the system's sales broke down across these bundles, the NPD Group did tell me that the average price for the system's launch was $283.
That is, the average price was below the two most expensive bundles. According to my own work, I think we can reasonably agree that between 100,000 and 150,000 (or 44 percent to 66 percent) of PlayStation Vita systems sold around launch were the least expensive, $250 model.
Keep in mind that the NPD Group also takes into account retailer incentives (like gift cards free with a system) when computing average prices, so that could easily shift the numbers around in small ways.
I said last month that I didn't have high hopes for a $250 dedicated handheld launching in this market, and February's results have done nothing to dissuade me. Not only are hardware sales down across the board, but the Vita's sales are clearly clustered around its lower-priced model.
Look for March sales to surpass February's sales, but not by much. Most of the month-over-month increase will likely be because March is a five-week month on the retail calendar while February was only four weeks. By May, I feel that the system's sales will be on a downward trajectory and at that point it will be up to Sony to move to help the system along.
While I am trying to stick to hardware generally, I do think it's worth observing that the titles which historically sold well on the PSP in the U.S. - Rockstar's Grand Theft Auto: Liberty City Storiesand Grand Theft Auto: Vice City Stories- have no sequels even announced yet for the PlayStation Vita. It is still entirely possible that the right type of software, like a GTA, could spike demand for the Vita and help sustain it until a price reduction makes it more appealing to a wider class of consumers.
As it stands now, Wedbush's Pachter expects that the PlayStation Vita will be limited to 3-4 million units a year in the U.S. That sounds justified to me, at least for the first year, but as he noted at the time it is "impossible to call until the first mover frenzy dies down". If nothing else, the fortunes of the PlayStation Vita and Nintendo 3DS will provide plenty of discussion for months to come.
Finally, I want to go back to the Xbox 360 and the Wii and pick up on a few points there. The Wii is still the best-selling system of the current generation of systems, but the Xbox 360 has made up a lot of ground since the launch of the Xbox 360 S Model back in June 2010.
The figure I've put together showing each system's installed hardware base tells the story from the launch of the Xbox 360, to the launch of the Wii, through to the current day.
Right after the launch of the Wii, the Xbox 360 enjoyed a 3.5 million unit advantage over the Wii. About 18 months later, the Wii was just ahead and by May 2010 Nintendo's console had a 9 million unit lead.
Ever since the launch of the Xbox 360 S Model and the subsequent launch of the Xbox Kinect system, the gap has been shrinking. It's now down to 5.7 million systems and has been closing at an average of 0.2 million systems per month over the past year. At that rate, it would still take over two years for the Xbox 360 to lead over the Wii once again.
If Microsoft can, as it claims, make the Xbox 360 more successful in 2012 than it was in 2011, then the gap could close even more quickly. Were Wii sales to continue their 50 percent decline throughout 2012 and if Xbox 360 sales were just as good as they were last year, then the gap could fall to just a million systems when 2013 rolls around.
That's a worst case scenario for Nintendo and best case for Microsoft, but it gives a good indication of just how fluid the market is. Remember that already the Xbox 360 is behind last year's figures by 24 percent, so before the system can outperform it will first have to live up to the standard set in 2011.
When asked about HD console fortunes, Michael Pachter of Webush Securities noted to me that he expects their sales to be down 10-15 percent year-over-year each month until price cuts are announced. That will put even more pressure on Microsoft to make up for the declines in the first quarter of 2012.
I think Microsoft is waiting for the right time to drop its price and begin marketing its system heavily as a kind of essential living room appliance, one that can be had for $150 or maybe even less. Then they drive that momentum into 2013 where they have some sort of hardware upgrade waiting. This isn't a completely new system, but an innovation on the existing system that will get loyalists to upgrade and excite the third-parties with some new capabilities.
Lots of things can still interrupt these plans, however. With the right mix of software and novelty, the Wii U could provide an obvious upgrade path for the nearly 40 million existing Wii owners. Presumably Nintendo won't stumble again on price, as it did with the 3DS, but we'll know more soon.
Sony could also upset Microsoft's current winning streak if its drops the PS3 price enough to peel off price-conscious consumers who really want a new console. The average price for the PS3 is still below the Xbox 360: $271 versus $284 according to the latest NPD Group data I've received. Take another $50 off that PS3 price, and the balance could shift dramatically.
Later this week, I'll be back with some data on software and accessories, along with thoughts on the broader content market, as currently measured in the NPD Group's Total Content Spend Estimates. They noted that $550-$600 million was spent outside of traditional retail in February 2012. I'll try to explain how that figure isn't necessarily as positive as it sounds at first.