When Microsoft's Xbox 360 launched in November 2005, the industry's leading U.S. console was having a good year: PlayStation 2 hardware sales in 2005 -- its fifth year on store shelves -- were 18 percent higher than the 2004 total.
That wasn't the peak for the PlayStation 2, but it was a sign of market resilience. I believe the weaker 2004 sales can be put down to Sony's uneven transition from the original PlayStation 2 system to the revised PS2 Slim model.
Regardless, the PlayStation 2 was a rock of stability in a market making the transition to the first generation of HD consoles. In that year alone God of War, Gran Turismo 4, Guitar Hero, and Shadow of the Colossus were all released for the PS2.
At this moment, as the market makes its latest generational transition, the previous generation's market leader has not proved as stable a foundation. Nintendo's Wii was a huge moneymaker from 2006 to 2009, but then saw a very rapid contraction from nearly 10 million units per year in 2009 to well under 5 million units per year in 2011. And outside of an acclaimed title like Xenoblade Chronicles, a title sold new at a single retail chain in the U.S., what has been released in the past year that people will remember as a classic Nintendo Wii title for years to come?
But it isn't just Nintendo's Wii that's been on the way down. No single system has seen better hardware sales in 2012 than it did in 2011. So far this year, Microsoft's Xbox 360 is down nearly 30% and Sony's PlayStation 3 is down over 22%.
It's into this reality that Nintendo launched its latest console, the Wii U. As its predecessor did six years ago, the new system has taken its first tentative step down what we can surmise will be at least a five year life on the market.
How did its hardware sales do in the first month? How much software did it shift? What was its total contribution to the wounded U.S. retail video game market? I'll answer these questions and give the gritty details below.
Hardware: A Good Start
According to an official press release from Nintendo, its brand new console sold 425,000 units during the week from 18 November to 24 November 2012, based on data from the NPD Group, the largest retail tracking firm in the United States. That week was the last of the November period in the U.S. retail calendar, ending with the Saturday after the Thanksgiving holiday and Black Friday.
Previously, the company had announced sales of roughly 400,000 units during the week of Thanksgiving, based on its own internal tracking data.
How well does that launch stack up against the precedents set by previous consoles? Going back to 2000 and the launch of Sony's PlayStation 2, the launch month sales for each major console are given in the table below. (Click for a larger version in a new window/tab.)
Because each system was available for a different amount of time in its launch month, I've included an average systems per day figure to try to make the comparisons a bit more direct. However, there is no way to account for all of the factors affecting a launch, like supply shortages, so the comparison shouldn't be taken as an absolute metric of success or failure.
Regardless, the data above appears to show that the Wii U had a good start. It wasn't a runaway success, as Sony saw with the launch of the PlayStation 2, but it was better than the original Xbox, the GameCube, and the PlayStation 3. It was in the same ballpark as the Xbox 360 and Nintendo's own Wii.
I stand by my previous comments that the Wii U should hit right around a million units in the U.S. by the end of this year, if it maintains the sales velocity that it had out of the gate. Because of the timing of the retail calendar, there is a longer-than-usual run up to Christmas in the December period, and that will give Nintendo plenty of time to resupply stores. (A local retailer informed me that they had received four additional shipments of Wii U systems since launch, and they continued to sell out as the new systems arrived.)
One quirk of the launch that is worth noting is that the Deluxe model of the Wii U, which retails for $350, was more popular with consumers than the $300 Basic model. According to data provided to me by the NPD Group, the average price across all Wii U systems sold in November was $338. That means that the Deluxe outsold the Basic by a 3 to 1 ratio.
That's particularly interesting because on older systems, it is invariably the cheapest or middle-tier model that is preferred by consumers. For example, during November the Xbox 360 averaged $227 per system while the PlayStation 3 sold for approximately $238. That means that Microsoft and Sony moved a great number of heavily-discounted or software-bundled systems, and fewer consumers opted for the more expensive models.
I'm unsure how Wii U sales will balance out during the coming months. At least through January, I believe the Deluxe bundle will remain dominant. But as the early-adopter market gets tapped out, the remaining population of potential consumers could turn out to be much more price-sensitive. One has to look no further than the launches this year of the Nintendo 3DS XL and the Sony PlayStation Vita to see this effect.
On the other hand, just on paper, the Deluxe model is much more appealing, since it includes a game and four times the hard drive storage as the Basic. I've often said that consumers buy according to perceived value, and this is likely the case with the Wii U, for now. Perhaps the Basic set will turn out to be the 20GB PlayStation 3 of Wii U configurations.
And, as has been happening with the Nintendo DS and 3DS for well over a year now, Nintendo will continue to fight for sales against its own legacy system, the Wii. Despite its age, the Wii still represents a tremendous value for the consumer who merely wants entertainment for a low price.
For example, the average price for the Wii in November, at $108, was well under one third of the price of the Deluxe Wii U set. For just $150, Nintendo and Activision were offering the only Skylanders Giants hardware bundle that I'm aware of in the U.S. And just about every used software shop is packed to the gills with hit games from the heyday of the system: New Super Mario Bros. Wii, Mario Kart Wii, Super Mario Galaxy, several iterations of Guitar Hero, and dozens of other titles.
Speaking of Software...
Fortunately for consumers, they can still buy Wii games and play them with the Wii U. But the new Nintendo console is the first to feature $60 new releases, like Call of Duty and Nintendo Land, and you can bet that third parties and Nintendo itself would prefer consumers invest in the more expensive software.
That would put total software sold at just over 500,000 units and around 270,000 units across the other twenty eight launch titles.
I think I can provide a little historical context with the table below. (Click for a larger version in a new window/tab.)
As the figures above show, the half million units of software for the Wii U appears to be around half the volume that the original Wii moved at launch. And that figure for the Wii does not, I believe, include the pack-in Wii Sports.
In a note sent to me earlier this week, Michael Pachter of Wedbush Securities told me that if you add in the copy of Nintendo Land software bundled with the Deluxe Wii U set, the tie ratio for the system came out to 2 titles per system.
That is, if I've got my estimates right, the Wii U launch software count only gets close to a million if you count the copies of Nintendo Land bundled with the Deluxe set while the Wii got a million at launch without counting the bundled Wii Sports.
At least part of this difference has to come down to just raw dollars. At launch, a consumer could buy a Wii (with Wii Sports) and another game for $300. Out of the gate, the base Wii U system is $300, and that model doesn't include Nintendo Land. And any consumer who picks up the $350 model is at least tempted to be happy with Nintendo Land and old Wii games until used software begins to show up in GameStop.
This first step for the Wii U is clearly disappointing to analysts. Michael Pachter called the software sales "abysmal". Cowen and Company's Doug Creutz said that Wii U software dollar sales came in at half his company's initial estimate. Personally, given what happened with the Wii, where software sales picked up to an absolutely torrid pace a little over a year into the system's life, I'm willing to wait a bit longer.
In mathematical terms, this is just the initial condition. The dynamics of the market over the next year are simply too difficult to read too far into the future.
Going back to the software sales table above just for a moment, the Xbox 360 launch figures are really astounding. They demonstrate what I believe is Microsoft's success in encouraging its most avid Xbox consumers to upgrade as soon as possible. Perhaps earlier systems like the PlayStation 2 did just as well at launch, but it's difficult to imagine. If and when Microsoft introduces a new dedicated console, I believe they stand a good chance of urging the latest generation of Xbox enthusiasts to repeat that performance.
Can the Wii U Turn the Tide?
Given the figures we have, it now appears that the Nintendo Wii U contributed about $144 million to the hardware total for November and in the neighborhood of $25 million to software, on the assumption that each Wii U software unit averaged $45 to $50, as is has often been true for the other HD consoles.
Out of the $250 million spent on accessories in November, according to the NPD Group, it is difficult to imagine that the Wii U accounted for more than $10 million to $15 million. Unfortunately, accessory data is closely held by the NPD Group and it is unlikely that we'll ever get hard figures.
If my estimates are reasonable, then it appears that the Wii U contributed at most $185 million for the month, or around 7% of the entire market size across all segments. In just software, it was a very small 2% of all sales.
In just one month, a new console cannot alone turn the tide of a market that has been in a slump like the one the U.S. retail video game market has been experiencing for nigh on four years. It is, however, a good first step.
It will take at least six months for the system to substantially build up from the losses in Wii software sales, and this is where Nintendo will need to execute on its stated business plan. As I've pointed out before, Nintendo claims it has learned from the Wii and Nintendo DS will work to provide a steady stream of top-notch first-party and third-party software titles for the Wii U.
I believe Nintendo has a good start for its Wii U in the U.S. and the honeymoon will continue until at least March. Once the launch party is over, the company will have to demonstrate that it has attracted the publisher goodwill and brought its own best products to the table to keep the Wii U and interesting and attractive product for consumers.
Then, and only then, can we say whether the Wii U will help build the industry back up or simply replace what is being lost in the decline of older systems.