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# U.S. video game hardware in 2012: Winners, losers and retirees

January 14, 2013 | By Matt Matthews

January 14, 2013 | By Matt Matthews
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Five million. That's the number of traditional consoles and handhelds that were sold in the U.S. during December 2012, based on the latest retail estimates released by the NPD Group, a sales tracking firm. I have accumulated reports of their estimates running back through 2000, and this is the first time in those 13 years that December hardware sales were so weak.

If you accept the idea that the hardware sales of the present are a harbinger of software sales in the future, these figures are surely an ominous sign. But measurements of software sales have become a much thornier problem, and I'm devoting an entire column to them later this week. So for now, just hardware, starting with the best-selling platform of the year...

# First Place: Microsoft's Xbox 360

When Microsoft introduced the Xbox 360 S Model hardware revision in the summer of 2010 and followed it up in November of that year with the Kinect peripheral, the company bought itself not only an extra two years of life on the console market, but put itself in the driver's seat through at least the end of 2013.

That's how the Xbox 360 ended up not only the best-selling platform of 2011 but also 2012. And unless something shifts dramatically, it could end up the best-selling console in 2013.

The figure below shows the platform's annual hardware sales since 2006, and it demonstrates just how the Xbox 360 was languishing under 5 million units per year prior to the S Model and Kinect. Now, a full three years later, it still managed to shift 5.3 million systems in a year.

The system's life-to-date (LTD) total in the U.S. now stands at 38 million units. For a sense of just how far Microsoft has come since its first console, the original Xbox maxed out at under 15 million units in the U.S. The Xbox 360 has at least another year before it is deprecated, and could pass 40 million units in August of this year.

Sony actually increased its price by discontinuing its $250 PS3 Slim 160GB base system and replacing it with a more expensive$270 PS3 Super Slim 250GB system bundled with Uncharted 3. Then it gave retailers deep discounts during the Black Friday period sales, driving its average price down to $238 in November. In December, however, the average price of the PS3 was back up to$274, according to official NPD Group data. That's the highest average price for any PS3 in any month during 2012. Wedbush analyst Michael Pachter told me, "Sony will probably drop this month by $50, but I’m not sure they care if they sell an additional million PS3s. They’re focused on next generation." But even with all this discounting and bundling and revising, Sony still suffered that 25 percent drop in annual hardware sales. It isn't clear to me that it can sustain another year with declines like that, and the only lever it really has an option to pull right now is the price. It knows how well its business fared through the holiday season with those discounted bundles. We will see in the coming months whether that was enough to move the company toward a real price cut before it launches a new system in late 2013. # The New Kids: Nintendo Wii U and Sony PlayStation Vita The Wii U had a somewhat disappointing launch, and did not reach 1 million units before the beginning of 2013. Total sales now stand at 890,000 units with 462,000 of those having been added in December. The fact is that the Wii U is the right now the most expensive console on the market, with an average price of$340 according to official NPD Group figures. In the absence of discounts and bundles, that suggests that consumers are largely buying the \$350 Deluxe model over the base model by about 4-to-1.

Until we begin to get some data outside of the holidays, I'm disinclined to begin extrapolating into 2013. We simply don't have enough information to draw strong conclusions, and the process of evangelizing to the public has just begun. Nintendo needs to get its message out, both to consumers and to developers.

What does alarm me right now is the rate at which new software is arriving for the platform. If GameStop is any indication, there are only two titles scheduled for retail release between now and March: Rayman Legends during February and LEGO City: Undercover on the first of March. That's just astonishing.

And even though Sony's PlayStation Vita hasn't been out for a year yet, I think it's safe to say that it's going nowhere fast. From my estimations, in the U.S. the system moved right around 250,000 units in December, putting its total sales in 11 months at 1.28 million units.

What precedent do we have for this kind of anemic launch? The Nintendo DS hit 1.4 million units in three months in the U.S. The PSP hit 1.2 million in three months. The Nintendo 3DS hit 1.4 million in seven months. Even the PS3, which had a disastrous post-launch year, still hit 1.3 million in 6 months.

Getting a system successfully launched requires priming the engine a bit, by getting lots of hardware out there and evangelizing to publishers to get software fed into the business. Sony appears to be failing at both, since its hardware results are dreadful and bundled software probably makes up a majority of the titles consumers have actually gotten from retail.

Will the system be "Dreamcasted" in 2013? That would be unfortunate, but understandable.

# The Retirees: Nintendo Wii and Nintendo DS

As for the Nintendo DS and Nintendo Wii, those systems are on their way to retirement after impressive, productive careers. The Nintendo DS sales curve since 2005 looks like the figure below.

As you can see, the introduction of the Nintendo DS Lite in mid-2006 doubled annual sales and they had nearly doubled again by 2008, peaking at 11.2 million systems in 2009. In the three years since, Nintendo DS hardware sales have fallen over 82%. Once new software ceases and retailers clear their shelves later this year, its run will end quietly.

The Nintendo Wii launched later, peaked sooner, and has declined more slowly than the Nintendo DS, as the figure below shows.

I actually hope that Nintendo ends the retail presence for the Wii this year, since it really needs to focus its resources on the system's successor, the Wii U. However, Nintendo's bundles and price moves at the end of 2012 leave it an open question of whether the company is really done with this system.

# The Long View: A Stable Core Market

My colleagues at Gamasutra rib me for writing articles filled with doom about the retail market. One man's realism is another man's doom, I suppose, but I do want to show an image that I think demonstrates just how robust part of the console market has been over the past decade.

If we look at U.S. console sales in any contiguous 12 month period, we can view the figure as an annualized rate. I've also used the term trailing twelve month (TTM) rate before, for the same kind of data. Looking back into the middle of the last generation, when the only sales from the previous generation that might still exist were from the PS One, and then through the current day, the annualized rate of hardware sales looks like this:

Viewed this way, I think we can characterize the current generation, the one that is widely expected to be fully superseded this year, in the following way: The Xbox 360 and PlayStation 3 alone were able to keep console hardware sales at approximately the same level that was previously achieved by three consoles.

If we pick out just one point for comparison, the PS2, Xbox, and GameCube were selling at a rate of 12.6 million systems per year in January 2004. In January 2008, just the PS2, Xbox 360, and PS3 were selling at a rate of 11.1 million systems per year. Four years later, in January 2012, the PS3 and the Xbox 360 alone were selling at a rate of 11.1 million systems per year.

At its peak, then, the Wii alone was adding over 10 million systems per year to the system. That was a true expansion of the market, adding millions of potential customers for future generations of hardware and software.

Regardless, for over a decade the U.S. has had a core market of approximately 10 million new consoles per year. In the next year the Wii U and new consoles from Microsoft and Sony will hopefully begin to replace the declines that every older platform is experiencing.

If that happens, and the publishers can continue to produce software that millions of consumers will want, then there is every reason to expect that the traditional industry will continue to exist in some form for many years to come. Gamers will get their games and someone will make money selling them those games.

The catch, of course, is that the software won't be sold through retail, and retailers like GameStop are in for a very, very hard time. But that's a story for another column.

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