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Here's what a console transition looks like, by the numbers Exclusive
Here's what a console transition looks like, by the numbers
August 23, 2013 | By Matt Matthews




How does a console finish its time on the market once its successor launches? Does it linger on for years, as sales slowly wind down? Does it bow out quickly, leaving the spotlight for the new generation?

The answer to that question depends on a lot of factors. As I'll show you below, some platforms like the Nintendo 64 and GameCube departed within a year of being made obsolete, while others hung around far longer.

And starting this winter, both the Xbox 360 and PlayStation 3 will no longer be the flagship consoles for their respective manufacturers. However the market today is not the same one into which they entered, and there is a chance that their passing is an opportunity for new systems to break into the console market. Sony and Microsoft and Nintendo are still working the console market from their traditional assumptions -- and those assumptions may not be valid much longer.

The Nintendo transitions

Before I get to that, however, let me show you what has happened to Nintendo's console shipments once a new system is launched. Looking at Nintendo's earnings releases, you can piece together the following data for its past three console transitions.


Once the GameCube launched in late 2001, only about half a million Nintendo 64 systems were shipped, and no more systems delivered to retailers after March 2002. The same kind of transition happened between the GameCube and the Wii, but over a longer period. Between the end of September 2006 and the end of March 2008, Nintendo only shipped about 540,000 GameCube systems. In both cases, post-successor sales of the older console was a tiny fraction of overall sales.

However, the situation with the Wii after the Wii U launch has been quite different. From October 2012 through June 2013, Nintendo has shipped an additional 2.9 million Wii systems. This includes the Wii Mini, which first began shipping mere weeks after the Wii U launched, an indication that Nintendo still sees life in the aging little console.

One explanation for the longer Wii afterlife is that Nintendo hopes to send the cheaper console to countries outside its traditional territories which haven't yet been tapped. Or, Nintendo could simply be responding to the remaining demand for its older console the Wii is still outselling the Wii U in the U.S. for example and helping to pad its bottom line each quarter. Likely the real answer is somewhere between these two.

One way to visualize how Nintendo has phased consoles out as new ones became available is to track the company's annualized (trailing twelve month, or TTM) sales rates for each system. That graph, for the last four Nintendo consoles, is shown below. (Another view of the same data can be seen here.)

The PlayStation transitions

Turning to the other Japanese console maker, Sony, we can see an entirely different picture. Here are the figures I have for the transition between the original PlayStation and the PlayStation 2 and then between the PlayStation 2 and PlayStation 3.


I hadn't thought about these figures for Sony before working on this column, and I was frankly quite shocked. In both of the previous transitions, Sony shipped approximately 30 percent of its older console's total units after its successor launched.

In the case of the PS1, that turned out to be 30 million systems over the course of over five years. For the PS2, that came to 50 million systems over the course of more than six years. If the PS3 were to perform similarly, its final sales total would come out to 104 million systems, just a few million past the final total for the PS1.

Let me give you the TTM graph for Sony's hardware similar to the one I made for Nintendo. (And another view is here.)


But will the PlayStation 3 really sell for years after the PlayStation 4 launches in November of this year? I don't think that's altogether obvious, because a console similar to the Ouya or Valve's Steam Box could disrupt Sony's console afterlife.

These kinds of mobile-based consoles will have advantages that Sony simply does not with its console. The PlayStation 3 is designed around the custom Cell processor, a custom Nvidia graphics processor, and a hard drive. I believe there is a floor of around $150 per system below which Sony will never be able to get their PS3 production costs. It has taken seven years to get to the $200 level in the U.S., and that system has less on-board storage than the original $500 20GB model had in 2006.

While Sony continues to battle the consequences of the hardware decisions it made back in 2005, the newer consoles will be built around the reality we have today. Using low-cost CPUs and GPUs, a modest amount of on-board storage, expansion in the form of SD cards, and cloud services to provide software on demand, an Android-based console starts at a far lower base cost.

As mobile-based hardware and operating systems migrate to these novel consoles, a whole army of developers and a slew of well-known, newer game franchises will follow. Even big publishers like Electronic Arts are now extremely active on mobile platforms, and it wouldn't surprise me to see all their big franchises appearing on a console with the right pedigree and userbase. Moreover, the hardware and game engines have been ramping up their sophistication extremely quickly over the past few years, following the kind of growth curve described by Clayton Christensen in his work on market disruptions.

That means that a new console could come in and compete with on the features like graphics and sound that have traditionally been PlayStation's strengths, and still undercut Sony on price.

Disrupting the traditional console transition

That competition could, of course, have consequences beyond trimming Sony's hardware sales. All the additional PS3 software revenue that Sony could expect over the next several years, both in terms of sales and licensing fees, will likewise take a hit.

Of course, this is all speculation. The current competition, like the Ouya, simply isn't a real threat to Sony. However, it would only take one surprise announcement from a big company like Apple or Amazon to change the landscape completely, and it seems certain that Valve will eventually bring its Steam Box to market.

I'm reminded of the saying that generals always prepare to fight the last war. Microsoft was soundly beaten by the Wii when it was unprepared for the novelty of Nintendo's motion controls and now the Xbox One with Kinect has the most tightly-integrated motion controls any console has ever had. Sony was criticized for its more challenging hardware and high costs, and is now praised for the developer-friendly PS4 and lower entry-level price.

But their business models are still mostly built on the presumption that there will always be a traditional console market. It will just take a single successful outsider console to change everyone's perspective.

[Note: There is some fine print attached to the Sony data I've presented above. Prior to April 2006, all the data Sony provided was production shipments that is, systems produced by Sony and shipped to warehouses but not necessarily sold to retailers. Starting in April 2006, Sony began reporting sales to retailers. I believe over longer periods of time (on the scale of years) these two figures roughly track with each other, and so I've not bothered to separate them. Finally, for the last five quarters Sony has regrettably combined PS2 and PS3 sales figures in its quarterly statements. I have used my own personal estimates for each console's share of each quarterly sales figure in those cases.]


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Comments


Geoff Yates
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Yes, having seen all the generation of consoles I have to say Nintendo invariably drop their old consoles like hot potatoes. That is the difference between Sony and Nintendo. Reflects in their sales. Wii sells because its cheap and still family friendly.

The sad part about Nintendo was the whole fiasco around Twilight Princess. Finally capitulating with a release on the GC as well as the Wii.

The biggest threat to consoles is tablet gaming (or PC players thanks to Steam). Ouya isn't a threat its a gimmick. Once the next Tegra 4 chipset gains momentum that will make a mountain of difference to programmers.

Note: Not a Nividia employee nor shareholder I like what they have done with their mobile tech.

Merc Hoffner
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A large factor in he 'dropping' of a console is the third party support in the late years of life. Nintendo's last three consoles haven't enjoyed decent third party support during their prime sales years, let alone their ending years unlike Sony, the market leader for two of the covered generations. Had the data run back to include the SNES and NES, I'm sure the drop off would have had a longer tail. Had the data covered the portable platforms I'm sure we'd see the reverse. By definition we'd see a similar drop off with the Dreamcast, and certainly too with the Saturn and probably the Xboxone.

I believe it's not a matter of this company or that company, but relative lifetime thirdparty support which has correlated with the generation winners vs generation losers every generation prior to the 7th.

As for the long tail for the current gen vs lightweight machines, well, firstly the competition is in the library as well as the hardware, and the likes of the PS3 library increasingly trounces the likes of Android, as bargain basement copies of Uncharted and Devil May Cry approach $5, and secondly the lightweight machines already existed on the market place: The Wii is cost reduced like hell, also has a pretty good library, is price competitive with the likes of Ouya and offers game types not available on those machines. Meanwhile the PS2 is still on the market, has a hell of a library again, and everything about it is dirt cheap. And though it's not even nearly a fair comparison, AFAIK both those systems are trouncing Ouya.

I think we've ventured well into that era when power simply isn't a factor: a small niche of gamers are obsessed, but the rest of the gaming market just really doesn't care about power nearly as much as devs do - gamers just want new experiences at affordable prices with convenient ergonomics. Any kind of boost we see from the commoditisation of powerful GPUs is going to have a decreasing return on the marketplace. Nintendo was evidently ahead of the curve there. Sure tablets will be competitive and attractive to the market, but that's largely due to their ubiquitous utility and ergonomics (and their rather extreme economics) - not because they're uber-powerful.

Dane MacMahon
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Great post Merc.

I think saying the consoles are in danger is a bit premature, however they definitely have more competition. Tablets and other lightweight devices are only going to gain momentum and offer better gaming experiences. The market is so easy to enter now even Amazon.com are making an Android device that plays games. Make everything cross-platform with Phones and PCs and you have a huge market ready to spend money without a lot of the console environment headaches.

There's still a large market for consoles of course, the question is how large and how resilient they are to new platforms. It's going to be interesting to watch unfold.

Harry Fields
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I still think rumors of Console death are a bit premature at this point. PS4/Xbone are going to sell out this year and be the hot thing going into Spring. They'll each push 15 mm worldwide within a year, no problem... especially now that WiiU is essentially DoA.

Yes, mobile/tablet gaming is getting better, and accessibility for devs has never been greater, but those experiences still tend to pale in comparison to a blockbuster AAA release on consoles. I think the best answer is for a hybrid approach to properties. Why not release titles on multiple platforms that take advantage of those platforms. Instead of a bastardized port, something that affects the world you play in, but from a different window. That is where I see mobile/portable being a true disruptive force and opportunity for the big publishers to see some action. Like Halo. If you could level up the same character whether you were playing spartan ops in Halo IV or Spartan Assault on Win8 tablet. Tighter integration and consolidated compulsion loops are key to a unified multi-platform approach. Re-use assets perhaps but with different play mechanics.

Kyle McBain
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Well it's like Jack Tretton said at E3, A lot of people get involved with mobile gaming and it ends up being a gateway into console gaming. People are moving up into consoles not away from them.

Matt Ployhar
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I agree.. definitely premature to say Consoles are dead at this point. Both Sony & Msft will likely be able to move a combined total of ~24 mu between Hol 13 and Hol 14 if they're able to match the production rates of the previous gen when fully ramped up. A lot depends on how many countries they can get into. Delaying a launch/release in several countries doesn't help them, & even more importantly the Game ISVs that have chosen to take that 1st year gamble on such a small install based. Your attach has to be very high just to cover your costs.

On the mobile/tablet front - I think this is where Msft really shot themselves in the head. They opted to push RT first over the Pro version. This resulted in sending very mixed signals. If I were a betting man... my guess is that Android & iOS based tablets will rapdily start scaling up to essentially handle even what we'd call AAA games over the next few years. In that regard.... Consoles are under an even bigger threat. Which goes back to the final notion of going the route multi-screen/platform integration if you can. Both of the key 8th Gen Consoles did a very smart thing this go-around by going back to x86. In a sense... they've hedged their bets by becoming much more PC-like again to reduce costs, make porting easier, and being able to do cross screen game support. Sorta ironic if you ask me. PS4 & Xbox One under the hood are pretty much PCs again.

Michael Stevens
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I'd be super interested if there was similar data available for the Snes, as that was technically discontinued a year *after* the N64 was (2003 in Japan) and had a stronger market than it's successors. That could significantly change what the Nintendo graph means.

I expect that Sony's long tail is more attributable to 3rd party capitalizing on their massive install base than their own doings. There were worthwhile things happening on the ps2 well into '09-10, mostly in the 3rd party (I think it's still getting Fifa). Sony hasn't yet pulled the plug on a console like their peers do, but there are a bunch of late-era ps2 games they held off on. Neither 2 nor 3 needed to happen as early as they did, they were reactions to competition more than they were reactions to the market.

I could see the current gen stretching out longer than usual because of psn/xbla. Especially with Sony. There's really no reason why Sony shouldn't keep adding to it's classics marketplace and it would be entirely artificial for those to stop being ps3 compatible.

Mike Kasprzak
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Thanks for the data. Would have loved to at least know how Xbox -> Xbox 360 went, as well as Nintendo's Handheld history (GB->GBC->GBA->DS->3DS).

E Zachary Knight
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I think the 360 transition was pretty much the same as the Wii transition. Microsoft killed production of the original the moment the 360 hit the shelves.

Bob Johnson
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I can't see the pS3 selling 30% of its units after the pS4 is introduced. I don't think it was as mainstream as the previous playstations. I don't think it has the breadth of library as the PS2. I think the hard drive will keep the price too high for the after PS4 is introduced market. I think its lifespan was even longer the PS2's was and thus more consumers who wanted one have one.

But Sony was and probably still is particularly good at preparing their hardware for another life as an inexpensive console for a new part of the market.

Still the 360 has a better chance of selling well after the nextbox is introduced. Mainly because of the base model (no hard drive), and Kinect too although MS maybe doesn't have the hardware expertise Sony has.

Yes alot more Wiis have been shipped after the Wii u was introduced than Nintendo's previous 2 models during the end of their lifecycle. But the Wii was much more popular than the GC or N64 so it should be expected. But Nintendo isn't as good as Sony at getting their hardware costs down. IF they were the price would be cheaper by now.


Emory Myers
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Why would an Amazon/Apple/Google/Valve console be any more disruptive to the market than Microsoft's console already was? If an outsider console were going to have an affect on Sony's long tail, shouldn't we see that affecting PS1 sales in your graph above right around 2001?

Jeanne Burch
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Playstation 2 games were still being released well after Playstation 3 was on the market. That, coupled with a significant console price drop, had a lot to do with PS2's extended life cycle.


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