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Analysis: Examining Declining Wii Software Revenue In 2010
by Matt Matthews [PC, Console/PC]
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March 15, 2010
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[As part of his monthly NPD review, Gamasutra analyst Matt Matthews notes how year-to-date Wii software revenue is down 25%, a decline he attributes to evergreen first-party games (Wii Fit) that "are beginning to weaken somewhat."]
In our NPD analysis this month, we've noted a drop in total software dollars for the current-generation systems – the Wii, Xbox 360, and PlayStation 3. However, there is more detail within those figures that is worth examining.
As Michael Pachter has noted over the past few months, software sales on the Xbox 360 have remained flat relative to the same period last year while PlayStation 3 software sales have experienced solid double-digit gains.
Simultaneously the year-to-date revenue for Wii games is down nearly 25%, from $500 million to around $380 million. At least $60 million of the difference can be accounted for by the drop in demand for Wii Fit and Wii Fit Plus.
In fact, across Nintendo's key evergreen first-party franchises, it appears that sales are beginning to weaken somewhat.
(Some analysts believe that this may actually be due to shortages of hardware-reliant Wii SKUs such as Balance Board and MotionPlus devices, but we'll know more about this as the year continues if we see a bounceback.)
The graph below shows just how the January – February software revenue picture has played out in 2009 and in 2010.
(Note that the overall rankings remain the same (that is, the Wii is still leading the Xbox 360, which is itself ahead of the PlayStation 3), but the race has tightened significantly.)
Pachter raises a red flag on the Wii's software picture, saying that the problem “runs deeper” than just the recent hardware declines. He observes that Super Mario Galaxy 2 is the only major software release in the near term, and that he believes that Wii owners have become more discriminating about their software purchases (as shown in the recent weaker sales of previously robust titles like Wii Fit and Wii Play). Moreover, he notes that the Wii software tie ratio is declining over time – an indication that hardware purchases are ahead of software.
This last point – on the tie ratio – deserves a bit of explanation. For a system like the PlayStation 3 where hardware sales are rising quickly year-over-year, a declining tie ratio is to be expected. But if Pachter in fact means that the Wii tie ratio is declining through January and February of 2010 – a period when its hardware sales are down year-over-year – then that means that software sales are also falling, and perhaps quite dramatically.
This is where one could make an argument that a different mix of first- and third-party software, like what one finds on the Xbox 360 or the PlayStation 3, helps smooth out some of the software dynamics from month to month.
As an example, we know that 95% of the Xbox 360's software revenue during 2010 has come from the sale of third-party software. Contrast this with the situation the Wii, where we can estimate that at least 33% of software revenue in 2010 has come from first-party titles, based only on the titles appearing in the top 20.
It is no surprise, therefore, that Microsoft is keenly focused on making third-party publishers welcome on its platform. In a month when third parties falter, so too will Microsoft's software revenues and thus Microsoft's licensing fees. In early 2010 we are seeing that Wii software sales have dropped, probably driven by the slowdown in first-party Wii software titles.
We expect that Sony's software mix falls somewhere between these two extremes. After all, it had three first-party titles in the top 20 in February, and will no doubt add God of War III in March.
Meanwhile, as on the Xbox 360, third-party titles like Modern Warfare 2 and BioShock 2 continue to sell reasonably well on the PS3. Unfortunately for Sony, they still have the lowest software revenue overall, which is a humbling position for the company that led so decisively during the PlayStation 2 era. So as Sony and Microsoft ramp up their motion control platforms later in 2010 and the Wii consumer (presumably) becomes more discerning, there is at least some possibility for a fundamental shift in momentum.
Aggressive cuts by Sony have pushed Microsoft to shuffle the cost of its core hardware. As a result the Wii no longer enjoys the same price advantage that it once had, and soon it will also cease to be the only motion control system on the market.
Should Microsoft or Sony capture any mindshare with the casual consumers brought to the market by the Wii, games like EA Sports Active 2 and Ubisoft's Just Dance could sap some of the sheen of exclusivity previously held by the Wii.
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All you have to do is walk into any retailer and ask them when was the last time they saw Wii Play, or Mario Kart, or Wii Fit Plus, and you will get an answer in the weeks in most cases.
http://coffeewithgames.blogspot.com/2010/03/analyzing-analyst-michael-pachter-is
.html
That being said, you sound like an analyst from 2005 (or Sony marketing). The tech differences between the 360 and PS3 are minimal and has more to do with the skill of the development team than the hardware itself. Bayonetta looks significanly better on the 360, for instance.
Other than my eventual purchase of Wii Fit Plus, Wii Sports is the only first-party title I own for my Wii.
The flip side is true for the Wii. I'll admit some ignorance about Nintendo's line up this year, but I have yet to hear of anything besides SMG2.
Then there is the 360 chugging along as usual.
I don't think it possible in the first half of march to say anything substantial about a change in the tie ratio of any console. I wonder how Pachter will find a way to find out something like that in just a short time. You can take the numbers of consoles sold, you can take the games, but there is now way to know what tie ratio the console has, unless you do long term market research, impossible in the 2 weeks, since february ended.
@ Joshua - Nintendo just had an event and unveiled their Q1 & Q2 line-ups. The big games include Monster Hunter 3, Super Mario Galaxy 2, and Metroid: Other M. There are also smaller games being released like Sin & Punishment 2 and Endless Ocean 2 (already released). Also, Red Steel 2 will be released soon. So Nintendo has a pretty solid line up.
@ Jonathan/Ted - I agree with Jonathan here. The PS3 is half price the price in only three years - obviously that is the biggest factor in its increased adoption. The exclusive titles on the PS3 never really performed at the level that XBox360/Wii exclusives have and I don't see them ever doing so save for maybe GT5.
Adding more to Ken Masters's list, Nintendo also has two second-party titles coming soon: The Last Story and Xenoblade. Not to mention, there's Tatsunoko vs. Capcom from Capcom. There's also Reginleiv from Nintendo, but I'm not sure if that game is coming to the US at this point.
I didn't even know that the Wii Fit were sold out until my wife said she wanted one middle of February. I finally found one late last week -- I live in CA -- from Best Buy, but was surprised to see that by the time I got out of the house to pick one up, that most of the locations local to me had already sold out on their site.
She also wanted Rock Band 2, which she had never cared about before and I swear that they were every where in January, then the weekend she asks for one, I had seen them in the store, then when I went back they were sold out and no matter where I look I can not find them for the Wii -- I've seen plenty of them for the 360 though. I ended up buying her the drums and the game, since she really didn't care about the guitars. But the bundled set is still completely sold out everywhere.
I don't like the word "weaken" to describe the decease in sales because it somewhat implies a decrease in demand. From my perspective this issue has more to do with supply than any danger of Nintendo losing the consumer's interest.
In regards to the PS3's increasing sales and flat 360 sales, there are a few apparent reasons. While I tend to think that more and more multiconsole 360 owners who are facing hardware issues will gravitate towards buying multiplatform games on the PS3 (despite inferior visuals in many cases), I have little evidence for this beyond anecdotal evidence, so I won't focus on this while I do think it may be a factor.
From my perspective it has more to do with the available titles on each console. The 360 had Mass Effect 2 released in January, but the PS3 had White Knight Chronicles, Star Ocean: The Last Hope, Heavy Rain, and MAG available during those 2 months.
Dante's Inferno for the PS3 was marked "Divine Edition" and included extras for the same price of the regular edition. This was exclusive to the PS3, and may have swayed multiconsole owners interested in the title.
I point these things out because the increase in PS3 software sales could be a temporary thing rather than a long term trend (it could be one, but I'd rather wait for a few months more data to make any definitive statement). Regardless Sony is on the right track with an incredible value in the console and a steady stream of exclusive 1st party titles.
@Amir:
"I point these things out because the increase in PS3 software sales could be a temporary thing rather than a long term trend"
I think ultimately, all meaningful surges in console sales are short term effects caused by compelling software releases. The console price is a barrier that can be lowered but it is ultimately the games that will make people want to buy the console in the first place. I don't pay close attention to PS3 releases but from the sound of it, there were some good exclusives in the past few months that encouraged PS3 ownership. To sell more PS3's these have to continue so that there are more and more people for whom there is that ultimate game they must play that pushes them to buy the console.
I actually agree with you on that point and it also helps explain the uptick for the 360, which saw the release of Mass Effect 2 around this time.
Just looking at shops where I live (and again this is anecdotal of course), judging by shelf space the sales are something like 45/35/20 in regards wii/360/ps3. I am assuming (perhaps incorrectly) that shelf space can be used as an approximation of sales.
"Cammie (or was it Reggie?) said that many 1st party games are in short supply - particularly Wii Fit Plus. "
Excuses, excuses. They just keep acoming from the Wii 'never say die" fanboys.
Look, the software only version of Wii Fit Plus has been in full supply since the game was launched. It's never been in short supply at any time. As a matter of fact, Amazon has been dicscounting Wii Fit Plus(software only) game by 12% just to try and sell them. You can see it for yourself right here:
http://www.amazon.com/Wii-Fit-Plus-Nintendo/dp/B002BS47JE/ref=pd_ts_vg_32?ie=UTF
8&s=videogames
Given that there is already a huge number of Wii boards out there, from people who already bought the original Wii Fit, I don't see why Wii Fit Plus sales shouldn't be high right now, from Wii Fit owners(who already have balance boards), upgrading to Wii Fit Plus, by buying the software only version of Wii Fit Plus.
Mario Kart is in full supply as well:
http://www.amazon.com/Mario-Kart-Wii-Wheel-Nintendo/dp/B000XJNTNS/ref=pd_ts_vg_2
5?ie=UTF8&s=videogames
And so is Wii Sports Resorts, which is being discounted by 6%:
http://www.amazon.com/Wii-Sports-Resort-Nintendo/dp/B001COQW14/ref=pd_ts_vg_18?i
e=UTF8&s=videogames
All 3 games(Wii Fit Plus(software only), Mario Kart and Wii Sports Resort) are in full supply at Gamestop as well right now.
With all these 3 of the top selling Wii games in full supply and being discounted, you are living in dreamland, if you think Wii software sales are not actually down, and that it's only due to shortagers. Where is ths shortages of Wii Fit Plus(software only), Mario Kart and Wii Sports Reosrt at?
"She said that title in particular takes longer to restock due to manufacture of the balance board. "
Oh gimme a break!
A balance board is not exactly the most hitech product out there is it? It's just a piece of plastic with some electronics in it. Heck, HP alone was able to make and sell to the tune of 17 million PC's in the December quarter alone(with 90 million PC's sold in total in the December quarter worldwide), with plenty left over, and a PC is vastly more advanced and more complex and harder to make than some 2-bit balance board. You make it sound like this balance board is somehow the hardest thing to make on the planet. It isn't!
"I don't think it possible in the first half of march to say anything substantial about a change in the tie ratio of any console."
Why not?
Wii tie ratio is down for Jan and Feb. That is FACT.
Why is it not possible to say that?
" You can take the numbers of consoles sold, you can take the games, but there is now way to know what tie ratio the console has, unless you do long term market research, impossible in the 2 weeks, since february ended. "
Oh puleeze!
You can take total console sales, you can take total games sold, you can divide total game sales by total console sales and arrive at tie ratio. You don't have to wait till December before you do it. If the Wii tie ratio goes up later in the year, I am sure the analysts will mention it too.
Michael Pachter mentioned Wii Fit Plus with Balance Board and Wii Play.
Both those games are sold-out on Amazon.com.
My friend works at Gamestop and his store just got two in "today." No Gamestop in the states has had them for quite a while. I know this, because I was going to buy it from him and he looked to see if they could ship him one. I got mine from Best Buy last week, but by the time I left to go to the store closest to me, every other store with in 50 miles of where I live had already sold out, and as of now no Best Buy has them in stock.
And only a hypocrite would call someone else a fanboy. ;)
"Michael Pachter mentioned Wii Fit Plus with Balance Board and Wii Play.
Both those games are sold-out on Amazon.com. "
Yes, but then Wii Fit Plus (software only) has never sold out ever, and is beng currently discounted by 12% at Amazon just so they can sell them, and there are milions of Wii owners that have the balance board already when they bought the original Wii Fit, and don't need a new balance board in order to buy and pay Wii Fit Plus.
As for Wii Play, it was already out of the NPD top 10 software charts from June to November 2009, even when it was in full supply and not sold out, so it's not as if it's been dominating the charts since the second half of last year or anything.
Irrespective of a that, Wii Fit Plus(software only), Mario Kart, NSMB(Wii) and Wii Sports Resort have been in full supply during the month of February and up to today, so you can't claim the drop in Wii software sales is because of shortages.
"My friend works at Gamestop and his store just got two in "today." No Gamestop in the states has had them for quite a while. I know this, because I was going to buy it from him and he looked to see if they could ship him "
What game you talking about, dude?
"Oh puleeze!
You can take total console sales, you can take total games sold, you can divide total game sales by total console sales and arrive at tie ratio. You don't have to wait till December before you do it. If the Wii tie ratio goes up later in the year, I am sure the analysts will mention it too. "
First of all, Pachter doesn't talk about numbers of games sold in january and february, he talks about falling revenues, you can't tell how many games were sold from the revenues. The pricing of software is far to flexible for that.
But even, if you had the number of games sold in January and February 2010, You could only get a very vague tie ratio impression from that. For example, you don't know, how many consoles are still in use, you don't know how many games are in circulation as used games, etc.
If you are just interested in a raw data tie ratio, dividing total game sales by total console sales is fine. But this number don't tell you anything meaningful.
Another example: In december, the Wii sold multiple millions of consoles in the US, if you look at the software sales in January and February, it would be of much interest to know, who bought lesser games than expected, the new customers or the existing Wii customers?
If it were the new customers, you could argue, that they are still satisfied, with the software, they originally bought with the system, if it were the existing customers, you could argue, that these customers become tired of their console.
At the moment you only have the software revenue of 2 months of 2010, if you want to know, what this revenue means, you have to do a lot of market research.
As a side note, I would say, it was pretty obvious, that hardware and software revenues for the Wii were falling after december. Obviously the Wii is seen as a great holiday gift, no analyst expected the system to perform that good in the holiday season (I would love to read an article here on gamasutra about all those screwed up predictions of 2009), after such a peak it seems logic to me, that the revenues will be in sharp decline, people tend to spend much more money in the holiday season.
:"First of all, Pachter doesn't talk about numbers of games sold in january and february, he talks about falling revenues, you can't tell how many games were sold from the revenues. The pricing of software is far to flexible for that"
Nintendo hardly ever discount their games, so falling revenue usually equals falling units sales. Plus Pachter is the games analyst for one of the biggest investment houses in America. He is given the FULL NPD figures every month, which his company pays for, so he knows the total unit sales of Wii games in Jan/Feb.
"But even, if you had the number of games sold in January and February 2010, You could only get a very vague tie ratio impression from that. For example, you don't know, how many consoles are still in use, you don't know how many games are in circulation as used games, etc"
You are kidding me.
Read above. Pachter gets all the figures from NDP every month. He knows exactly what the install base of the Wii is, and exactly how many games have been sold on the Wii LTD, as supplied to him by NPDs, so when he says the Wii tie ratio is falling, then the Wii tie ratio is falling.
"if you look at the software sales in January and February, it would be of much interest to know, who bought lesser games than expected, the new customers or the existing Wii customers?"
It wouldn't really matter either way. Tie ratio is tie ratio. I don't care if the new Wii owners or the "old" Wii owners are buying games. That's for a different analysis on a different topic.
"Obviously the Wii is seen as a great holiday gift, no analyst expected the system to perform that good in the holiday season (I would love to read an article here on gamasutra about all those screwed up predictions of 2009), after such a peak it seems logic to me, that the revenues will be in sharp decline, people tend to spend much more money in the holiday season. "
The Wii had a great December, and there were thousands of articles on the internet praising Nintendo for doing such a great job. Today, this is March 2010. We are not talking about December right now. We can't just keep talking about the Wii's great December sales forever. We have new figures to talk about for this year's January and February.
Even if Wii Fit Plus software is available it is quite useless to people new to the franchise. It is a bit of an assumption that Wii Fit Plus was doing its main business from previous Wii Fit owners or that they were even the main target audience. I don't know for sure as I haven't played either game, but it appears that to some extent Wii Fit does its job well enough and the Wii Fit Plus exists to entice those that weren't convinced by Wii Fit. I do agree though that despite all this, demand for Wii software in general like Mario Kart and Wii Sports Resort came down meaningfully in the past 2 months. Partly, this fits in with the Wii pattern of being more skewed towards selling in the Christmas season than other platforms. However, I wonder if the apparent lower demand has possibly been exaggerated since the sales are measured in dollars and Wii Fit/Plus with a balance board is expensive and supply-constricted.
I don't think its easy to mass produce any hardware. Nintendo are known to be careful with their money. I don't think they would pay for lots of manufacturing capability, especially at this time of year. I think that like most companies they would rather produce too few than far too many.
"The Wii had a great December, and there were thousands of articles on the internet praising Nintendo for doing such a great job. Today, this is March 2010. We are not talking about December right now. We can't just keep talking about the Wii's great December sales forever. We have new figures to talk about for this year's January and February. "
My argument was, Software sales may be down, cause they were so high in december, cause the Wii sold better in this particular month than analysts predicted. I argued, this may be the case, cause the Wii is seen as a a better holiday gift by consumers than the other consoles. This would explain a sharper decline in software sales than on the other systems.
"It wouldn't really matter either way. Tie ratio is tie ratio. I don't care if the new Wii owners or the "old" Wii owners are buying games. That's for a different analysis on a different topic."
That's your problem, cause the article is titled "Examining Wii Software Revenue in 2010", I think such questions are important for the topic.
That we don't discuss the december sales here, is quite obvious, but I refuse to say Pachter has the second sight. Pachter can't know the ammount of used games around Pachter can't know how many of the sold consoles are still in use, how could he?
You are welcome!
Why do we, as game developers, care if the Wii does well? It's successful and makes Ken Masters salivate but it helps none of us even when it does do well.
Hard to disagree with that. It would be a good strategy for Sony to keep this up ("this" as in premiere first party title releases) if they seek to "catch up" to the 360. On the other hand, the price drop has been incredibly well received. So I'm still open to both possibilities and think it's too early to commit to one or the other.
An added wrench thrown into any analysis of the coming months is that Microsoft dropped the price of the Arcade to $129 (which is flying off of shelves), dropped the Holiday Bundle to $250-270, and introduced a new Spring bundle at $299 which includes both Halo 3 ODST and Forza Motorsport 3 (both recently released AAA games that retail for $60).
Thomas Lo said, "Shortages is used as an excuse but 25% is a huge drop."
Do keep in mind that hardware shortages does affect this as well. A parent looking to pick up a Wii with Wii Fit would also be interested in some other titles and accessories. The price drop combined with Wii Fit generated a bit too much interest in the console and in Canada, at least, it is a struggle to find a Wii console.
I was going to respond to Thomas Lo's comment about the Wii and it's place in the industry but it would be outside the scope of this article. Perhaps it would be better to take my typed response and post it as a blog entry at a future date and we can discuss it there. :) In short, we should be thankful to Nintendo. :)
Third party software does get a price cut so falling revenue does not always equal falling unit sales.We know that the Wii sales a lot of third party software.
As far as WiiFit Plus software only goes it would make sense that it is not sold out. WiiFit was still selling well while WiiFit Plus was selling well. That makes it clear that mainly new customers were picking up WiiFit and WiiFit Plus. WiiFit only came with the balance board. Since WiiFit and WiiFit Plus with the balance board are still sold out in some locations we know WiiFit Plus software only is not the version that most customers will buy.
Also Kevin stop posting what is inl supply NOW! We are talking about last months data! What is in supply now has nothing to do with LAST MONTHS DATA! I don't know how many times that has to be said to you.
Since being low on supply is an excuse I guess that means that the PS3 still would be in third place if it was in fully supply despite have YOY growth. Sony must be using that because they feel bad about not being about to outsell a console that is down YOY and one that is just about even.
I mean look at this. GOW3 is being reduced by 5% ( since I guess that is suppose to mean something) http://www.amazon.com/God-War-III-Playstation-3/dp/B000ZK9QCS/ref=sr_1_1?ie=UTF8
&s=videogames&qid=1268993381&sr=1-1 . So the game must be in trouble.
What I find really funny about these analysis is that the Wii is said to be doing bad when it is in range of the 360/PS3 yet those two consoles are doing well. It can't be both ways. Either those two consoles are doing good and the Wii is going from doing great to doing good,or those two consoles are doing bad the the Wii is now doing bad.
I will bet good money that when the Wii console and its top selling software are in full supply for a full month that the numbers will be back up. By the way the console nor software has not been in full supply this entire month. My guess is that the Wii console and software sales will be back to full swing for the April or May NPD.