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Analysis: Xbox 360 Capitalizes On Wii Contraction Through February In U.S.
by Matt Matthews [Console/PC]
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March 14, 2011
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[Gamasutra analyst Matt Matthews take a close look at shifting market share among the big three video game console manufacturers as part of his monthly analysis of NPD Group U.S. sales data.]
As Cowen and Company analyst Doug Creutz spelled out in his comments last Friday, the industry has undergone a significant shift in the past year. In particular, the Xbox 360 and PlayStation 3 together account for a larger proportion of hardware sales over the past 12 months than did the Wii.
To the extent that the two so-called HD consoles represent a segment of the market separate from the Wii, Creutz suggested this change represents “a positive ongoing development for the U.S. publishers, who earn the majority of their sales on the 360/PS3.”
Last month we made a similar observation when we wrote that “the Xbox 360 sold 6.81 million systems in the past 12 months, compared to the Wii's 6.92 million” and that “110,000 unit advantage [for the Wii] could easily disappear by the end of March 2011.” However, our focus was primarily on the emergence of the Xbox 360 as the dominant platform over the past year.
Creutz took a more inclusive view of the market and noted that combined trailing 12-month sales of Wii, Xbox 360, and PlayStation 3 sales have remained relatively constant at between 17.0 million and 19.4 million systems per year since December 2008.
So the shift here is not in the total number of systems moved. Rather, it is in the share of the market that each system claims.
To see this, consider the 12 months from March 2009 to February 2010. Sales of the three main console are summarized below, showing how the roughly 18.4 million systems sold during that period were distributed.
During that 12-month period combined Xbox 360 and PS3 sales just barely edged out total Wii sales. (For historical context, in the 12 months prior to March 2009, the Wii outsold the PS3 by 3-to-1 and outsold the Xbox 360 by 2-to-1.)
Since February 2010, however, Microsoft has launched its Xbox 360 Model S (in June), which attracted many consumers, and then launched its Kinect sensor in November and has seen extraordinary hardware sales since that point. At the same time, the Wii has had several months of year-over-year hardware declines, bringing its annual rate down from its record sales peak to the level of the Xbox 360.
The result is the following figure, which shows the distribution of console sales in the past 12 months.
With total console sales in a 12-month period effectively flat at about 18 million units, only the shares for each console shifted around. The Xbox 360 was the clear winner with its share growing from 26% to 38%, and the Wii was the clear loser with its share falling from 49% to 39%.
However, in light of Creutz's claim that the HD console share is growing, we would observe that this glosses over the slight loss in PS3 share, down from 24.5% to 23.1%. The HD console share of the market grew precisely because the Xbox 360 has driven the growth and made up for a decline in PS3 sales.
What about the other part of the equations, software sales? While we are not privy to solid unit sales data, we can look at estimated software revenue in the same TTM windows. In the figures below, we note that the total software revenue in each of the periods is approximately the same.
Here is the picture during the 12 months from March 2009 to February 2010.
And the corresponding image for the 12 months from March 2010 to February 2011 is below.
The HD consoles increased their share of software revenue from just under 60% to just over 66% of the market in the past year, while the total software revenue has increased slightly. Since the value of this segment of the market increased only marginally from the period in the first graph to the period for the second, we can furthermore say that the absolute size of the Wii software market also contracted while each of the HD consoles increased their software revenues.
If we wanted to use a very coarse measure of unit sales, we could say that there are approximately five Wii games for every four HD console games. Under that assumption, we would end up with a software unit split in the past year that looks like 60% to 40%, compared to 50% to 50% a year ago. Again, we stress that is merely a rough estimate, but it does capture the dynamics well enough to demonstrate the general direction of the market.
As we stressed earlier, this is merely a matter of Wii sales becoming slightly above average after the wild period from 2007 to 2009 in which its sales – both hardware and software – were amazing.
However, given that decisions about software development are made at least a year in advance, it appears that the die is set for the near term. Third party support for the Wii may continue to contract while resources are directed toward the HD consoles, and by sheer number of titles those HD consoles will see greater software sales.
As but one example, in calendar 2009 Electronic Arts reported approximately the same amount of revenue from Wii software as PlayStation 3 software: $625 million compared to $696 million. In calendar 2010, those figures shifted to $266 million for the Wii and $915 million for the PS3.
The figures in the graph above are across all territories, including the U.S.
For Matthews' full, in-depth analysis of February's NPD U.S. video game retail sales data, read the full feature, available now on Gamasutra.
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The chart reflects dollar share across the past 12 months based on total revenue estimates, not unit sales figures. "Sales" can refer to either units or dollars, and in this case, we specify dollars.
"While we are not privy to solid unit sales data, we can look at estimated software revenue in the same TTM windows. In the figures below, we note that the total software revenue in each of the periods is approximately the same."
Not my fault you people follow the NPD/analysis trend who is completely void of any kind of critical thinking to equate revenue and sales to hide declining numbers of customers reached.
At the same time compensating for a possible higher number of bargain bin sales but at lower prices then half of the premium.
Wait...let me do it for you. *boots excell*
Assuming a 80-20 split in premium-bargain revenue (25% was a bit too much, with bargain almost selling as much as premium) with HD prices on 60/30 and Wii prices on 50/25 for Premium and bargain prices respectively. For the period March 2010 to Feb 2011 the sales split looks like this for both premium and bargain prices.
MS: 36,5%
Sony: 26,2 %
Nintendo: 37,1 %
Also, have been playing around with the ratio, but these percentages actually stay the same all over the board. The ratio split does in fact not effect these sales percentages (it does however change the percentages of sales between premium and bargain on one platform and total...ofcourse).
But here's the thing...Nintendo's own games don't drop in price at all, and they are the most sold ones. So I changed the ratio for only Nintendo to 85/15 to compensate. Results?
For premium it changed to
MS: 35,8%
Sony: 26,7%
Nintendo: 38,6%
for bargain it became
MS: 40,3%
Sony: 29%
Nintendo: 30,7%
moving the ratio in this case (giving Nintendo a 5% increase in premium-based revenue and 5% decrease bargain-based revenue) more in favor of premium-based revenue gives Nintendo slighty lower percentage (0,2% or something) on premium, and much lower on the bargain prices. More in favor towards bargain-based revenue gives Nintendo better percentages.
Yeah, for 20 minutes of work in excel.
Seriously, with this, and my actual proper analysis of MS quarter reports...you people should be hiring me for proper analysis. Where's my exuberant paycheck damnit! :p
So I booted up Excell again and I found that, if you assume that 80% of premium sales are regular editions of 60 dollars, 10% are collector editions of 75 dollars (some are less some are more) and 10% are Ultimate editions of 100 dollars (CoD: Black Ops one was 150 dollars), the average price of a premium HD-game is not 60 dollars but 65,5 dollars. Changing the ratio to 80/15/5 gave me an average of 64,4 dollars.
So I changed the price of the Premiums HD games to 65 dollars, kept the 5% increase/decrease at Nintendo's and Premium/bargain ratio at 80/20. And this is what I got for Premium sales for the period March 2010- Feb. 2011
MS: 34,6%
Sony: 24,9%
Nintendo: 40,5%
When I removed the 5% increase/decrease at Nintendo, premium sales shares changed into
MS: 35,5%
Sony: 25,5%
Nintendo: 39%
If the Gamasutra staff is interested, I can give you the excell-file for future analysis use. The formulas are already there, just twiddle with the ratio's.
Instead of letting you endlessly speculate about average software prices, let me offer some information. The latest data I have at hand is for CY09 and CY10, which has only 2 month differential with what's shown in this article.
For CY09, the unit share for the Wii was approximately 48%. For the Xbox 360 it was 33% and for the PS3 it was 19%.
In CY10, the same figures are 45%, 33%, and 21%.
Working with just percentages, however, does not tell the whole story. In CY10 these three consoles moved around 12 million more units of software than in CY09.
That differential comes from a 7 million unit drop in Wii software sales, a 9 million increase in Xbox 360 software sales, and a 10 million unit increase in PS3 software sales.
In the first two months of 2011, Wii software revenue is down approximately 10% while Xbox 360 and PS3 revenue are each up about 10% each. Unit prices have probably not changed that much, but I do not have updated data for that. Just going with the average prices coming out of 2010, however, the trend we see going from CY09 to CY10 continues into 2011: Wii software sales are declining both in units and total revenue while both the Xbox 360 and PS3 are growting in units and total revenue.
I hope this answers your questions.
Since the NPD is being a information jerk, us normal people have resort to fairly weighted speculating.
All questions I'd find very valuable if an analyst could try to answer them.
It's not the price that is causing year-over-year declines. It's the lack of appropriate software. The Wii hasn't hit market saturation yet. If we take the PS2's numbers into account (and why shouldn't we, right?), then 45 million might be a market saturation point for the U.S. - although I wouldn't say that's true. But in any event, Reggie made a point that he wouldn't discuss a Wii successor until the Wii hit 45 million units in the U.S. Clearly, he wants to best the PS2's precedent.
It's not that Nintendo doesn't believe in market saturation (maybe they do, I haven't seen any statements on the matter), it's that they are looking to first hit the prior leading console's numbers.
As for price cuts, they only provide a temporary boost. You can actually generate a much better effect with revised hardware (DS Lite, DSi, Xbox slim, PS3 slim) than you can with price cuts. And software is the key anyway. Software drives hardware sales, not the other way around.
Since the 360 did not out sell the Wii last year like some were thinking analyst make up another 12 month period where the 360 may get a chance to outsell the Wii. Now if the 360 did outsell the Wii last year would they still be talking about this made up 12 month period? The sad part is the 360 sales have been great since the slim, price cut, and Kinect combo. There really is not a need for some made up 12 month period to show the console as doing well.
To make matters worst you feel the need to bring up Doug Creutz reporting. This guy still feels the need to lump the 360 and PS3 software sales together. The 360 and PS3 software sales can stand on their own. The PS3 software sales have got a lot better and don't need to be lumped with the 360 sales. The 360 never needed help with looking healthy on the software side.
The only reason to lump the HD consoles together and make up a 12 month period of sales is to keep running this Wii vs HD console war story. Fact is that the console war is over. The 360 can outsell the Wii for the next two actually years ( not the made up 12 months that you keep making up) and the war will still be over.
Both the Wii and 360 have increased the market share over their last gen counterparts. The PS3 has failed to do that. The only reason the 360 and PS3 were lumped together in the first place was to make sure the console war stories could go on. The Wii was outselling them by so much alone that it did make the reporting interesting. It was foolish to do it in the first place. It is beyond stupid to go back to that now.
I January the Wii software was more than the 360. Last month the 360 software was more than the Wii. The PS3 is third in both. That is how the systems should always be reported. Anything that combines the HD systems should be ignored.