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Hardware Prices Down: All the price cuts may be good for the industry in the longer term, but until those new system owners start buying a lot of software the effect on total revenue comparisons will be negative.
For example, the average price of the PlayStation 3 will have dropped from over $400 to around $300 by the time September is over, a reduction of 25% in hardware revenue. If Nintendo were to drop its system price to $200, its hardware revenue would drop by 20%.
If each system were to sell as well during October – November 2009 as it did in 2008, but at these reduced prices, the industry would take a $375 million hit to overall revenue.
Under our assumption of over 2 million PS3 systems during that last quarter of this year, Sony would make up for the lost revenue in increased volume. If the current trend in PlayStation 3 software growth continues, Sony's total PS3 revenues for the year should look stronger.
However, we are not confident that Nintendo could move 5 million more Wii systems during the last quarter of 2009 as it did last year. That means its contribution to hardware revenues will likely drop, especially if its continued weakness in software continues.
Here's the bottom line. Compared to 2007, the revenue and sales posted in 2008 were spectacular. Also compared to 2007, the revenue and sales posted in 2009 looked like normal growth. So even if the rest of 2009 were to be exactly like the end of 2008 – that is, really great growth compared to 2007 – then we could probably consider that healthy.
Even under those rosy assumptions, the industry still wouldn't break $20 billion by the end of 2009. That's where we're putting our marker for now: total annual revenue for 2009 at just under $20 billion.
Each August Electronic Arts and its EA Sports division release another update to its dominant American football franchise, Madden NFL. While the industry is in the grip of a downturn, it's natural to look at standards like Madden to measure which way the wind is blowing.
As indicated in an internal EA memo, sales of Madden NFL 10 are down this year compared to last year's Madden NFL 09. In particular, Madden NFL 09 moved 2.3 million units in August 2008 while only 1.9 million units of Madden NFL 10 were sold in the same period this year. That's a drop of about 18%.
It's helpful to break down how Madden sales differed from 2008 to 2009. First, practically every system saw a drop in unit sales for the first month.
Unit sales of the Xbox 360 version dropped only 7%, while the Wii version fell by 42%, and the PlayStation 2 version by 62%. Sales of the PSP version were down while EA declined to publish a Nintendo DS version at all this year.
Against this set of declines the PlayStation 3 version grew a very modest 3%.
For the platform manufacturers the news was mixed. Unit sales for the Xbox 360 version were down, but Microsoft's first-month share of Madden NFL sales has now exceeded that of its key rival, Sony.
While the PS3 posted the only sales growth among the various platforms, sales on its PlayStation 2 collapsed and those owners did not appear to be upgrading en masse to the newer Sony platform.
As for Nintendo, Madden enthusiasm appears to have collapsed on its Wii, although history has shown that the Wii version may sell in higher volume through the remainder of the year than will other versions.