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Will the Wii outdo sales of last generation's industry leader, Sony's PlayStation 2? We believe it will come close, but not surpass the final installed base for the PlayStation 2.
The PlayStation 2 has just passed the 46 million system level in the U.S. by our estimates, and that puts it about 10.5 million systems beyond the Wii's 35.4 million unit installed base. At its peak the Wii was selling over 10 million systems per year in the U.S. but in calendar 2010 it moved only 7.1 million and its annual rate has dropped to 6.6 million systems, judging by the last 12 months of sales.
If the price cut to $150 fails to reignite the system's sales, it has at most two Christmas seasons remaining – one in 2011 and one in 2012. If sales recover to their 7 million unit level for 2011 (certainly not a guaranteed outcome), we believe that news of Project Café is likely to diminish interest in Wii sales in 2012 pushing the system's lifetime sales to around 44-45 million unit level in the United States.
On the handheld side, the Nintendo DS and Sony PSP are also experiencing significant declines. The figure below shows this as well as demonstrating just how dominant the Nintendo DS has been over Sony's system in the U.S.
The extraordinary January – April sales for the Nintendo DS in 2009 are from the introduction of the Nintendo DSi, which launched at the end of March that year. Without the boost from that model, and the introduction of the Nintendo DSi XL in 2010, the system's sales would have declined even more quickly.
As we have said several times before, the PSP has ceased to be relevant to the U.S. game industry. Its annual sales rate is at an all-time low of 1.7 million systems, and we expect that that trend will continue for the remainder of the year (and, in fact, the system's lifetime).
Taking all the figures above into account, we can see that total hardware sales fell from 7 million units in the January – April period of 2010 to 6.7 million units in the same period in 2010. Remarkably, that decrease in hardware sales did not translate into a decrease in hardware revenue; in fact, hardware revenue grew from $1.47 billion to $1.57 billion during that period.
The explanation, we believe, is fairly straightforward: the least expensive platforms – Wii, PS2, Nintendo DS, and PSP – have all seen their sales decrease at the same time that the most expensive platforms – the Xbox 360 and PS3 – have seen increases. Xbox 360 Kinect bundles (driving up the average Xbox 360 price) and the launch of the 3DS (adding about $148 million in hardware revenue) also contributed to new hardware revenue in 2011.
Results for software from January through March (covered in last month's column) were not rosy. Unit sales were down 6.6 percent year-to-date and the average sale price (ASP) of software was also down over 3 percent. Both of these measures rebounded substantially in April. Moreover, for the six month period from May through October 2010, the rate of software unit sales was extraordinarily low compared to the rates this year.
If unit sales can maintain their level or increase modestly through that six-month period this year while maintaining a richer mix of sales for the Xbox 360 and PS3 (which carry higher prices), then the result should be stronger software revenue for the remainder of the year. With a loaded slate of big games in the second half of the year, with more probably being announced at E3 in June, the prospects for growth for software at retail seem healthy.
The accessory segment has shown very strong growth this year, up 15 percent or $115 million year-to-date. Obviously this is driven in large part by the success of Kinect, but also by Move accessories and the increase in points cards for Xbox Live, the PlayStation Network and the Wii Shop.
To return to the big picture one last time, the figure below shows annual revenue for each year since 2005, subdivided into monthly revenue segments.
While the rest of the year could hold many surprises, if the first four months are any substantial indication of how the full year will turn out, it appears that 2011 will hit somewhere between the level of sales seen in 2009 and 2010. Along with the growth that we presume is taking place in the purely digital side of the market, a segment which is not measured by the NPD Group's monthly report, then the industry should be well on its way to touting discernible, industry-wide expansion for the first time since 2008.