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NPD: Behind the Numbers, May 2011
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NPD: Behind the Numbers, May 2011


June 17, 2011 Article Start Previous Page 2 of 5 Next
 

May Is Just One Month

In comments accompanying the release of the latest data, NPD Group analyst Anita Frazier noted that “May 2011 was the lowest month of sales for the industry since October 2006,” a striking observation which neatly encapsulated the dire figures.

In October 2006, neither the PlayStation 3 nor Nintendo Wii had yet launched and the Xbox 360 was less than a year old. The golden age for Nintendo's DS platform, marked by the release of the Nintendo DS Lite model, was a mere five months old. The explosion of music games and plastic instruments had not yet begun, with Guitar Hero II for the PlayStation 2 arriving on store shelves the next month.

The present data shows total sales were a mere $179.7 million per week during the May 2011 period measured by the NPD Group. According our collection of historical data, the last time sales for a month were that low was indeed October 2006 when NPD estimated total sales of $160.8 million per week. In April 2011, just a month before the current figures, the weekly revenue average was $232.7 million.

What contributed to the $53 million differential between April's to May's weekly revenues? First, hardware declines contributed about $12.5 million of the drop in weekly revenue. Specifically, every platform except the Wii saw a decline in hardware unit sales from April to May, and average selling prices for the main consoles (Wii, PlayStation 3, and Xbox 360) all fell too. Alternatively, given that Nintendo 3DS sales dropped by around 90,000 units, we can surmise that that platform alone drove weekly hardware revenue down by at least $5 million.

 

Second, the accessory segment contributed another $8.4 million to the decline in weekly revenue from April to May. According to NPD Group analyst Liam Callahan, Xbox 360 and PlayStation 3 accessory sales were strong, but did not offset declines in Wii accessories and accessories for portable platforms. According to Callahan, the weakness in accessories was “likely related to declines in hardware sales.”

That leaves software as the main culprit in the decline in revenue. According to Wedbush Securities analyst Michael Pachter, every platform saw a month-over-month decline in software revenue and (except for the 3DS) a year-over-year decline as well. Total software units also fell 12 percent, averaging around 2.5 million units per week.

NPD's Frazier rightly noted that the light release schedule for May contributed to this decline, since fewer new titles does generally correspond to a lower overall sales. Callahan provided additional context on the number of releases, noting that the total number of SKUs released so far in 2011 is down only 5 percent but that “these declines were not seen consistently through 2011 as March and April had a larger number of new releases compared to the year prior.”

 

Given that three major platforms (Nintendo Wii and DS as well as the Sony PSP) have seen major contraction in their software markets over the past year, a YTD 5 percent decline in the number of titles and 6 percent decline in software revenue doesn't seem as serious a contraction as the May 2011 figure alone might otherwise suggest. Consider that in May 2011 the Wii alone generated $10 million less software revenue each week, on average, than it did in May 2010.

Finally, at the risk of diminishing the importance of the latest revenue figures, we note that May is often one of the weaker months each year. According to our records, May has been one of the three worst months for revenue in each year going back to at least 2005. As the figure below shows, the total revenue generated by the retail video industry is still greater than it was in 2007 and very close to the level of May 2010.

 

That lays the foundation for total growth in the retail market for the first time since the contraction began in 2009, although we still consider this a remote possibility given present trends.


Article Start Previous Page 2 of 5 Next

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