[Gamasutra analyst Matt Matthews examines trends in the first six months of U.S. physical video game retail for 2011, and in light of increasingly-important digital models asks the broader question, "Is the video game industry declining?"]
Last Thursday the retail-tracking NPD Group released its latest estimates of the hardware and packaged software market in the United States. The headlines were dire: total sales down 10% with total software down 12%.
The declines were not unexpected, since analysts like Cowen and Company's Doug Creutz had anticipated precisely that decline in software sales prior to the release of the official figures. Wedbush's Michael Pachter expects sales to be down for the remainder of the summer, with the industry recovering when titles like Battlefield 3 and Call of Duty: Modern Warfare 3 are released later this year and hardware vendors like Microsoft and Sony possibly entice consumers with console price cuts.
We would add that there are some positive trends visible in the mass of data for the first half of 2011, and we have tried to illuminate those trends below. In particular, we will show that two segments of the industry (hardware and accessories) have actually grown in terms of revenue so far in 2011.
Further, software unit sales for the Wii may have declined this year, but Xbox 360 and PlayStation 3 software sales have made up for the loss. Finally, the NPD Group's latest extra-retail estimates appear to show very robust growth in non-traditional video game content markets, and some of that growth does appear to be offsetting the weakness at retail.
Looking first at just the monthly figures for June 2011, the market was down across every segment compared to the previous year. Even the accessory segment, which was a bright spot from January to April, slowed for the second month in a row. We are further alarmed that accessories were down by 11%, erasing a good chunk of the gains made during the first quarter of the year.
Hardware revenue fell by over $30 million in June, a decline of 9%, while software saw a decline of $60 million or 12%. Total hardware units also fell, from nearly 1.9 million to just over 1.7 million, but the decreasing of importance of the less expensive platforms (Sony's PlayStation 2 and PlayStation Portable, specifically, but also Nintendo's Wii) means that the average price of a system sold in June 2011 is actually higher than it was in June 2010.
The year-to-date figures are slightly more encouraging, as they include several months earlier in the year when the results were more positive. In particular, total hardware revenue in 2011 is up slightly to $2.16 billion, an increase of over 2% from the same time in 2010. Total hardware units were down from 10 million in 2010 to 9.5 million this year, again showing that average hardware prices have increased.
The accessory segment in 2011 is up 8.4% from 2011, to a total of $1.15 billion, while software is down overall to $3.26 billion.
The table below breaks out the revenue figures for ease of comparison.
The NPD Group is now clearly labeling their media releases to separate retail revenue figures from video game content sold through other means. They are providing quarterly estimates of those extra-retail sales, including mobile games, downloadable content, and casual games, along with other segments, but those figures are not included in the figures above, although we do consider those figures in a later section.
We estimate that 86 – 87 million units of software have been sold so far this year, down from nearly 90 million at the same point last year. By our estimates, the average price of a unit of software sold in the first six months of 2011 is over a dollar lower than it was during the first six months of 2010.
We asked Wedbush analyst Michael Pachter about this decline in the average price of software, and he remarked that it was mostly due to the mix of software titles that make up the monthly figures. In particular, the industry “[hasn't] had the big hits first half” of 2010 when titles like God of War III and Red Dead Redemption launched.
In that same vein, we would note that LucasArts has had great success in 2011 with its LEGO titles which have appeared in the NPD Group's monthly top 10 list for four months straight (including both LEGO Pirates of the Carribean and LEGO Star Wars III: The Clone Wars on the May chart). Moreover, Take-Two Interactive has seen its NBA 2K11 title in the top 10 every month this year, a remarkable feat for a sports title.
Activison's Call of Duty: Black Ops has also charted every month in 2011. Ubisoft's Just Dance 2 for the Wii is exceptional for being the only single-platform title to appear five times in the top 10 chart so far this year.
Finally, before we look at the details underlying software sales and the extra-retail sources of revenue, we consider two other visualizations of sales during the first-half of 2011. Our first figure shows hardware sales for each major platform during the first half of 2011.
The shadows behind each colored bar represent sales from the first half of 2010, for the sake of comparison. As the Xbox 360 and PlayStation 3 continue to grow, the former far more quickly than the latter, every other key platform declined. We are intrigued that hardware sales for the PSP appear to have been essentially flat compared to last year, a result we did not anticipate, even after the price cut in March.
And to put the full revenue picture into perspective, we return to one of our standard graphs that shows industry revenue for each year from 2005 to the present.
As the diagram shows, the revenue so far in 2011 is on par with 2010 and ahead of what the industry produced in 2007, but it still lags far behind the record revenues of 2008 and 2009. We will try to address this disparity more below when we explain how we might begin to account for that revenue through extra-retail sources.