NPD: Behind the Numbers, August 2009

Which brings us to Nintendo, whose Wii has not budged a penny since its November 2006 launch nearly three years ago. After blistering sales in the first quarter of this year, the retail temperature for the system has cooled significantly and its year-to-date sales are down 21% over the same period last year.

In part, that drop has to be attributed to the truly phenomenal sales the system experienced throughout all of 2008. One could easily take the view that sales of the Wii are now normal, and it bears pointing out that the Wii is still outselling each of the PlayStation 3 and Xbox 360 each month.

However, given the scale of consumer demand for the system at $250, it stands to reason that demand would spike again if the price were dropped.

The issue isn't just moving hardware for hardware's sake, but the fact that hardware sales drive software. According Mr. Pachter of Wedbush Morgan Securities, Wii software sales were down in August 2009 compared to August 2008 and he expects them to remain down year-on-year through November unless Nintendo drops the price of the Wii.

(To be fair, Nintendo isn't the only system whose software sales are down. According to Anita Frazier, analyst for the NPD Group, “the PlayStation 3 was the only platform to realize a year-over-year increase in total software sales.”)

Industry Revenue to Contract in 2009

The total revenue for the videogame industry in 2008 was $21.3 billion, according to the NPD Group. It appears now that the total for 2009 will likely fall short, perhaps by over a billion dollars.

Here are the factors involved:

Software Unit Sales Down: In terms of software unit sales, the industry at the end of August 2009 had sold 12.5 million fewer units than at the end of August 2008. For a sense of scale, that's more than the combined 2008 totals for Mario Kart Wii, Super Smash Bros. Brawl, and the Xbox 360 version of Grand Theft Auto IV.

While there are still some guaranteed million-sellers this holiday season, it seems unlikely that retailers will be able to move enough software to make up for the 12.5 million unit gap. For future reference, over 268 million units of software were sold in all of 2008.

Software Prices Down: The average sale price (ASP) of software has been down dramatically during 2009. After peaking right around the release of Activision's Guitar Hero World Tour, prices have generally been heading down with occasional spikes from big releases.

The combination of fewer unit sales with generally lower prices has greatly depressed software revenue in 2009. Compared to the same point in 2008, the industry's software total is behind by $765 million.

Some of this is erosion of sales of higher-priced items. For example, the music industry – specifically Guitar Hero and Rock Band – lagging over $400 million so far this year, measured against the August 2008 year-to-date total.