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The Numbers Game (Feb. 2012)

by on February 28, 2012
 

January NPD numbers came out last week, revealing steep declines in sales that should set alarm bells ringing. Decline isn’t new to the video game industry, with the annual industry revenue in the US seeing declines five times since the year 2000 failed to wipe all our computers off the map – six if you want to count the year 2000, itself a nominal decline from 1999. What makes January’s declines notable is the scale and the timing. Before we get into all that, let’s see the numbers.

Hardware sales:

  1. Xbox 360: 270,000
  2. Everyone else

Software sales:

  1. Call of Duty: Modern Warfare 3
  2. Just Dance 3
  3. Skyrim
  4. NBA 2K12
  5. Battlefield 3
  6. NFL 12
  7. Mario Kart 7
  8. Skylanders
  9. Zumba Fitness 2
  10. Saints Row: The Third

The new format for NPD, where publishers and manufacturers can choose to release the numbers on their own, but the NPD won’t divulge them directly, does a neat job of hiding how soft the overall numbers are.

Thankfully Microsoft’s press release on their January sales provides at least a clue as to the relative health of the rest of the hardware market:

“Holding 49 percent share of current-generation console sales, total retail spend on the Xbox 360 platform in January (hardware, software and accessories) reached $301 million, the most for any console in the U.S. This marks the eleventh consecutive month Xbox 360 has held more than 40 percent of the current-generation console market share. (Source: NPD Group, January 2012)”

While the Xbox 360 saw steep year over year decline, dropping from 381,000 units sold in January, 2011, it’s clear that the competition had a far tougher month, combining for approximately 281,000 units. While the split between them isn’t clear from either of the companies PR releases, the pair had combined for 586,000 units sold just 12 months earlier, making this a staggering decline in sales. January is typically a slow, post-Christmas month, but there were indicators of consumer unhappiness prior to 2012. December’s numbers didn’t enjoy the typically sizeable boost that’s the norm, for example, with all three consoles more or less flat month to month between November and December. It’s impossible to know for certain the mind of the average consumer, but it appears the general public isn’t interested in these machines at the current price point. All three sported sizeable discounts in November, ranging from $50-100 off, and picking up close to three times their respective October sales as a result.

With sales flat from November to December and down considerably in January, the mind jumps first to ‘price drop’ as an obvious conclusion. For Microsoft, at least, that may well be in the cards. The 360 launched in November, 2005 with a sticker price of $299/399, and currently sits on shelves, six years after launch, with a sticker price of $199/299/399. It’s true that what’s included in the package has changed dramatically, but for many consumers it’s the entry point price that matters – the key ‘race to $99’ that has signalled a dramatic increase in unit sales in past generations. Coming off its first year as the best-selling console worldwide, Microsoft will be eager to continue that momentum through 2012.

In addition, pressure has likely started to build internally to begin price reducing the Xbox 360 SKUs in order to provide a price buffer for the inevitable – if as-of-yet unannounced – successor hardware. For that reason, the 360 hardware is likely to see a price reduction this year, perhaps by the time E3 rolls around or, if not, perhaps as a means to take attention away from the Wii U launch expected for the fall. Price buffering is one area that Nintendo has little to worry about.

The Wii’s $149 price tag would already provide the necessary buffer between the Wii U, expected to clock in at $300 or more. Furthermore, with a successor on the way, Nintendo has little impetus to try and kickstart long-flagging hardware sales. Could the Wii drop to $99 this year? It’s possible, even likely, but it doesn’t appear there will be any longterm benefits from it.

And that brings us to Sony, who are currently in third place worldwide and coming off a quarterly loss of two billion dollars, a pair of factors that will likely keep a price drop from happening. At this point in the generation, with just months to go until the release of the first next-generation system, there’s simply no point in breaking the bank (or what’s left of it) to try and pop short-term sales above that of the competition. With Kaz Hirai ascending to the position of CEO, it’s unlikely Sony’s Playstation business is in any real danger of seeing major cutbacks in the upcoming effort to streamline the company’s portfolio, but the focus will be on profitability for the foreseeable future. One thing that’s important to remember as people consider the falling numbers is that 2008, the peak in the mountain range of revenue graphs, was a record year – the cap on four straight years of record numbers and the end of a three year increase that saw the industry’s revenues double from $10.5 billion to $21.4 billion.

That the industry has cooled off to the tune of about $4 billion in the three years since still represents a staggering increase from the numbers generated as recently as 2006. It will be interesting to see what February’s numbers bring. January saw little in the way of software releases, with Final Fantasy XIII-2 and SoulCalibur V both releasing outside the reporting period, while February has a number of larger releases. Are we in the typical end-of-generation lull or is this just a minor bump in the numbers? Time will tell.

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