Posted by: seanmalstrom | August 14, 2009

NPD July 2009

PlayStation 2 108K
PlayStation 3 121.8K
PSP 122.8K
Xbox 360 202.9K
Wii 252.5K
Nintendo DS 538.9K

NCAA FOOTBALL 10 (360) 376.5K
FIGHT NIGHT ROUND 4 (360) 116.4K

(*includes CE, GOTY editions, bundles, etc. but not those bundled with hardware)

Thankfully, Anita Fraizer is not spinning the industry so blatantly as she was last month:

The U.S. video games industry declined for the fifth consecutive month, bringing year-to-date sales to $8.16 billion, down 14% from the same time period last year.

In order for the industry to come in flat or slightly up for the total year, the back five months of the year have to come in 11% (or more) higher than the last five months of last year.

While year-to-date results are weak, there are some big titles set to be released over the next several months, including Madden this month, which should help spur sales. The worst comps should be behind us, and looking beyond August we have The Beatles: Rock Band, Halo 3: ODST, and of course, Call of Duty: Modern Warfare 2 to look forward to.

Hardware sales have slowed considerably on nearly every platform. The Xbox 360 is the only console system showing a unit sales increase year-to-date, while the NDS has the highest sales of all hardware platforms both for the month, and year-to-date.

NCAA Football 10 was the top selling game for the month, with combined sales of 689K units across all platforms.

Wii Sports Resort was the top-selling software SKU for the month with 508K units sold with a 2.5% attach rate to the hardware install base.

Of all genres, the music/dance genre has suffered the greatest declines this year, with nearly $390 million less revenues than the same time period last year.

The music genre has been destroyed by the red ocean. Instead of waiting for the well to replenish itself, they took too many trips to it, capitalizing on it in every way, and now that well is gone. Idiots.

As is obvious, the trend is against the game industry. And by trend, I mean population decline of their target markets, growing disinterest, recession, all of these are wheels turning against gaming and making it harder to and harder to sell games.

The “Games Industry” is so not used to this. They have been a ‘spoiled industry’ used to the trend being in their favor. Kids who grew up playing games had more cash and were buying new games all the time, even buying $600 machines. Population growth of their target market was in their favor. Economic boom was in their favor. The “Games Industry” got used to prioritizing profits instead of prioritizing customers (i.e. making and keeping customers).

Years ago, maybe in 2006 or so, I responded to one ‘industry chart’ and ‘analysis’ from our esteemed ‘analysts’ on a more business orientated site by saying that despite them blaring trumpets at how ‘amazing’ the growth of the industry is, there was no indication of the number of customers. When was the last time you saw a video game analyst, such as Pachter and all, start talking about the number of customers? They never do. It is always revenue, profit margins, and so on. So the ‘growth’ of the video-game industry was actually truly revenue growth, not in growth in its popularity. Every game console (DS/Wii/360/PS3) launched at a more expensive price then their predecessor. Software went from $50 to $60. Of course revenue is going to go up. That didn’t mean the “Game Industry” was growing. Something was bound to occur that would prevent these ‘hardcore’ customers from spending even more money (such as a recession) and the bottom truly begins to fall out of the “Game Industry” at that point. We’re now reaching that point.

On that site, I recall getting an extremely angry reply. “Why would we want to look at the number of customers!?” he declared in his response. I just stared at the words. Such hostility for focusing on the customers! So the “Game Industry” has been in a very imaginary world thinking gaming would always grow, always increase in revenue. This is part of the reason why they were blindsided by the Wii and, to this day, don’t understand it.

The mission of Nintendo was not the expansion of gaming. The true mission of Nintendo was to create an antidote to prevent total gaming collapse. Expanding gaming was simply a means to that. Nintendo saw the decline coming years ago and devised the DS and Wii to survive in such a harsh environment, though I think the rapid economic decline took them by surprise.

With the trend working in the “Game Industry’s” favor, it would appear to everyone as if Nintendo’s mission was just ‘expanding gaming’ and ‘getting casual gamers, LOL’. But with the trend now working against the “Game Industry”‘s favor, the true mission of Nintendo should become clearer to everyone: to make gaming survive. With the DS and Wii, Nintendo approached it with the context of survival. Not survival based on Sony and Microsoft being ‘big’ competition, but survival based on Nintendo seeing the eventual collapse of the Core Market.

If Nintendo made Gamecube HD and relied on Mario and Zelda and the usual suspects to sell their system, they would in a very poor position. Nintendo could not survive off their core gaming anymore. Neither can the rest of the “Game Industry” as they will soon realize. (And by “core gaming”, I am referring to the sustaining improvements on the games that we have had every generation.)

While everyone runs around, like a chicken with their head cut off, and start clucking about ‘price cuts’, we should remember why consoles cut their price in the first place. I actually think people who keep screaming ‘price cuts’ don’t have any idea why consoles actually cut them.

The most common answer is to ‘increase sales’. But it isn’t the price drop that creates sales of a console, it is games. The real reason why consoles drop their price is because of competition. Games are the reason why people buy consoles. They buy the hardware only to get to the software. No one likes paying for the hardware. Lowering the price on the hardware undercuts another console company and the customer is more likely fall into your console because the ‘price hurdle’ is lower.

In other words, price cuts do not make demand. Killer apps make demand. Price cuts only lower the hurdle between the customer and the game. This is why Console War has always had price cuts. This is likely why Microsoft is dropping the price of the Xbox 360 again… because Sony is dropping the price of the PS3.

Nintendo is not in a ‘Console War’. They are in the Blue Ocean, not the Red Ocean. They have no desire to undercut another console by lowering their price. They realize that demand is controlled by the software. So they are working to bring out more enticing software.

There is also another reason why Nintendo won’t price cut. Since Nintendo sees itself in a war for the survival of gaming, it realizes it must keep the value up. Cutting the price with no competitors nearby means surrendering to falling value. This is why Nintendo has never price cut any of their DS or Wii games.

Look at the software chart. Yes, it only has EA and Nintendo games. But look at which Nintendo games. Games like Mario Kart DS, Mario Kart Wii, Wii Fit, and New Super Mario Bros. These Wii and DS games that are holding their value extremely well. They are all in the top ten software list despite them being years old.

On the HD Gaming side, the games, as well as the consoles, cannot hold their value. Brain Age is the same price as many new HD ‘blockbuster’ games today. It is not uncommon to see a $60 game become $30 within a year or so and then it goes down to $20. DS games cost more than that! Most Wii games, excluding the shovelware, remain steady in their value of $50.

Price cuts are the course towards suicide because they do not raise the value of the product. To the contrary, they surrender to it. Any discussion of price cuts should include discussion of value. Note  how no one ever brings up the value.

With something like the PS3, I see declining value. The price will drop in attempt to boost sales and that will work for a little while. But the value of the system is still falling. Only great games can stop the falling value and raise it up.

With the declining Wii sales, again, it is declining value due to no major software out for it. Anyone saying that Wii Sports Resort should have created a stampede for Wii hardware is confusing the Core Market with the Expanded Market. The Core Market will do this, such as with Monster Hunter 3 in Japan, but Expanded Market respond much more slowly and require different marketing to inform them the game exists. With Wii Sports Resot, I believe Nintendo put it out cold, in the middle of the slowest sales time of the year, get all the early adopters and more ‘passionate’ Wii players, then they will slowly ramp up their marketing for Resort leading up to the holidays. In other words, expect Wii Sports Resort to stick around in the top ten list. As for falling value, Nintendo’s right in that the correction is better games.

When I look at the Xbox 360, again, I see falling value. It is not collapsing at the same rate as the PS3, I suspect that since the PS3 and 360 are in the red ocean, the 360 is cannibalizing the PlayStation corpse. While Xbox 360’s sales are around the same year over year, the value is not the same year over year. The 360 keeps lowering in price. The 360 games’ price keep lowering in price, almost disasterously so. And I suspect 360 is consuming customers who might have gone with PS3. So no, I don’t think there is anything ‘good’ going on with the Xbox 360 momentum. Price cuts do indicate an eroding value of the product.

NSMB DS being in the top ten should illustrate why Nintendo is making NSMB Wii. NSMB DS is being sold primarily to new DS buyers. Anita Fraizer listed games like Modern Warfare 2 and others but stayed with the typical ‘Core’ titles. Why is it that she can only see the ‘core’ titles? Anyway, NSMB Wii has the potential to make the biggest splash of any game this year.



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