Disclaimer: Only once we get the NPD numbers for February 2014 and later can we really see the pattern of Generation 8. Launch months, including the spillover into January, do not tell the tale. There is also too much hype during launch period for cool thinking to prevail. Anything said below is for pure entertainment until next month when Generation 8 should truly begin to crystallize.
Ahh, January NPD 2014. Here are the numbers:
PlayStation 4 = 271K
All-One, Xbox-One = 141K
PlayStation 3 =53.5K
Wii Hate U =49K
Xbox 360 = 48.5K
Vita + 3DS + Wii = 84K.
To put the PlayStation 4 sales numbers in context, the PlayStation 3 sold around 40k less in the January after its launch. To put in more perspective, I looked up a random month in 2007 (picked April) and saw that the DS sales were 471k, Wii sales were 370k (and still sold out), PSP sales were 183k, PS2 sales were 192k, GBA sales were 84k, PS3 sales were 82k, and Gamecube sales were 13k.
In order to do Wii phenomenon level sales, a console needs to be moving around 400k sales a month in the US. With the PS4, I think the demand level is being masked by the limited supply. The limited supply of PS4 is due to Sony doing worldwide launches of it. This is another reason to wait until later months to see all the sales.
The top software sales list is unremarkable for January 2014. However, Minecraft is still present and at number 7. It’s presence is a giant middle finger to the Game Industry, and I love it.
Many people tune in to this site to find out ‘what is going to happen next’. Some have been frustrated that in prior NPDs, I’ve said ‘wait for the upcoming months’ numbers’. The reason for me saying that is because there is so much kool-aid hype going on during launch periods. In that Kool-Aid haze, people will either look at what is said as you are their friend or enemy. Today, cooler heads are prevailing. It’ll be fun for us to watch the ‘analysts’ try to make sense of what is going on. We already know what is going on, but we know that the analysts know that we know that macro-economic factors are wreaking havoc in the gaming market.
To those who want to know what is to come, here is what was said here before the PS4 and Xbone launched. Generation 8 will be heavily influenced by macro-economic factors. The dirty secret is that Generation 5, 6 and 7 were heavily influenced by macro-economic factors as well. These macro-economic factors of prior generations were positive demographic trends (population growth and aging gamers who now had careers instead of allowances), increase of new markets due to the end of the Cold War, and generalized economic growth. It’s easy for the gaming market to grow when every trend is favorable.
But what if the trends cease to be favorable? Japan became the sick gaming market. Japan was being hit by deflation and an aging population. Nintendo, being a Japanese company, comes up with a formula to beat the deflationary market: the DS and Wii. While the DS and Wii did OK in Japan (DS went gangbusters there), they outperformed prior console sales rates outside of Japan. If Nintendo had proper leadership, they would have continued the DS and Wii strategy into Generation 8 and likely be outperforming Sony and Microsoft. Instead, selfishness took over the executive heads. Someone (probably Miyamoto) wanted to pursue 3d despite all the failures and makes the 3DS. Nintendo had to sacrifice profitability in order to sell the 3DS. The Wii U was a Gamecube HD with a touch screen controller. Aside form the brand, it bore no similarity to the Wii. Wii U is filled with Gamecube sequels including a Gamecube port. The problem with the 3DS and Wii U is not that the DS and Wii were fads, but that the 3DS and Wii U were returns to a N64-Gamecube environment. The N64 and Gamecube did not perform well in GOOD economic times. In BAD economic times, it is full scale slaughter.
Everyone is being gored by the deflation. Nintendo doesn’t get a pass because they had the solution: their strategy with the DS and Wii. They did not utilize it in Generation 8. We can guess why to the reasons.
In Generation 7, we saw the trend of game software selling well the first couple of months and then hitting a brick wall to drop to very low numbers. The exception to this were the hardware selling titles on the DS and Wii (the ones the hardcore gamers hated). In Generation 8, it appears that the hardware sales will be front loaded too.
The only way I can see any console to grow over Generation 7 numbers is to cannibalize another console’s userbase. Since we know Wii users aren’t going to go to PS4 and Xbone, either the PS4 or Xbone may cannibalize one another. With January NPD showing PS4 outselling Xbone, it may be possible that the PS4 will cannibalize the Xbox series.
It is easy to predict high probability that Gen 8 console market will shrink, not because of anything to do with Nintendo’s blunders, due to the macro-economic storm. EVERYTHING is down. Retail sales are down everywhere! Everyone is losing their jobs. Yet, there are some people who think Gen 8 of video game consoles will defy every economic trend out there. Show me a mass market that is doing well.
I see a child a hundred years in the future looking at her history book. There is a section that says “The Great Deflation 2014-2020”. Just as you read about the Dust Bowl that made life miserable during the Great Depression, that little girl is reading about the Polar Vortex that keeps dumping ice and snow everywhere in North America making life miserable.
Generation 9 will start off in similar poor conditions as Generation 8. But the console companies, if they survive this, will position their Gen 9 consoles as deflationary positioned consoles (we know Nintendo is already doing this). When the Great Deflation ends around midway in Gen 9’s life-cycle, say 2024, the macro-economic trends will stop being so negative. They may not be as positive as before, but just moving to neutral or slightly positive, with deflationary positioned consoles, will create massive growth and the dawn of a new gaming golden age. This will be the case in the United States but not in Japan.
I don’t see how game companies can afford to make these super expensive PS4, Xbone games with their smaller install bases from their predecessors. There is going to be pain for everyone. The question is not who is going to be the most profitable and growing console company but who is hurting the least. The gaming market of the United States may resemble Japan in that there is one dominant console with a bunch of ‘lesser’ consoles.
This is what I expect to happen to games during Gen 8:
Hardcore gamers should start comparing video games over the years similar to the above picture with the shrinking box of Cheerios. I expect we will get less game for the same amount of money.