Consoleation-alysis and Reaction: May NPD Observations

I’ve been sounding the alarm bells for quite some time that the recession-laden economy would take its toll on the console gaming landscape, and the NPD sales results for May do nothing to dissuade my position. In fact, if you read Anita Frazier’s analysis of the May numbers, you’ll find that it’s getting harder and harder for her to keep putting a happy face on the results.

If you predicted that Nintendo would come out on top again in May, you really didn’t take much of a risk in your prediction. Combined sales of Nintendo DS and DSi hardware again led the pack in May, moving about 633,500 units. The Wii continues its slowdown with less than 300,000 (289,500) units sold. Xbox 360 hardware sold 175,000 across all SKUs, followed by the PlayStation 3 (131,000 units), PlayStation 2 (117,000 units), and the PSP (100,400 units and likely to continue to decline until the PSP Go launch).

Allow me to put my Michael Pachter hat on here:

• Nintendo: While Nintendo can be happy with another dominating month, Wii sales continue to decline… and that’s despite the release of Punch-Out!! in May, a game that Nintendo heavily promoted. While it can be argued that a price cut for the Wii isn’t needed since it’s still far and away the best-selling console around, you could also argue that a price drop could stimulate sales of the platform and generate a new round of interest. It’s also worth noting that supply is now surpassing demand by a decent margin, something that’s still relatively new for the console’s life cycle. I don’t expect a Wii price cut anytime soon, but I would not be shocked to see one in time for the fall… especially if sales continue to ebb.
• Microsoft: Xbox 360 hardware sales were unchanged from April to May, which is certainly better than monthly declines that we’d seen starting in January. That consistency, along with the platform’s ninth straight month of outselling its HD competition in the PlayStation 3, should be regarded as positive news. An interesting question to pose at this stage of the 360’s lifecycle is whether or not the hardware has peaked. Although Project Natal may stimulate sales when it eventually hits retail, E3 didn’t really showcase any other blockbuster reasons to run out and buy a 360. Yes, Alan Wake and Halo: Reach may be responsible for a couple of sales spikes in 2010… but I think that sales will continue to stay steady or even decrease without an additional price cut or other major incentive. Microsoft is doing a good job of pleasing current 360 owners, but I can’t say with any certainty that they’re doing enough to pull in new consumers.
• Sony: The good news for Sony in May was that the PS3 actually saw the only month-to-month increase in unit sales. Granted, the increase was only about 4,000 units… but that’s equivalent to more than $1,5 million in extra hardware sales revenue for the platform in May versus April. The other platforms weren’t nearly as fortunate; PlayStation 2 sales slipped 55,000 units, while PSP sales dropped nearly 16,000 units versus a month ago. Sony’s decision to stay the course in terms of the PlayStation 3 price point will continue to mean generally poor results in comparison to the other current-gen platforms. If you consider the fairly strong software year– at least in terms of quality– that the PlayStation 3 is having and appears to continue through the rest of 2009, it’s arguable that the high price point continues to hold the PS3 back from favorably competing with the 360 in the HD arena. If and when Sony does drop the price in 2009, though… the PS3 could quite possibly outpace the 360 in terms of hardware sales through the rest of 2009 and into 2010.

Turning to software sales for a moment, how about the runaway success of UFC 2009 Undisputed? The game moved over a million units combined across the 360 (679,600 units) and the PS3 (334,400 units, outpacing inFamous as the PS3’s best-selling game in May). THQ has a new cash cow, and, if I was Vince McMahon, I’d be extremely nervous about the future of WWE video games in light of the success of Undisputed. The WWE is rapidly becoming little more than a niche activity, and it’s arguable that the WWE will see licensing offers begin to decline in value. I could see THQ letting go of the WWE license in order to conserve cash, in fact. I think that’s a very real possibility.

The successful launch of EA Sports Active on the Wii is also noteworthy, as it sold almost 346,000 units in May. That number compares favorably with what Wii Fit sold (nearly 353,000 units) and demonstrates that exercise activity games are here to stay on the console. In sharp contrast, a game that should have easily been a big seller with the core Nintendo crowd– Punch Out!!– only sold just shy of 157,000 units. That’s less than what Mario Kart (158,300 units) sold, and Punch-Out!! is a brand new game. Nintendo apologists may argue that Punch-Out!! performed adequately with an 8th place finish in software sales for May, but I expected far better results from a game that Nintendo fans should have quickly identified with and picked up early. With this success of EA Sports Active and Wii Fit and the mediocre showing of Punch-Out!!, isn’t this another indicator of how Nintendo has lost the “hardcore” gamer? I think that’s possible.

With the overall decline is hardware sales continuing, concern is quietly building that the momentum that video gaming has been building in recent years has finally started to subside. Console gaming, in general, has never been so costly as it’s been in this generation… and as this continues in spite of soaring unemployment rates, renewed gas price increases, and dramatically decreased amounts of disposable income for the average person, these high prices could quite possibly cause the long-awaited bursting of the video game bubble. Fingers are being pointed within the industry as to who shoulders the responsibility for the stagnation of console gaming revenue, but the blame can be spread equally. A recessionary economy will struggle to support any console over $300, and the slowing adoption of high-definition televisions is a correlating factor to limits on HD console successes. At the same time, charging $60 for games after a decade of prices that were generally $10 cheaper is hard to swallow… and the emergence of a greedy downloadable content model that tempts publishers and developers to purposely ship software with fewer features, only to grab extra cash by charging for those features as DLC, is perhaps this one of this console generation’s greatest failings.

Will the trend continue in June, after the E3 announcements and with gas prices soaring back to $3 per gallon? We’ll see in a month.