Armchair Analysis Addendum: Q4 2012 Projections

I had some help in tackling my Q4 projections.

I decided to have a little bit of fun with my projections for the fourth quarter of this year.

Some colleagues have told me that my numbers are generally too high, with their projections being down as much as 50% YOY in some cases (read: Xbox 360). I’m not sure that I buy into the gloom scenario just yet. There’s talk of a decent bundle from Microsoft for the holidays, plus the company is in prime position to surprise with a price cut if it so chooses. Obviously another year like last year with over 3.8 million Xbox 360 units being sold is not in the cards… but below 2 million? With Halo 4 and Black Ops 2? I can’t pull the trigger on such low numbers. Not yet.

One thing to definitely keep an eye on will be WiiU allocations. My gut tells me that Nintendo is looking to ship between 600,000 and 700,000 units in November and in December, probably leaning towards the lower end of that range. I do think that my projection of 1.1 million units makes sense. It could be a bit more than that, but realistically not as high as the 1.5 million I was thinking about earlier this month. I do think that tight supply could potentially lead to hazardous situations at retail, with increased risk for robberies both in-store and in parking lots. Resale prices for WiiU could be huge if supply is super-tight, so they’re perfect targets for criminals.

Lastly, I know that I’ve come down hard on the PlayStation 3. It’s not that I don’t like (or want to like) the platform, because I do. I own one, I use it considerably more than my Xbox 360, and I think that PlayStation Plus is a fantastic program. Unfortunately, while I understand the pricing strategy for PlayStation 3 in Q4, I think that it’s a wasted opportunity to build penetration even at this very late stage of the console generation. $200 would have great. An even lower price would have been better. Neither of those things happened, and there simply isn’t a major selling point for the PlayStation 3 this season. The WiiU will be the main attraction as the new hardware platform and will be difficult to find. The Xbox 360 will almost certainly be the best-selling platform this season with a strong software lineup and continued brand recognition. The PlayStation 3 has neither of these advantages, and unimpressive sales will be the result instead of a resurgence during the busiest period of the year.

I hope that you’ll check out the piece. Feel free to tell me what you think, either here or via the comments section over at Popzara.

Look for more new content here next week, too.

Armchair Analysis Extra: The Correction Period Continues

Between SEGA Europe‘s painful restructuring and Activision‘s dismantling of Radical Entertainment, this week has been another one of those weeks that we’d rather forget. It’s always unfortunate when people lose their jobs, and downsizing doesn’t often instill confidence that the affected industry is moving in the right direction. These moves are a continuation of the state of correction that the video game industry is in– especially in the console sector. The market is shrinking, and not enough money is being made to keep moves like these from occurring.

I know that when I remark that events like these aren’t surprising or that the market is shrinking, many people react quickly and negatively to my observations. “Stop with the doom and gloom” or “Things aren’t as bad as you claim” are popular responses. I don’t make these observations to earn praise, and I know that very few gaming fans like hearing these things. I’m simply calling things as I see them, and there isn’t a whole lot of good news out there to talk about.

The console sector has had an amazing run, especially since the PlayStation era began. The consumer base had steadily grown before the Wii took the market by storm and sold tons. A lot of studios saw success and expanded before we saw the opposite begin to happen during this console generation. These runs of success don’t last forever, and consumers are finding other entertainment options. Consoles are no longer the undisputed gaming platforms. Consumers are splintering into other areas, like PC, mobile, and social methods of gaming. Most consumers who wanted consoles have them now, as it’s been 6-7 years since the current generation of consoles was introduced… and at least some of those consumers are moving on. Perhaps it’s partially because of stagnation due to an anomalously long console cycle. Maybe the economy forced a change in spending priorities as consumers got older. It’s possible that the time isn’t there anymore for some consumers to play video games like they once did.

The correction in the console market feels much more painful because it’s coming down off of a huge period of sales. Nearly 40 million Wii units have sold since November of 2006 in the United States alone. Another 55 million combined Xbox 360 and PlayStation 3 units have sold over the course of this console generation. That’s an awful lot of hardware. It was a boom period for the first half of the console generation before things began to recede… and now, we’re seeing sales decline to levels similar to 2004-05 when the previous generation was running out of steam. Perhaps we see a significant resurgence in sales when Gen4 really gets going sometime in the next 12-18 months, but there’s no guarantee.

I’m not going to come out and say that the console sector is dying. I know that might be your gut reaction to what you’re reading, but it’s not my point. I firmly believe that there is a solid nucleus of consumers in place to support Gen4 and that at least some profits are out there for the taking. I don’t expect console sales to fall off a cliff in Gen4, but I also think that it’s unreasonable to assume that another 100 million consoles will sell in the US when we tabulate Gen4 data in another 7 years. Unfortunately, since the bar is set so high, there’s going to be disappointment from investors and analysts when consoles don’t set records for another generation. There’s the possibility that investors pull back and, with the focus being on “AAAA blockbusters”, more studios and companies could face restructuring and/or closure over the next couple of years. A shrinking market– and declining sales– can’t support projections of 5 million units sold as a success. Not anymore.

I understand that many of you want to hold onto the idea that Gen4 hardware will reinvigorate the market and that trends will turn around. Several industry people that I have great respect for have cited this reasoning repeatedly. I believe that is a possibility and could very well happen; however, I personally am not convinced that the solution to ending this correction period is that simple. Many different variables come into play. How much will Gen4 hardware be? Will software prices rise again to offset expected rises in development costs? How will digital distribution expand? Will the economy find a foothold and begin to rise with confidence, or will a double-dip recession occur at the worst possible time for the console sector? As these puzzle pieces fall into place, I’ll feel more confident in my own outlook or may start shifting my line of thinking in a different direction.

For right now, based on the data and trends that are available, I see no reason to change my thought process. More studio closures are possible to likely in the next 12 months, and I expect YOY sales comparisons to remain moderately negative for the balance of 2012.

Consoleation Quickie: I Gotta Believe!

PaRappa tried to tell me this 15 years ago. (Credit: Quickmeme.com)

I’ve had difficulty believing that I’m a decent writer.

A lot of it has to do with the fact that I’m not used to compliments. I’m not sure how to accept them sometimes. I’m always grateful that someone would take the time to tell me that they enjoyed what I wrote, or to even remotely compare me to others whom I hold in high regard personally. I’ve been mentioned in the same discussion as Michael Pachter a few times. I’ve been told by other writers or analysts whom I respect and admire that they’ve taken time out of their busy schedules to read pieces that I’ve written. These things are the ultimate compliments to me, and I value them very much.

I think I’m realizing now, with a website taking a chance on me and sending me to E3 this year, that I’ve failed to recognize what these people have been trying to tell me. I feel weird admitting that maybe I am as good as some have said, or that I do have the talent needed to possibly make something of myself in a role that I was all but ready to give up on not too long ago. I guess that I’ve always believed that keeping compliments at bay kept me grounded as a person. Not totally buying into compliments made me work harder and made me become a better writer.

I didn’t do THIS, but I did do something else wrong. (Credit: Smosh.com)

I think, to quote a popular internet meme, that I’ve been “doing it wrong.”

This trip, as unexpected as it is, has everything to do with Popzara Press– and I’m very grateful for the hoops that Nathan and Chris have jumped through to get me to Los Angeles– but it may also have something to do with the idea that I might have earned this kind of trust and opportunity. This is, perhaps, what other colleagues and writers have been trying to tell me for a long time. It’s time to believe that I might be good enough to be an accomplished writer or analyst.

It’s time, to put it bluntly, to believe in myself.

I have a chance now to set things in motion for the future. I have a chance to start building my own network of contacts and take some initiative instead of relying on others. I have a chance to show that I can work under pressure. I have a chance to generate my own unique content. These are things that I’ve been told publicly and in confidence that I can do, but I never genuinely believed it until just recently.

In the past month, I’ve accomplished a lot. I’ve been sourced as an analyst. I’ve participated in my first podcast. I’ve had eight Armchair Analysis pieces published. I’ve covered five earnings calls. That’s all in addition to securing my spot in college for the fall. It’s all because I finally stopped just listening and added belief to that action… and this has been perhaps the most important transition of my life so far.

So, to all of you who have ever taken the time to compliment me in my life, my writing, or anything else… It’s my turn to not only thank you for those compliments, but also to prove you right.

Armchair Analysis Extra: The GTA Release Conundrum

My latest Armchair Analysis column is live over at Popzara Press, covering Take-Two’s 2012 fiscal year earnings conference call. Topics included the financial effect of game release delays and the reasons why, the likely end of Take-Two’s license partnership with Major League Baseball, and a surprisingly strong defense of consoles in light of weakening sales in that sector. I really hope that you’ll give the piece a look if time allows.

The most interesting part of the call covers what was– and what wasn’t– said regarding Grand Theft Auto V.

A press release, containing Take-Two’s highlights and financial results from the 2012 fiscal year, was issued about 20 minutes prior to the earnings call. On the earnings release, Grand Theft Auto V is listed as a TBA (To Be Announced) release. Curiously, it’s listed in the 2013 fiscal year lineup despite the unknown date. If you take the release schedule to be chronological as it’s listed, then TBA could be inferred as March of 2013. I thought that to be a bit of a stretch before the call took place, given the announcement that XCOM: Enemy Unknown would hit retail in October and thus closing the window that the BioShock Infinite delay left open.

My opinion changed during the call, when revenue projections for the 2013 fiscal year were shared. Take-Two is expecting revenues for this fiscal year to be more than double what was taken in last year, to between $1.75 billion and $1.85 billion. That’s also more than Take-Two made in the 2011 fiscal year, when Red Dead Redemption was such a big success. Take-Two CFO Lainie Goldstein also said this during the call:

Our expected revenue range assumes the on-time release of the titles we have announced to date, as well as other titles yet to be announced for release during fiscal 2013. We expect the revenue breakdown from our labels to be roughly 60% from Rockstar and 40% from 2K.

Now, if you look at the earnings projection of $1.75 billion dollars, it’s estimated that over $1.05 billion is set to come from Rockstar. Even if Max Payne 3 sells 10 million units, that’s only about 60% of the projected revenue that Rockstar is expected to bring in during this fiscal year. Something else needs to be released to close that gap.

The plot thickened further when Eric Handler from MKM Partners asked about how projected guidance could be hit without Grand Theft Auto V. Take-Two Chairman and CEO Strauss Zelnick responded with this answer:

We’ve announced that Grand Theft Auto V is in full development. We haven’t announced a release date yet. What we have said about the year is that we have some titles that we expect to release that are not announced yet and we have a terrific slate coming up.

It’s a sidestep answer, as Zelnick obviously doesn’t want to tip his hand, but there is absolutely no certainty one way or another in this instance. There are two scenarios that come to mind. Either Grand Theft Auto V is the “unannounced” title or Rockstar has another project going that we don’t know much (if anything) about. What’s more, if you listen to the replay of the call (located via a link on this page) starting at the 39:53 mark, Zelnick’s tone in response to Handler’s question doesn’t lead you to believe that he’s denying anything. It didn’t sound like a denial to me, at all.

I am thinking that Grand Theft Auto V is on track for a release during this fiscal year, ending March 31, 2013. I believe that it’s possible that the game could ship during the fourth quarter of this calendar year, between October 1st and December 31st. I’d even go so far as to say that the October 23 date that Michael Pachter mentioned last month has a real shot at verifying. It makes some sense, given that it’s two weeks after another Take-Two release (XCOM: Enemy Unknown) and two weeks before November’s big guns like Halo 4, Call of Duty: Black Ops II, and the potential release of the WiiU. There’s some concern how sales of Assassin’s Creed III may affect Grand Theft Auto V, but given the strength of the Grand Theft Auto IP, UbiSoft could be the loser in this battle if a late October date materializes.

I’m not sure how much of a presence– if any– that Grand Theft Auto V has at E3, but news could come after the event. If after-hours trading and the spike of Take-Two stock is any indicator, then I believe that investors agree with me: Grand Theft Auto V will be here a lot sooner than many expected just a few weeks ago.

Consoleation Status Report: Here, There, and Everywhere

With the relocation of Armchair Analysis to Popzara Press, and with my return as an active member of the gaming press, I wanted to take some time to self-promote a little bit.

Twitter: Starting today, I’m re-activating my secondary Twitter account, ArmchrAnalyst. Moving forward, I’m going to be separating my tweets a bit so that my friends and colleagues aren’t overloaded with stats, stock quotes, and other industry observations on my main account. Plus, after some outside feedback, it makes sense for me to diversify and have a “professional” Twitter account. I’m hoping that you’ll follow both. I’m still going to be quite active on my main account, so don’t worry if you follow me there already.

Facebook: Both Armchair Analysis and Consoleation have their own Facebook pages, in addition to my own personal one. I’ve begun to get more involved with Facebook recently, especially with social games. Each page will have a quick reference of my published work; Armchair Analysis will be business and industry related, while Consoleation will be gaming-centric. I had considered expanding to Google+, but traffic and engagement don’t seem to be active enough at this time… so I’d like to focus my networking and social reference efforts on Facebook for now.

Blogs: Consoleation will continue in its current form. Expect updates about my retrogaming adventures here, plus some Armchair Analysis Extras as time allows. Site traffic, thanks to you, has been steady recently. It helps, of course, if I update regularly… so that’s going to happen as much as I can. My Armchair Analysis blog is in the process of being taken down and the content will belong to Popzara. This will allow me to focus my extra writing time here, which is a good thing.

Published Content: My relationship with Popzara Press continues to grow. As you know, the site is funding my trip to and coverage of E3… so my E3-related content will be going up there instead of here. Armchair Analysis content is my primary focus with Popzara, but I’m working to take on some review and preview responsibilities there after my return from E3. In addition, I’ve collaborated with offered analysis to a couple of great writers recently and have been sourced twice. I’m hoping this trend continues, and there are initial plans to take part in some podcasting in June.

This is a very exciting time for me, professionally, and I hope that you’ll follow along as big things continue to take place.

My E3 2012 Bombshell

I honestly thought that my trip to E3 last year was going to be my only trip.

The KmartGamer project folded, I moved from Arizona to Massachusetts and haven’t had a job since, and I had even contemplated putting my writer’s pen down for good. There’s been a lot of buzz surrounding E3 recently, which makes sense given that we’re just three weeks away. I was excited for those who were going, some of whom I’ve befriended on Twitter who are attending for the first time… but was OK with watching and reading stuff from home.

More recently, I’ve found my writing stroke again, thanks to a phone meeting with Nathan from Popzara Press a few weeks ago. He provided me with an opportunity to talk about industry sales and trends, and to bring Armchair Analysis to a new audience of readers. The terms of the opportunity were perfect for me, and I was given a lot of latitude to work at my own pace. I’ve been busy since then, thanks to that meeting and due to earnings season providing me with plenty to talk about. Once earnings season ends, E3 news would likely take over and I figured that I’d react to press events and other announcements as I have every year.

E3 was something that Nathan and I had talked about before. Attending E3 last year was possible because Kmart and Sears did everything; I wasn’t working enough to afford a trip to Los Angeles and I really didn’t (and still don’t) have many contacts “on the inside”, so those concerns were alleviated. All I really did was show up as expected, follow my itinerary, and put together some content. I told Nathan that I didn’t have any of these luxuries this year, and we tabled the discussion for awhile.

Last week, I was asked to submit my press credentials for E3. I really didn’t think anything of it, given how late in the game it was. I sent the information along, and thanked Nathan for thinking of me. It means a lot that someone that I’ve worked for over only a few weeks would have the confidence in me to think about sending me out to Los Angeles. The KmartGamer trip was more of a contest, even though it briefly became something bigger. This was different… and besides, I had no way to get out there or pay for anything, given my current state of unemployment. I had nothing to lose.

I received a rejection e-mail this afternoon. I had expected it, and forwarded it to Nathan with my gratitude. I am happy just having found what feels like a great opportunity to get back into writing, so this was less a disappointment and more a sign that we’d move on to other things. But then… things changed.

Quickly.

I received a second e-mail from E3 registration stating that my application had been approved, along with my confirmation barcode, while chatting with Nathan. He then dropped the biggest bombshell: Popzara Press is handling the travel and accommodations. I was– and still am– floored.  We’ll be working out final details this week, but, barring any unforeseen circumstances…

I am going to E3 once again.

There’s a lot of preparation that has to happen between then and now. I am unbelievably excited and honored to have this opportunity.  I’m going to be working with Nathan to hopefully set up some appointments for the event, and I’m looking forward to having a bit more time to network with some people out there. It’s going to be a different experience, and a big step for me professionally. I’ll be getting business cards ready to go, and I’m hoping to do a little more hands-on this year to go with more meetings and conversation.

I want to publicly thank Nathan and Popzara Press for having confidence in me and for making this happen. I’ll be providing the best coverage that I can, and learning a lot along the way. I look to reward that confidence by providing info and impressions from the show floor and giving readers my perspective on the controlled chaos that is E3. I’m also going to meet Armchair Analysis inspirations like Jesse Divnich, Michael Pachter, and Kevin Dent again this year– and that’s going to be a personal highlight for me.

Let the planning begin.

Armchair Analysis Extra: Five Observations From April NPD Data

I just finished my analysis of April’s NPD sales data for Popzara Press. To go along with that piece, I have five observations that I’m going to expand upon for you here.

1. Gotta predict ‘em all!

As it turns out, I correctly predicted the ranking order for hardware sales in April: Xbox 360, PlayStation 3, 3DS, Wii, then Vita. I came within about 20,000 units of predicting the actual Xbox 360 sales number of 236,000. I overshot it– as I did with the other platforms– but feel pretty good about getting more right than wrong when it comes to predicting hardware. I’ve had a decent record doing this, but predictions are only part of what I’m doing.

2. No Portal Kombat means sliding sales.

Mortal Kombat and Portal 2 combined last April to move well over 1.5  million units. Compare the significance of those two games with Kinect Star Wars, and Prototype 2. You really can’t. Even adding The Witcher 2 to the mix, these games simply don’t have the same kind of selling power as last April’s slate of game releases. Without prominent and captivating game releases, consumers aren’t going to spend money on software… or hardware, for that matter. Perhaps May will bring a better result with two releases potentially coming close to or exceeding a million units sold.

3. What’s wrong with the 3DS?

The 3DS has been a huge hit in Japan in 2012, but here in the US, it’s languishing. Sales of the handheld here in April were less than 150,000 units, which is about half of what it sold in Nintendo’s home territory. Defenders of the platform continue to fall back on the DS comparison and how 3DS is outperforming it within the first year, but most of those sales were in Q4 2011. Lack of significant new software is one possible reason for the malaise, but other factors like consumer moves to iOS/Android need to be considered. Perhaps a spike will come this month with the release of Mario Tennis Open, but Nintendo is going to have to deliver more games for the 3DS and try to encourage more output from its third-party publishing partners. Without games, there’s no reason to spend the $170 on new hardware.

4. “PS Vita is gaining momentum”? No. No, it isn’t.

It’s already difficult enough for those who don’t have access to raw NPD data to have Sony continually refuse to share sales specifics publicly, but it’s worse when Sony’s Corporate Communications arm delivers NPD reaction that uses dozens of words to say nothing at all. The quote above is pulled from Dan Race, Senior Director of Corporate Communications for SCEA. Unfortunately for Mr. Race, leaked NPD data shows that if Vita is “gaining momentum”, it’s not pertaining to unit sales. Vita unit sales tanked in April, falling below 100,000 units after spending its first two NPD reporting periods over 200,000 units. At least in terms of retail sales, software is seemingly non-existent after the initial wave of launch titles. Yes, it’s early, but very few consumers who haven’t already bought a Vita are going to drop $250+ on a device that has very little going for it at this point. Even if E3 delivers promises of new Vita games– which should happen– there’s no reason to buy near-term. There isn’t a killer app out there right now, and until one becomes more than just a “Coming Soon” placeholder, sales of Vita hardware will continue to struggle. Even a speculated price drop may not do much without games to support it. Vita needs to be Sony’s focus at E3, without question.

5. Are we saturated yet?

The Xbox recorded negative YOY hardware sales results for a fifth straight month, so it’s been argued that the hardware is approaching a saturation point. I think that there’s some merit to this argument, given that we’re going to be entering its seventh year on the market and that 2011 sales of Xbox 360 hardware were very impressive. That 2011 success is also a bit of a monkey on Microsoft’s back, since comps are hard to achieve a year later. Is it realistic to expect Xbox 360 sales to remain steady or improve this late in the console cycle? I don’t really think it is. Having said that, I do believe that the negative sales trend will continue and that I’m seeing a parallel to what we saw with the Wii. Waiting too long to act when your current console’s sales begin to fall can be costly. Even with a recommended price drop, I don’t see sales reacting positively for very long. Even when Halo 4 hits in November, can we expect another 1.7 million Xbox 360 units to sell? I’ll answer that question very plainly: No.

Hopefully things will improve this month. Diablo III and Max Payne 3 show promise. Will they be enough to break this losing streak? We’ll find out in a few weeks’ time.

Armchair Analysis Extra: Three Possible Delay Reasons for Bioshock Infinite

The announcement of the Bioshock Infinite delay to late February of 2013 doesn’t surprise me in the slightest.

The original October 2012 release date seemed a bit risky, given the already-impressive lineup of software that is slated to ship near the same time. Assassin’s Creed III, Halo 4, Black Ops II, WiiU hardware, and other games would likely have eaten into potential sales for Bioshock Infinite. Would these other software releases have led to disappointing sales for Infinite? Possibly, but after a 2+ year hiatus for the IP, I think that Infinite would have held its own.

Let’s look at some potential causes for the delay.

1. Multiplayer addition:

Ken Levine notes in his explanation of the delay that Irrational Games had “uncovered opportunities to make Infinite into something even more extraordinary.” I firmly believe those “opportunities” are multiplayer options. Multiplayer has become fastened to almost every major game experience, and we even saw it with Bioshock 2 in 2010. Job postings from within Irrational Games for Network Programmers seem to suggest that multiplayer is going to be added or tweaked in the coming months. From a personal perspective, I’m not too excited about more multiplayer, as I’ve had more enjoyment playing these games solo. From a business perspective, though, multiplayer is an easier avenue to additional revenue per user (ARPU). I can see why the decision may have been made.

2. Something else is coming:

Analysts have been hinting that Grand Theft Auto V, which is another release under the Take Two umbrella, could hit stores in October. Wedbush Morgan analyst Michael Pachter said in a note that the Infinite delay “opens the window” for the game to see a release this year. He remarked that we could see some news about Grand Theft Auto V during the Take Two quarterly results presentation on May 22nd, or during E3. During some communication on Twitter, it also appears that Blockbuster put a preliminary date on Grand Theft Auto V of October 26th in the UK, which would likely mean October 23rd here in the US. I think that there’s a bit of coincidence here, and am starting to lean a bit towards the conclusion that we do see Grand Theft Auto V this year. If not, the hole left by Infinite‘s delay will lead to revenue projections being revised downward for the holiday quarter– perhaps considerably so.

3. It’ll be done when it’s done.

It’s entirely possible that Ken Levine and the team at Irrational Games are working beyond deadlines and more time is needed to complete the product. Perhaps there’s some extra fine-tuning needed for certain portions of the game. Maybe a few late-term additions (aside from multiplayer) were added. From what we’ve seen of the game so far, it’s a pretty huge undertaking and projects like these do take some time. While not necessarily good for Take Two’s near-term bottom line, improving on and making sure that Bioshock Infinite is the best game that it can be should pay dividends to consumers when it finally does hit stores… hopefully early next year.

With Infinite being pulled from trade shows for the immediate future, we can look to the next few weeks to see if signs of Grand Theft Auto V arise. If they do, as I suspect, then I think we’ll have our cause identified. It’s a good thing for Infinite if this bears out, however; more time to polish a long-awaited piece of software is a positive. If we hear nothing during E3 (or before), then analyst speculation– and investor fear– over the delay will worsen. In either case, I think that speculation over Infinite becoming another Duke Nukem Forever or Final Fantasy Versus XIII scenario will prove false and we will see it hit stores in 2013.

Consoleation Reaction: Electronic Arts Earnings Call (FY 2012)

I’ve already submitted a story for approval to Popzara Games regarding Electronic Arts‘ earnings conference call yesterday, but I’m still thinking a lot about it.

I’m struck by the cautious and arguably negative tenor that was taken during the call when it came to EA’s position on console video games. EA isn’t going anywhere, of course, and console games will still be coming over the next 12 months, but something just isn’t right. Perhaps it’s because we’re entering a lame duck period for this console generation as we prepare for what EA calls Gen4– the next generation of console hardware. Perhaps it’s something more ominous, such as the reality of analyst observations stating that consumers are fleeing to other forms of entertainment. Either way, there were a whole lot of social, mobile, and digital mentions made… and not a whole heck of a lot of console mentions made.

I’ve talked about the decline of console gaming in recent days and months, and I think that it’s been easy to spot. Trends are key. Despite a hefty release schedule for console games in the final three months of last year, sales continued to trend down. Hardware sales have been trending down for all platforms since December, and April will make it five straight months of YOY declines unless the PlayStation 3 surprises and moves more than 205,000 units. That trend could be explained in part by the generation ending as I mentioned. Lagging software sales are another problem, though. Perhaps they can be explained by a generally weak release schedule that’s had one genuine hit in Mass Effect 3 and couple of moderate movers so far in 2012, but that doesn’t explain disappointing March sales that were down 26% YOY despite a decent slate of releases.

It can be argued that console sales will show more life once the next generation transition is complete, but what if it doesn’t?

There isn’t a guarantee that consumers will come flooding back to consoles if they’ve found other entertainment to enjoy instead. Mobile and social gaming are slated to increase by 20% over the next 4 years. Console growth is projected to increase by only 5% during the same period, according to EA, and that’s after this current cycle of declines that we’ve seen since since 2008. This indicates to me that while console gaming will still be a viable market, it doesn’t make sense for publishers to invest a ton of money on development if the risk is that enough consumers don’t buy in.

That’s where the revelation that EA is investing $80 million into next-gen development comes in. At first, I looked at this number as more of a positive. Then I thought about it some more. $80 million isn’t a ton. If we go by the assumption that next-gen development probably needs to start now (or soon) to have games ready for a release in the second half of 2013, that amount indicates to me that EA is probably staying away from major risk and taking a very cautious first step. They’re doing it because success in other areas of the business can subsidize development in a market that has potential, but not a lot of apparent strength. If not for mobile and social, it’s not out of the question that EA would be in a much tougher position moving forward.

It’s possible that my position is rather bearish, but listening to CEO John Riccitiello try to give a vote of confidence for console gaming to analysts during the Q&A portion of the call was painful, at best. There wasn’t confidence in his voice at all. There was uncertainty and hope for a turnaround, while the confidence was shown during questions about other facets of the business. I think that things are going to get worse before they get any better, but I also believe that the decline that we’re seeing is a necessary correction for an industry that got much bigger than anyone could have projected.

Look for more reactions this week as Activision shares its prior quarter results on Wednesday evening and then NPD sales data for April drops on Thursday evening.

New Armchair Analysis is up!

I know that I just made the announcement, but my second piece is already live, as I talk a bit about some early NPD software projections for April from PiperJaffray.

Ordinarily, I don’t like to break down pre-NPD projections that much, but there’s some interesting stuff from the analyst firm that I really wanted to touch on. Between some quotes from the report and the surprise of the projected rankings, I saw enough to write an article about. I do have some reservation about PiperJaffray’s software rankings, but I do believe that we’re headed for another month of steep YOY declines in software– which goes hand-in-hand with what will likely be a similarly slow month for hardware.

The key content from the report is the assertion that consumers are starting to abandon console gaming and approach other forms of entertainment. I’ve been saying this for some time now, and seeing support of this opinion from an analyst firm adds a bit of weight to it. The exodus won’t result in a crash or anything dire like that. It’s easy to overreact to an unpopular opinion and defiantly presume that gaming will be bigger and better than ever, but sales trends and the current players in the overall entertainment market indicate a dimmer future.

It can be argued that smartphone and tablet games “aren’t really games”, or that they fail without a traditional controller option, but if you look at the steady growth for that market, it can’t be dismissed. Compare that growth with the downward trend that we’ve seen for the console gaming industry as a general rule for the past couple of years, and you have what can be termed as a market shift in place. When sales really ramped up for this console generation, iOS and Android weren’t the players that they are now. Combine that with consumers who have begun separating from the Wii as a entertainment platform, and you have a considerable number of consumers that are moving on. Perhaps they come back if Nintendo, Microsoft, or Sony can find the right formula when the next console generation starts. I don’t see that happening. I’d say that a 25-30% decline for console hardware sales sounds about right for the next console generation. It’s a steep dropoff, but it won’t be crushing. We’d still be looking at over 70 million consoles sold across the different platforms.

In any event, I hope that you’ll check out the piece and leave a comment, if you wish. I’m really looking forward to seeing what data we do get next week, and then putting a decent analysis together.