Game Sales Up

For the first time since 2008, game sales have actually gone up over the previous year's sales. The NPD figures have arrived (perhaps smuggled out from behind their pay wall by heroic resistance fighters) and reveal that November sales were up 8% over last November... they even made it to the level of Best Sales Month Ever, ringing up $2.99 billion. Software was up 4%, hardware was up 2%, but the big winner was the accessories category, which was up 69%. Thank you, Kinect and Move.

Sales were also helped by Call of Duty: Black Ops, which in one month has become the 7th best-selling game ever with 8.4 million units sold. Sales were so good that overall sales for the year are now down only 5% instead of the 8% it was at last month.

Looking more closely at the data we find some sore spots. Portable hardware and software was down over last year. So Nintendo's troubles continue. The Wii was outsold by the Xbox 360, which is impressive especially when you consider the price differential. (Sales data put the 360 at 1.37 million units, the Wii at 1.27, and the PS3 at 530K.)

The disturbing part is that the joy was not widespread. It's not like sales were up for everything; take away Black Ops and the Kinect and the picture looks pretty dismal. This does not look like a resurgence in the game industry; it looks like a couple of new products did really well. Which doesn't mean that the industry is looking at a good 2011.

Wii Move Kinect! Sales Are In Motion

The big story of the holiday season for the videogame industry is this: Who will win the battle of the motion controllers? Some information from the front has come in from all three combatants, so let's look at the body count and see if we can figure out who's winning.

Nintendo crowed about their sales figures over the Black Friday week (November 21-27): They sold 900,00 DS's and 600,000 Wii's. An impressive amount given the anemic sales of the last few months... Nintendo sold more than two month's worth of Wii's, at their latest rate, in one week. They claim the pretty new colors are the reason... OK, maybe, or maybe it's just the price point and the software bundles.

Wow, who could top those sales numbers? How about Microsoft, announcing that another 1.5 million Kinects have been sold, for a grand total of 2.5 million in 25 days. I guess that $149 price point isn't dimming the enthusiasm... although we don't really know what they could have sold if the price was $99, do we? You have to admit Microsoft's numbers look impressive compared to the Wii, since they've sold roughly 2.5 times what Nintendo has sold in the same period of time, at nearly the same price point... and the Kinect isn't even a complete game system.

Microsoft clearly crushed Nintendo in that time period, so how about Sony? They couldn't resist chiming in with their sales numbers for the Move: 4.1 million Moves sold worldwide so far. OK, they did have an extra week or two of sales over Kinect, and the price tag is roughly 1/3 to 1/2 the Kinect (depending on the configuration)... but it's still a big number. And, once again, this is not a complete game system. Nintendo who?

The big caveat with all the waving of sales numbers in the age-old game of "Mine's bigger!" is that these numbers most likely represent sell-in, not sell-through. Sell-in is much easier for the companies to track, because that number is in their sales software. To get sell-through numbers (that is, what customers have actually purchased and taken home), they have to rely on retailers... a notoriously secretive lot. Still, I don't think there's huge numbers piling up at retailers. But some analysts are wary of the reports of "shortages", sensing an all-too-common manipulation of inventory in order to create the appearance of overwhelming demand. In the hopes of actually creating more demand, because it's scarce, so you have to get it now before it disappears...

It will be educational to see the overall numbers for the 4th quarter, both for consoles and for the add-ons. So far, based on these early numbers, it looks like Microsoft and Sony are crushing Nintendo. New technology beats old tech in new colors, I guess.

The Wanting

If you're looking for another reason to be pessimistic about the holiday sales picture for videogames, here's one: Nielsen's got a survey of kids about what they're looking for for Christmas. Number 1 for kids age 6-12: The iPad. Followed by a computer, and an iPod Touch. At least when you get to the number 4 slot it's a Nintendo DS, and then number 5 is a PS3. But it's kind of interesting how far down the Wii, and the Move, and Kinect are... and the Xbox 360.

The picture for kids age 13+ is also interesting:

A computer is number 1, followed by a TV (high-def, no doubt, not 3D); and then we get into smartphones and the iPad.

You can understand by looking at this survey why handheld videogames are lagging, and why publishers should be concerned about sales of them in the future. If kids are all going to be getting smartphones, it's harder to convince them to carry yet another portable device around to play games. If they have a spiffy smartphone that can play games (and games that are cheap), why have another device? Juggling two pocket devices gets tricky. And you have to have your phone... otherwise, how will you get and send text messages? (Gee, you'd think handheld consoles might be able to do that... what if you added a 3G chipset? The rumored PSP phone might be what you get.)

If you extrapolate this to see what can happen in the family room when you have mobile device app markets available, you can see where the whole industry is headed. The high growth rates are going to continue to be in the non-traditional areas. The old school industry, currently showing negative growth rates for the past two years, isn't likely to jump into high growth rates any time soon. Or ever.

http://www.gamasutra.com/view/news/31673/Nielsen_iPod_Touch_iPad_Outpace_Game_Systems_On_Kids_Want_Lists.php

Nintendo's Very Bad Year

Over at Gamasutra, Matt Matthews has analyzed the sales figures for console game software in 2010 versus 2009, and the results are interesting. As you'd expect, the older systems aren't selling much software; the PS2 really slowed down. The PSP was having a hard time selling software, too; perhaps because developers have been pulling back, and anticipation is growing for the PSP2. The DS's software slowdown is harder to explain, especially when you consider that it still sold 4.5 million units this year, making it the best-selling platform, and it's got a huge installed base of over 125 million. Yet software sales still dropped 12%, far more than average. I think it's partly due to the effect of iPhone games and Android games, but there's no way to know for sure.

The big story here is the collapse of the Wii. It's fallen to third place in software sales, despite having a much larger installed base than either of the other two consoles. Clearly Wii owners just aren't buying much software, and the issue is probably made worse by publishers backing off on Wii support (especially for major titles). The Wii's lack of hardware power will probably hurt it more and more in the next few years, as publishers continue to wring out more performance from the Xbox 360 and the PS..

Also, the HD output of the PS3 and the Xbox 360 will be increasingly important, as the adoption of high-def TV sets increases. Wii titles are going to look increasingly dated compared to titles for other consoles. Worse, the Wii's motion control is no longer unique, as both Microsoft and Sony have better solutions. The only thing the Wii has left in its favor is price, and that advantage will continue to erode unless Nintendo takes some drastic pricing action.

Let's also note that Microsoft is having a great year with the Xbox 360, and Sony is doing well, too. They seem to have finally hit their stride, and third-party support for their consoles is strong. They still have the competitive threat from the Apple TV/Google TV juggernaut on the horizon, but otherwise they seem well-positioned for the next year.

If Microsoft and Sony really want to slide the knife in deeper, they'll cut the prices on their motion control hardware next year (after they've gotten all they can from the early adopters who don't mind paying the premium). This will really make life difficult for Nintendo. At this point, only a new console will really rescue their sales. A price cut on the Wii would help, but it's unlikely to bring back big-time support from third-party publishers. Without that, the Wii will continue to sink into obscurity.

Nintendo must be hoping the 3DS is a huge success, because there's nothing in the Wii outlook that makes one optimistic. Nintendo needs to get a new console out there by Christmas 2011 if they hope to be relevant to the market, and they are already behind if they really wanted to do that.

It's going to be an interesting year in the console wars...

October Sales Were Scary

They aren't laughing at the sales charts.

Numbers have been shared for the game industry's October sales, despite the best efforts of NPD to put their data behind a paywall. As you might have expected, it's not all that pretty. Total sales dropped 4% over last year, but the real downer is the 26% drop in hardware sales. Software sales were actually up by 6%, and accessories (like Kinect and Move) jumped 18%.

Still, when you consider some of the high-profile software releases lately you can understand why that category rose. What's more disturbing is the huge drop in hardware sales. Nintendo sold just 232,000 units of the Wii console for a third-place finish, a decline of 54%, while the PS3 sold 250,000 units (a drop of 22%, but of course last year they had just dropped the PS3 price at this time). The Xbox 360 was the big winner, with sales of  325,000 units, a gain of 30% over last year.


NPD tried to put a happy face on things by saying that, well, these days not all of the revenue in the game industry is captured by these numbers; there's digital distribution, social games, used games, DLC, etc. True enough, but the key fact is most of the companies dependent on the traditional industry revenue don't see much of this other revenue. Sales continue to be in the dumper, and the happy holidays have not yet materialized. Except maybe for Microsoft, whose Xbox 360 continues to gain due to Halo: Reach and Kinect. I wonder if Microsoft will be able to continue their streak... or if Nintendo will manage to break their losing one.

Nintendo can try to say Wii sales will be fine, but the numbers don't bear that out. And while they are looking forward to the 3DS reviving handheld sales, meanwhile DS software sales sank 32%. Not something to make third-party publishers happy with Nintendo. Of the three manufacturers, Nintendo seems most in need of newer hardware, yet is the one most consistently saying they aren't even considering it. Maybe Nintendo wants to get back into playing cards...

Kinect Is Watching You

Insanity Clause?

Today's Creepy Marketing Award goes to Microsoft, for this little gem: Kinect could be watching you while you watch, say, ESPN, and report back to advertisers what team you're rooting for, and select ads tailored to you.

The fevered imaginings of a journalist eager for headlines? No, this was from the COO of Microsoft's Entertainment Division, trying to impress an investor's conference. Kinect could help the company “be more targeted about what content choices we present; what advertising we present; how to get better feedback and data; about how many people are in a room when an advertisement is shown; how many people are in a room when a game in being played.” Since Kinect can see and hear you, and analyze the data it collects, it can figure out things like your team preferences based on the colors you might be wearing.

Now, this is similar to what search engines do, by looking at your search history and your location to filter search results. But it seems to me that actually watching and listening to you goes a step beyond in terms of privacy invasion. It reminds me of that school district that gave students webcam-equipped laptops, then spied on them at home.

Microsoft tries to be reassuring by noting that they aren't doing this. Yet. I certainly hope that before they do this, they put in some sort of user controls so you can be in charge of how much information Microsoft collects and uses. Here's Microsoft's exact statement on the matter:

"Xbox 360 and Xbox Live do not use any information captured by Kinect for advertising targeting purposes. Microsoft has a strong track record of implementing some of the best privacy protection measures in the industry. We place great importance on the privacy of our customers' information and the safety of their experiences."

Sounds good, but of course, you're still trusting Microsoft to handle this data. And I wonder what would happen if a government agency subpoena'd this information... or could get rights to that data stream. I guess anyone really concerned by these issues might want to take a pass on owning a Kinect. Still, living in the 21st century has meant giving up a lot of privacy in order to take advantage of certain things. You can still be relatively private, but Amazon or Google won't be giving you helpful suggestions.

It's possible Kinect and Microsoft could go even further, using facial recognition software and some more processing to determine your attitudes towards what you're viewing.What the NSA could do with this sort of data stream... and Microsoft is interested in using the Kinect technology with all computers, not just 360's. They envision a home that recognizes you when you walk in the door, and responds to your voice and gesture commands. (Does the Roomba come rolling up to you, yipping happily,  when you come in the front door?)

I think it's really important for marketers, who are the gatekeepers for this sort of information flow, are completely open with customers about what data they track and what they do with it, and letting the customers control how the data can be used. Microsoft should have discussed this capability with customers before touting it in front of investors.

Holiday Fables Told Anew By Nintendo

This will save Nintendo's holiday sales? Ho ho ho!

It's that magical time of the year when fairy tales are told and wishes are magically fulfilled. Which is really the spirit of Nintendo of America president Reggie Fils-Aime's remarks to investors. Money quote: "The holidays are more important to Nintendo than to other manufacturers," he said. "We have a distinct edge when it comes to gift-giving, and it's no doubt because of the familiarity and recognition of both our brand and key franchises." He added, "The Nintendo difference continues to attract new consumers. ... For us at Nintendo, it's full speed ahead."

Yes, he'd like us to recall the golden years of past Nintendo holiday sales... not the harsh reality of this year, when sales are off more than 40% for the Wii. It gets worse: Industry analyst Michael Pachter is predicting a 60% drop in Wii sales for October, and the rest of the holiday season doesn't look much cheerier. Ouch is too mild a word... is there a word for when you take a sword blow to the intestines, or somewhat lower?

Oh, but Nintendo has a solution for the holidays: "From a Nintendo perspective, we have two red bundles in the marketplace that we didn't have last year." Right, of course, how could consumers resist buying a red Wii? I already feel this urge to replace my anemic white Wii with a spiffy new red one. That is, if I could find out where it's been gathering dust in the house while the 360 gets all the action.

I do plan to dust off the Wii and fire it up when Epic Mickey comes out, just so I can see what Warren's been up to. I have no doubt it'll be awesome. I also have no doubt that Nintendo's gonna get stomped this holiday season by people rushing to buy 360's and PS3's. For October sales Pachter expects the Wii to drop 60% to just 205,000 units sold, while Xbox 360 is forecast to grow 58% to 395,000 units sold. Sony's PS3 is expected to dip 17% to 265,000 units. I see no reason for the general pattern to change for the rest of the holiday season.

Kinect the Dots

Kinect allows you to feed Wiimotes to virtual children?

Will the Kinect sales surge fade before I run out of puns? You can but hope...

While there have been some weird (Kinect is racist because it doesn't see dark-skinned people) and disturbing (Kinect is eavesdropping on you and broadcasting your private conversations!) news reports about the Kinect, generally the early buzz is positive. Early reports had Kinects selling out at Gamestop.com and Target.com, while even some brick-and-mortar locations sold out in the first morning of availability.

Of course, the cynical marketer in me wonders how much of that is Microsoft manipulating things by not shipping a whole lot of Kinects right away. You can always say you haven't ramped up manufacturing as rapidly as you had hoped... and it sure is nice to have reports of product shortages popping up in the media, creating more demand. Besides, Christmas shopping hasn't begun in earnest yet... plenty of time to stock the stores before Black Friday hits.

Still, interest in Kinect is high, as a survey by Black Friday.com found that interest in Kinect as a holiday gift was exceeded only by the iPad. Microsoft has upped its forecast for Kinect sales, expecting to move 5 million of them over the holidays.

A British survey had somewhat different results for Kinect. While the iPad was still the number one item on holiday shoppers' minds, the Kinect only hit 5%. Apparently it's because the Kinect requires 6 clear feet of space for full functionality, and perhaps many places in the UK don't have that kind of space around where the console lives.

I'm glad to see Kinect demand high, though I wonder how much of that is being eaten from Wii sales rather than just reaching the current Xbox audience. The real test will be in 2011, once the initial "cool new device" enthusiasm dims. Will Kinect become an important part of the Xbox experience, penetrating the installed base? Will Kinect become a big enough sub-market that developers will spend extra time and money supporting it? Will Kinect drive more Xbox 360 sales at a time in its life cycle when it could sure use a boost? Numbers coming in next spring will tell us a lot more.

Microsoft needs to evangelize the Kinect hard among developers if it expects these kinds of things to happen. Developers will only support it if it's relatively easy to do, and they believe that supporting Kinect will provide an ample return on their investment. Microsoft needs to sell a lot of Kinects to make that happen. I think one of the key factors is whether or not Microsoft can get Kinect adopted for uses other than games. Can Kinect become a cool high-tech home feature by controlling more than just an Xbox game? Microsoft, get busy and answer that one.

Microsoft Vs. Indies

Microsoft has rolled out a new Xbox 360 dashboard, mostly to support Kinect and to look spiffier. But they've also made changes beyond the cosmetic, and in the process have ignited a firestorm among indie game developers. It seems Microsoft has moved the indie games out of the game store (where they have been, and you'd logically expect to find games). Now indie games are stuffed into the Specialty Shops, right next to the Avatar Clothing store. Seems eminently logical, doesn't it? But for some reason indie game developers aren't feeling the love.

Some developers feel that Microsoft was just stringing them along, allowing indie games as a way to get major publishers to support digital distribution. Now that they've got the major publishers trying it out, there's no need to clutter things up by allowing little tiny developers to use up space. Microsoft points out that hey, now they're showing the top 50 titles and not just the top 20 titles. Yeah, counter indie game developers, if anyone can even find the Indie Game store when it's not even with the rest of the games.

Developers who have been working on games for Xbox Live  and were getting near to release are especially angry, now that it looks like their games won't get much exposure. Many were hoping that they could move their games to Windows Phone 7, hoping for some strong connection between the two platforms. That may still happen, but Microsoft hasn't really said much about that.

I think Microsoft is making a mistake by sidelining the independent games. While the new dashboard is a little spiffier, it still makes it hard to find games. Much like iTunes and the Android Market and PSN and WiiWare... they all try different interfaces, and nobody's found a really good one yet. So it's up to the developer/publisher to try and get customers to come to the game. Not optimal, especially when you have tens of thousands of games to compete with on some platforms.

This incident also illustrates the dangers of dealing with a distribution channel. Sometimes the big dog scratches (like Apple or Microsoft) and the fleas get thrown off. Then again, if you didn't deal with a big distributor, you'd be left in the trackless wilderness of the Internet hoping for customers to stumble across your little game. Which brings us right back to marketing...

Earnings Roundup For The Big Three

Sometimes it can be hard to sort out what's going on at the Big Three console manufacturers when their PR machines are churning out clouds of smoke. Fortunately, every once in a while we get financial reports that slip a few facts in there. Let's look at what's being reported. (I'm only going to cover revenue for the games divisions of Sony and Microsoft, but for both of those companies it's usually true that if the games division is doing well, the whole company is doing well.)

Microsoft, as you might have expected, had a great quarter with the release of Halo: Reach. The Xbox 360 business went up 33% over the same quarter in 2009. They sold 2.8 million Xbox 360's, about 38% higher than last year. Total revenues for the game section were $1.2 billion, with Halo: Reach accounting for over $350 million of that all by its lonesome. The division made $382 million in profit for the JAS quarter, which was a 46% increase from last year. Looks like a AAA sequel can still rake in the bucks, and doing an Xbox 360 themed around the release certainly didn't hurt. Microsoft expects to do well for Christmas, too with the Kinect poised to enter the market. They expect a 30% boost over last year's sales for the entire Entertainment and Devices division, though some of that is due to Windows Phone 7.

Looks good for Microsoft, but how's Sony doing? It's a mixed report for them. The PlayStation section had overall sales drop by almost 13% over last year, down to $2.12 billion. The PS3, though, had its number of units sold increase 9% over last year due to the PS3 Slim and the Move introduction, with total units sold hitting 3.5 million. Software sales rose from 23.9 million units to 35.3 million units. Why did sales overall drop? It's all thanks to the PSP, which saw sales drop by 50% year-over-year (I believe the technical term you see in the financial press is "plummet"). The PSP sold only 1.5 million units in the quarter, matching the 10-year-old PlayStation 2. PSP software saw a 2 million unit drop to 13 million, and PS2 software was almost halved with a drop to 5.6 million units, versus 11.4 million last year. Sony expects the PlayStation division to sell 15 million PlayStation 3s, 8 million PSPs, and 6 million PS2s for the year. Not bad, but not as good as Microsoft.

Looks like Nintendo gets to be the bearer of purely bad news. They lost almost $25 million over the last six months (compare that to the same period last year, when they had a profit of over $75 million; that's a $100 million dollar swing). Nintendo saw DS sales drop 43% over that period, down to 6.69 million units (about 1.1 million per month on the average). Wii sales dropped over 14%, down to 4.97 million units for that six-month period, with Wii software sales dropping a similar amount. DS software sales only dropped 23%, which I guess is cause for celebration compared to all the other numbers.

Some analysts think Nintendo can still pull out a good Christmas, but others (like this one) disagree, and don't see any happy surprises under the tree for Nintendo. Put me in the "Nintendo's gonna get worse before it gets better" camp. Though I'm not sure how much better they're going to get. I'm sure the 3DS will have a good launch, but that still doesn't solve the Wii problem, which probably wouldn't get new hardware until next fall at the earliest. The 3DS may have a rough time maintaining good sales with an impending PSP2 launch, and the continuing successes of the iPhone, iPod Touch, iPad, and Android devices.

It gives you some perspective when you look at the sales numbers from the Big Three and compare them to iPhone numbers (currently selling close to 5 million per month) or Android numbers (6 million per month) or even iPad numbers (currently at 1.3 million per month and rising). When iPads are outselling DS's, and the iPad is at least 5 times the price on average, you know Nintendo has a long-term problem. At least Nintendo is finally acknowledging that Apple is a threat. Of course, that's not the same as actually doing something about it, like opening up the DS to all kinds of software development with little or no bureaucracy.

We'll see where the industry sits once the glow of Kinect and Move introductions has worn off. I expect 2011 to be another lackluster year for software sales on traditional consoles.

Will the Market Kinect?

Read the whole comic at http://www.vgcats.com/comics/?strip_id=294

If you're wondering how this holiday is shaping up for Microsoft's Kinect, it's kind of a mixed bag. The product was a hit on Oprah, and Microsoft is rumored to be spending a cool $500 million dollars marketing the sucker, which both have to be seen as positives. On the down side, we still have no hard-core game titles announced for it, and the nagging rumors that the Kinect chews up so much CPU that the Xbox 360 can't run a CPU-intensive title along with Kinect (i.e., titles popular among the hardcore, like Halo) make me wonder if the device will really do all that well at $150.

One answer is that Microsoft is hoping to move the Kinect beyond gaming, according to this article in the NY Times. Microsoft sees it as a gateway into the mass market for selling media in the family room. Plus they'd like to move the technology into other devices. I'm not sure if people are ready for their computers to recognize them when they walk into a room and offer to switch on the TV for them.

Some people think the Kinect will be the next Wii, but I'm rather skeptical. Since, you know, people already have a Wii... and you can get a complete Wii for not much more than a Kinect by itself. Market research company Ipsos says Kinect will be the big winner this holiday season, and they offer some surveys they've done as evidence. Consumers rate Kinect highly on believability and uniqueness compared to the Sony Move (note to Bill Robinson: Does that mean the Kinect is uniquer than the Move?), so Ipsos thinks the Kinect will be the winner this holiday season.

Early reports say Sony has, well, moved over 1 million Moves so far, which they say is good but some analysts feel is rather disappointing. The Move is actually better technically than the Kinect as far as hard-core games go, since it doesn't affect the CPU much at all. The Kinect is a much more marketing-friendly device: "Look, ma, no hands!" It's an easier sell when you say no controllers needed, and it uses voice commands, it recognizes you... it sounds very futuristic.

All that's enough to get some consumers to open their wallets, but when the shiny newness wears off is there enough functionality to keep selling that bad boy? I think Microsoft will have to keep releasing nifty new applications (not just games) if they want to avoid a loss of Kinectic energy.

The Power of Pricing... Kinect Style

News is coming out from E3 that Microsoft has introduced a new name for Project Natal: Kinect. (A cross between kinetic and connect... better than "Wii" I suppose.) Amid all the sound and fury (a performance by Cirque du Soleil as part of the intro!) Microsoft somehow avoided mentioning a price point. This has been leaking around the internet, though, and it sure looks to be $149... but there will also be a somewhat better version for $189. No word yet on bundle deals with new Xbox 360s (though a new Xbox 360 Slim is also rumored), but the pricing may be better when included in a hardware bundle.

So Microsoft has essentially chosen not to try and grab a significant part of the installed base; at $150 you'd have to be pretty convinced on the value in order to buy Kinect instead of 3 games of your own choosing. Developers are going to be hesitant to spend money adding Kinect support if the installed base isn't significant. And to develop a Kinect-only title would be highly risky if the installed base is small... yet it's precisely that (a Kinect-only title) that would drive sales of Kinect hardware (assuming you had a really compelling title).

It all adds up, in my mind, to Kinect being a non-factor in overall industry terms. It's likely that Move will fall into the same category, though Sony may not charge as much for it. Motion control hardware may be a bit of a fad this year, but by next year no one will care.

Pricing is important, which is why free-to-play is making such a huge impact on the gaming business. Too bad Microsoft couldn't figure that out. Or, more likely, they thought about pricing Kinect at $49 and losing money on every one in order to drive broad penetration of the installed base... and decided that the Kinect technology wouldn't drive additional software sales enough to make up for the money they'd lose on every one. Which, I think, is probably the right call.