June 2011 Retail Sales Sink

Yeah, it's about like that.

The packaged software business is following the path it's been on for the last three years... fading away. The NPD numbers for June are in, and they show an overall 10% drop compared to last year, from $1.15 billion last year to $1.03 billion this year. If you just look software, the numbers are even worse: It's a 12% drop, down to $469 million from the $513 million last year.

According to analyst Michael Pachter, some 75% of the drop can be attributed to the Wii software doing a fast fade at retail. Nothing like announcing a new console, especially one that's backwards compatible, to help boost software sales... or not.

Of course, the usual disclaimers abound that this does not count digital revenue of any kind; it's just discs at retail. Sure, but where does this leave companies who are getting the majority of their revenue from discs sold in retail stores? Trying to figure out how they can get out of that business.

This is the real problem awaiting new consoles. Even if gamers are willing to shell out $300 or $400 for new hardware, are they really willing to spend $60 on a boxed game that they have to drive to a retail store to get? Already you can find a lot of software for less to be downloaded on your console, though not the biggest titles.

What happens to the business when you can get an Google TV or Apple TV that has access to thousands of downloadable games at low prices? Sure, there's a lot of crap... but there are also games like Infinity Blade, and there will be many more of those, you can bet. We'll be seeing new TVs with the capability to access games built right into the TV. It's going to make the choice to drop $300 on a new console more difficult.

The real nail in the coffin comes when someone chooses to do a first-rate shooter on one of these platforms like Apple TV or Google TV, and there's a controller available that can do a good job with it. The pieces aren't all there yet, but you can see it coming.

Traditional Videogame Sales Continue Decline

No, I don't know what this has to do with March game sales, , but it showed up
when I did an image search for March 2011 game sales. Go figure.

March numbers are in, and once again we return to the old story: Total sales of hardware and software in retail stores dropped 4% in March, marking the third straight year of declines. Software dropped 16%, while hardware grew 12% and accessories grew 13%. Don't you think it would constitute a trend by now? Yet some executives continue to make public statements that the traditional business is strong. Activision, for one, doesn't seem interested in digital distribution or social gaming or anything other than getting out more retail boxed goods. At least EA is making a strong effort to move into new business areas; their stock price has suffered for it, but at least as the transition continues they are positioning themselves to take advantage of it.

It makes me wonder just how relevant new console introductions are. With things like OnLive being built into TV sets, and Google TV and Apple TV (also likely to be built into TV sets), the era of the single-purpose device for games and games only is coming to an end. The inexorable progress of Moore's Law has provided ample CPU power at a low price to enable pretty good game output in very inexpensive hardware. Social gaming has shown new monetization models, and digital distribution has opened the floodgates to content. The combination of these trends is putting a fierce squeeze on the traditional business, and we're seeing that reflected in the numbers.

Even the current generation of consoles have become aware of this. All three have other capabilities than just playing games; you can watch movies or TV shows (via Netflix), play music, show pictures, and other functions. All three allow some form of digital distribution, albeit tightly controlled. Free-to-play games are heading to the PS3 and likely the Xbox 360, as the new monetization model also spreads there.

The logical extension is the Apple/Google TV direction: low cost or invisible hardware (built into the TV) that provides a huge range of games, many free or ad-supported, with many other types of apps available. The whole app market model has proven enormously successful, and is driving the tablet market and will soon come to the TV to transform the family room. In the process it will upend the gaming market. I fear companies that have not realized this will be facing a very difficult time, and that includes Nintendo, who has traditionally been very far behind in their online efforts.

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.

NPD, Data Provider, Announces Data Concealment

Here's some disappointing news: NPD, for many years a major source of numbers about retail sales, has announced that they will no longer provide numbers for the amount of hardware or software sold each month. At least, not unless you're a paying customer.  So it's going to be much harder for those of us unwilling to pay thousands of dollars for this information. Which, generally, means smaller developers, where much of the industry opportunity and growth lies.

I suppose it makes sense for NPD to try and enhance a revenue stream. It is interesting to note that NPD will begin footnoting their information to make it clear that their numbers don't include such things as digital distribution, subscriptions, used game sales, and so on, which constitute an increasing part of the total consumer spending on games. NPD says they will cover the totality of consumer spending in quarterly reports, though. (But I wonder how accurate those reports will be; what are their data sources? Will companies involved with digital distribution be giving NPD their numbers? That "total consumer spending" is spread across a very large number of sellers, and I really question NPD's ability to get any kind of statistically significant data on the entirety of the field.)

NPD does go on to say that they will release some numbers here and there when they talk about a specific title, and of course the publishers who subscribe to NPD are free to state numbers themselves if they so choose.

It does make me wonder if part of the reason for this shift is the negative effect of two years' worth of reporting a slide in sales figures. Did NPD's subscribers put pressure on them to make this move, hoping to staunch the flow of bad sales numbers (under the theory that bad numbers leads to bad press, which leads to more bad numbers)? It can't have been happy-making for publishers and manufacturers to see independent numbers released every month to show how badly they're doing. Especially if NPD's numbers aren't tracking a significant part of their revenue, if publishers are getting more revenue from digital distribution, DLC, subscriptions and other things.

In a way, this underscores the current weakness in the traditional channels, and the continuing slide in the share of total industry revenues the traditional channel represents. Marketers are going to have to make do with fewer hard numbers, or find other ways to get the data that is relevant to them. I for one will be trying to dig up info from other places, and I'll post it here as I get it.