3DS Sales Continue Slow

It's lonely here in 3DS land.

Nintendo continues to struggle with selling the 3DS. While they recently achieved the milestone of 1 million units sold in Japan, that's not something to celebrate for them. Why not? Because it took Nintendo far longer than they originally predicted to sell that number. Nintendo initially projected that they would sell 1.5 million 3DS units in Japan before the end of March. Instead, they've just now hit 1.06 million units, some three months later than they envisioned (and still 500K short of their goal).

Nintendo's hoping that the introduction of their online eShop, and some better games scheduled for later this year, will boost the sales. So far Nintendo has pooh-pooh'ed any suggestion that they might have to lower the price, especially with the PS Vita coming later this year at the same $249 price point as the 3DS. Sure, they can say that now, but if 3DS sales don't jump up in the next few months the question of a price reduction will surely be raised again.

It will be interesting to see if the Wii price reduction gives it a boost this summer. Nintendo may be getting just a tad desperate looking forward to the holidays if their sales picture doesn't improve by then.

I don't think 3D movies on the 3DS will be enough to save it... especially since 3D seems to be treated with increasing disdain by movie-going audiences, who rightly see it as an attempt by studios to justify higher ticket prices.

Ominous Trends

Look at all the innovation at E3!

This article on Cracked.com talks about some ominous trends in videogaming. It's an amusing read, but there's some key points that are worth thinking about.

First, there's not a lot of variation going on... unless you count different flavors of shooter, that is. Innovation is being confined to the creation of better textures or particle systems, not game designs. Why? It's an obvious consequence of higher development costs and lower average sales... while the sequel generates the most reliable revenue. Publishers are getting the message: Better make a sequel to something you know is a success, otherwise you have a high risk of not getting your investment back. And when development takes 2-3 years or more, and the investment is tens of millions of dollars (or more!), you don't like to take chances.

On the flip side, when a manufacturer is pushing hardware sales, they may get innovative as all heck in order to get you to buy more hardware. Even if it means a crappy game, as in Star Wars Kinect. Sure, you can wave your arms around to control your light saber... but you can't walk around.

Too many games are coming with DRM still that requires a constant internet connection, which just makes things annoying. More games are relying on downloadable content (DLC) to make a profit, but all too often they're leaving out stuff that really should have been in the game in the first place, then charging you for it. Or offering DLC that unbalances the game play, leaving you frustrated if you didn't buy in and the guys with the DLC are kicking your butt.

These are all teething pains of the transition to new business models for the game industry. The big publishers are still feeling their way to a new business, and they're stepping on our toes as they stumble around. Meanwhile, smaller developers on new platforms are being innovative and interesting... but they're having a hard time finding their audience and making a profit, too.

We can help by spreading the word about games we like on Facebook and Twitter and other social media. Especially if the game comes from a small developer. It's not like Zynga really needs me to say how much I'm enjoying Empires and Allies when it's already got 10 million players. I'd rather mention Hexalex on the iPhone as an example of a neat word game with some nice features, well worth your $2.99. Take the time to post on Facebook about a game you're enjoying; the developers will appreciate it.

May 2011 Game Sales Lowest in 5 Years

Looks like Luigi glanced at Nintendo's sales figures for May.

While the traditional game industry was whooping it up at E3, trying to convince everybody that things are gonna be great, the sales figures for May came in. Overall retail sales for the game industry in May dropped 14% to $743.1 million, the lowest monthly sales total since October 2006. Ouch.

To make it even worse, Microsoft saw sales of the Xbox 360 jump 39%, and Sony saw PS3 and PSP sales increase, though NPD is no longer breaking out the numbers... as I said before, the news was getting a little harsh each month so NPD has backed off from being so precise. Still, they did say that overall hardware sales dropped over 5% for the month. So if Microsoft saw big hardware sales, and Sony saw hardware sales go up for both its platforms, that means Nintendo had a really, really bad month. June numbers should tell us what impact the Wii price cut had... but it doesn't look all that positive right now.

Software sales really took it on the chin, with a 19% drop. Analysts blamed a light release schedule, and perhaps some dollars were shifted to the Call of Duty map pack which of course isn't tracked by NPD or anybody else (except for Activision, and they ain't talkin').

So aside from the uplift the industry got from the nice report last month, we're back to the steady decline of retail software sales. The fact that hardware continues to do well could be due to several factors. One is the increasing use of game consoles to watch Netflix, which is certainly the biggest time spent on consoles in my household. Sony said at E3 that 30% of Netflix traffic comes through the PS3, which is interesting... I'd bet more than that comes through the Xbox 360 given the disparity in installed base.

Another factor is probably the increased game play time of individual titles through multiplayer online play. If you spent $60 on Call of Duty, why by another game when you can play online with new people all the time? Refresh things with a new map pack and you've kept yourself from heading to the game store and dropping $60 on some new title that may or may not be as much fun.

Finally, the indie titles available online for consoles must be having some effect. Those titles can sell in the hundreds of thousands... and that's dollars not appearing on retail sales charts.

Total spending on games appears to be on the rise, but it's certainly shifting away from retail stores and from traditional console titles with no DLC. Sadly, this appears to be leading to even less innovation on major console releases at retail; just look at the E3 announcements and all you see are sequels. Original titles are as rare as an understated press release.

Free-To-Play For Any Game?

Free games coming soon...

When you're looking at different business models for gaming, one of the ones that usually pops up is "ad-supported." Meaning that advertisers would pay to present games to customers, who could then play for free. It's the network television model, where you fast-forward put up with some commercials in order to watch a show.

Now online game marketplace Gamersgate is attempting to bring that model to PC games with a new service, Freegames. A closed beta is opening up later this month, with the service expected to roll out in September. There'll be ads on the site, and ads while you download, and ads before and after you play. Like most of these ads, users will probably quickly learn to ignore them. Well, that's OK if they can still line up advertisers, I guess.

A more useful model would be the sponsored game, where some advertiser sponsors some downloads in return for the recognition and warm feelings a free game will generate. I think this sounds like a more useufl marketing tool.

Gamersgate is expecting to launch with some 200 titles, and is still busily negotiating with publishers over exactly what titles will be available. It's worth keeping an eye on this to see how it goes.

I expect it's going to be more helpful for larger publishers with established titles; advertisers are unlikely to rush in to support your unknown indie title until you've built some audience for it.

E3 Post-Mortem: Who Won, Who Lost

See full-size infographic here.

Now that the booths have been struck, the loudspeakers turned off, and the booth babes are fully dressed again, it's time to sort through all of the information, misinformation, hype and rhodomontade to figure out who won, who lost, and who's going to be up and who's going to be down in the coming year. Some interesting data on that point was compiled here by Webtrends, shown in the graphic above.

Adding up total mentions on the internet, Nintendo won with 43.1%, Sony had 31.2%, and Microsoft had 25.7%. Of course, it's not just who got talked about the most, it's what people said about it. Nintendo, going into E3, was certainly the favorite to get the most buzz, since they were introducing a new console.

Nintendo's introduction was certainly not an unqualified success. One very independent measure is what happened to Nintendo's stock price, which dropped 5.7% the next day and then another 5.2% the following day. Many people were confused by the presentation, which focused more on the Wii U controller than on the Wii U itself, to the point where some observers were wondering if Nintendo was introducing some sort of tablet gaming device instead of a new console. It didn't help that Nintendo was more than usually vague about speeds and feeds, leaving the tech journalists without much to talk about. Even when it came to game software, we were shown technical demos and some concepts about game design rather than actual games. Clearly this new console is quite far from being ready for release. It feels to me like Nintendo was rushed into announcing the device by the rather alarming drop in Wii sales over the past 6 months, and the disappointing 3DS sales, which between them has left Nintendo in rather poor condition.

Meanwhile, Sony had to spend part of its time apologizing for the massive security problems and the PSN shutdown. They did manage to redirect attention to their new handheld, announcing the name (PS Vita) and the price ($249). The name is about as enchanting as the Wii U name; Japanese companies seem to have problems coming up with really good names in the last decade or so (I still like Super Nintendo Entertainment System, myself). The price announcement was a surprise, and puts Sony in a good competitive position against the 3DS this holiday season. Assuming, that is, that Nintendo doesn't drop the 3DS price before the PS Vita release, which would be the obvious tactical move.

Microsoft didn't have any new hardware to talk about, which left them pushing existing hardware... specifically, Kinect. They showed Kinect enabled for nearly everything, though it was pretty clear that adding Kinect capability to a shooter is not exactly a must-have combo. Announcements for Xbox Live video content and new games were the primary news for Microsoft.

Publishers were, of course, mostly talking about their new titles. Electronic Arts was pushing their new Origin service, a combination of digital distribution and social network. Activision was talking about their new Call of Duty Elite subscription service. Both of these things mark the shift of the industry from purely depending on retail store sales to moving to digital revenue and subscription services.

Overall, I saw nothing coming out of E3 that would help the traditional retail sales market. It's harder than ever for a title to succeed at retail, unless it happens to be a sequel to a best-seller. Software sales through retail stores have sunk for three years running, and while sales of accessories have masked it somewhat this year, it's clear that trend will continue. Digital distribution and other business models are the future of the gaming industry. Some publishers seem to be fully aware of this, others are being dragged into it... and some are closing their eyes and hoping it goes away.

I think Nintendo has an interesting new console that will do OK for them, but it will not be as successful as the  Wii. Sony has a better handheld than the 3DS in their new PS Vita, but it remains to be seen if a $249 dedicated gaming device can really be a huge success in a world of smartphones and tablets with thousands of free games. Microsoft seems to be hoping that their Kinect, expansion of Xbox Live to Windows and smartphones, and the smartphone partnership with Nokia will be sufficient to maintain their leadership position in the console business.

I think huge changes are still heading for the console business, and Nintendo seems ill-positioned to meet those changes. Sony and Microsoft, at least, have worked hard on their networks for their consoles. Nintendo has barely acknowledged its existence. I fear for their future.

As for the game industry, E3 no longer represents the future. The revenue is quickly shifting to digital distribution, social gaming and mobile gaming. Console gaming will continue to be a major force, but it will no longer be the only game in town.

Wii U: The Future

The Wii U controller is bigger than a 3DS opened up.

Nintendo has to be a little disappointed and perhaps puzzled by the reaction to the Wii U introduction. Sure, the industry generally had nice things to say about it. Third-party developers actually got invited to be on stage for Nintendo's presentation of its new console, which is a first. They returned the love by saying nice things about the console, no doubt hoping that Nintendo will be more helpful with third-party development then they have been in the past.

The puzzler, for Nintendo, was what happened to Nintendo's stock price after the announcement. Wouldn't you expect that the stock, which had been trading near a historic low, would see a bounce when Nintendo actually unveiled their new hardware? Nope. Nintendo's stock dropped 5.7% the day after the announcement, and the day after that it dropped another 5.2%. Analysts, it would seem, are not impressed.

Of course, Nintendo pointed out that their stock dropped when the Wii was announced, too. And it dropped 10% when the 3DS was announced, though given how that's been selling a drop in the stock price seems like a reasonable response.

Certainly we don't really have all the information yet to really judge the Wii U. We don't know the graphics performance or the price point or the ship date, or what the launch titles might be or how they look. Yet there is cause for skepticism about the Wii U's chances. I doubt it will do as well as the Wii did. The Wii had two big advantages going for it: It was substantially cheaper than the PS3 or the Xbox 360 ($249 versus $499 or $599), and it had motion control. The latter was new and had some possibilities for game play, but many people were skeptical that it would really be useful. To some extent, they were right; the Wii controller was great for some new types of game play, but never really worked for things like shooters. Many developers never really put a lot of effort into the Wii, and it showed. The Wii sold very well, but ultimately the software library is quite disappointing.

The Wii U will be at least as expensive as its competition, and quite possibly $50 or $100 more (or even higher, if Microsoft or Sony drops their price in the next year). I doubt the graphics performance will be substantially different, at least to the naked eye; in fact Nintendo was showing Xbox 360 and PS3 graphics as part of their Wii U demo, passing it off as Wii U graphics, until they were caught at it. Which leaves the Wii U's controller as the only differentiator, and that's going to be up to software developers. Will they really put in the necessary extra time and effort to develop for the Wii U's special controller, or will they just port over titles and do something that's quick and easy in terms of supporting the controller? Given budgets for game development these days, I think we know the answer.

It will be up to Nintendo to demonstrate with their software how the Wii U is special, and if they do then maybe some third-party developers will spend the extra time and money to do the custom development work.

My guess is that the Wii U will allow Nintendo to compete more evenly with the Xbox 360 and the PS3, but it's not going to be a huge success. They really missed their chance here by focusing all their effort on the hardware. You'll notice there was no mention of online gaming, digital distribution, social gaming, DLC, or any of the other things that have turned the industry on its ear in the last few years. Nintendo doesn't really understand that stuff, and obviously hopes that it will all just go away and people will go back to buying new consoles because they are, well, new. I just don't think that's enough these days, and I think so far the 3DS is a pretty good argument in support of my position.

Nintendo's got a lot of software mojo, and if they produce some killer games with their iconic properties people will buy them, no doubt. But I don't think Nintendo will be leading the industry into new growth with this sort of hardware. They're still fighting the last war, and the battle has moved to new areas. Sony and Microsoft seem to have some understanding of this, emphasizing their networks, music, video, and other capabilities. Nintendo looks very 20th Century, I'm afraid. Great if you're a nostalgia buff, but not so great if you're hoping their stock price will soar.

Latest Gamer Demographics: 37 Years Old

Not an actual chart of demographic data.

The standard image of the gamer in the media is a teenage boy... well, the latest survey information shows that it's really teenage boys of all ages. And women, too. This survey is from the Entertainment Software Association (ESA), and it surveyed 1200 households across America. (The PDF of the full survey can be found here.)

Some key facts from the survey: The average gamer is 37 years old. Some 42% of gamers are female, and women over 18 make up more than one-third of all gamers.

Interestingly, some 55% of gamers regularly play games on their smartphones. Looks like there's more overlap than Nintendo would care to contemplate between gamers on traditional consoles and smartphone gamers.

This sort of demographic information is crucial to determining your marketing your plans. You've got to have a reasonable idea of how large your market is, and who you are aiming at, if you hope to do a good job of getting your message across.

Sadly, demographic information is all too hard to come by unless you're a big enough company to purchase surveys. The rest of us need to glean what facts we can from surveys such as this one.