[In this exclusive analysis, Gamasutra analyst Matt Matthews looks in more detail at October's NPD U.S. game hardware/software sales, revealing guitar wars, top-selling games so far this year, and much more.]
Despite the increasingly pessimistic outlook for the American economy, the videogame industry defied gravity – again – and reported a 17% year-on-year increase in revenue for the month of October.
With three established current generation consoles, much of the focus has shifted to software releases like Guitar Hero: World Tour and Fable II.
Regardless, when over 800,000 Wii systems sell during October and Xbox 360 sales are up 34% from September, hardware still has its own story to tell.
Nintendo Up, Microsoft Up, Sony Flat
The holiday season appears to have come early for Nintendo and Microsoft, with sales of the Wii and Xbox 360 very strong headed into the two biggest retail months of the year. In particular, an astounding 803,000 Wii systems were sold in October, the largest monthly sales number for that platform outside of November and December 2007.
That figure represents 55% growth from October of last year and an increase of 46% from the rate last month (up to 200,000 systems per week, versus 137,000 in September).
While Microsoft's Xbox 360 still trails the Wii, it still posted a strong month. The September price cuts appear to be lifting sales for a second month in a row, with October sales reaching nearly 93,000 systems per week.
While the console only marked a 1% increase over last year's October, the comparison is somewhat unfair: Microsoft had just cut prices in August 2007 and released Halo 3 in late September. When compared to the previous month, September 2008, sales in October of this year were up 34%.
Last year Nintendo and Microsoft saw sales of their respective consoles roughly double going from October to November. If that were to hold true again this year, Microsoft would look very well, but Nintendo would hit nearly unbelievable levels, well over 1.5 million systems in November.
The nearest comparison in recent memory would be last November when the Nintendo DS hit 1.5 million units (following up with nearly 2.5 million in December).
Sony's PlayStation 3 once again brings up the rear for current generation hardware, with 47,500 systems per week during October 2008. That means Sony's sales rate has been nearly constant for three months running, but in particular it does not show the increasing sales enjoyed by its competitors.
In fact, Sony's consistent, low-intensity sales have allowed Microsoft's Xbox 360 to catch up in year-to-date sales.
As of the end of August the PlayStation 3 enjoyed a 277,000 system YTD lead over the Xbox 360, but at the end of October the roles were reversed with Microsoft enjoying a lead of just over 18,000 systems.
With consumer spending under pressure in the weaker American economy, the pricing strategy of each platform owner will be key, with higher priced models likely to be left on store shelves.
Nintendo's Wii is still retailing for $250 after two years on the market and current demand suggests that the consumer finds that price agreeable. Nintendo has no reason to drop its prices, and in fact has said as much publicly.
We believe that the average sale price (ASP) of the Xbox 360 remained about the same this month, around $275, while the PlayStation 3 has nearly reached an average sale price of just over $400 (indicating that virtually no stock remains except the $400 units).
Expect to see the ASP of the Xbox 360 fall more as consumers choose the $200 model as an entry-level system that fits the Christmas budget, and be prepared for painfully weak PlayStation 3 sales into the beginning of 2009.
Handhelds: Same Story, Different Month
With few big software releases to drive sales, both current handhelds – the Nintendo DS and the Sony PSP – appear to be on cruise control.
Nintendo's dual-screen system appears to have settled around an average of 120,000 systems per week while the PSP averages around 55,000 systems per week.
While these are both still healthy sales rates, it is worth noting that October PSP sales were down 33% year-on-year while the DS saw an increase of 7%.
Sony has temporarily delayed plans for standalone PSP-3000 hardware units at retail, and will continue to push bundled systems.
Based on estimates over several months, it would appear that consumers are paying around $190 for the PSP on average and so the bundles are probably an agreeable choice for both consumers and Sony.
The Day the Music Died (Down)
The Guitar Hero brand has been a near constant presence in the monthly top 10 software lists for two years. Guitar Hero II took up residence in November 2006, first on the PlayStation 2 and later on the Xbox 360, and finally departed in August 2007.
After an understandable absence in September, three versions of Guitar Hero III: Legends of Rock dominated the top 10 in October 2007 and at least one version remained until May 2008.
In June Guitar Hero: On Tour launched on the Nintendo DS and took a spot in the top 10 through August.
Yet, in October 2008 no single version of Guitar Hero: World Tour broke into the top 10, although the Xbox 360 version just missed the cut.
By this, as well as some other measures, Guitar Hero: World Tour has not lived up to the expectations set by its predecessors.
We are fortunate that the launch of Guitar Hero III in 2007 fell in precisely the same week as the launch of Guitar Hero: World Tour in 2008.
As a result, we have exactly seven days worth of sales data for each game, both from the NPD Group and additional data from Activision itself.
According to an Activision press release, Guitar Hero III sold 1.39 million units and generated $115 million at retail in its first week. It also launched in complete form on four platforms: PS2, PS3, Wii, and Xbox 360.
(These figures were published by GameSpot who appears to have clarified them with the NPD Group.)
For a comparable seven day period this year, Guitar Hero: World Tour sold 534,000 units and generated $67.3 million at retail. By units and revenue, the launch of GHWT lags significantly behind the launch of GH3.
Music Game Mitigation
However, the situation is a bit more nuanced than those figures alone. For example, Guitar Hero: World Tour did not launch equally across all four platforms. The PlayStation 2 version of GH3 was just behind the Xbox 360 version in its first week of sales.
Yet the PlayStation 2 full band kit of Guitar Hero: World Tour did not ship to retailers until 13 November, well after the release of the other kits. Sales of that version will be included in November sales, to be reported during mid-December.
Moreover, Guitar Hero: World Tour is a bigger investment for consumers. The first week average sale prices for Guitar Hero III and World Tour were $82 and $122, respectively.
So while consumers have purchased far fewer units, they have paid roughly 50% more for that privilege.
Finally, October 2007 was not Guitar Hero III's strongest month – that was December 2007 when nearly 2.7 million copies were sold across the four platforms.
If sales accelerate in November and into December, then few will remember the weakness of the first month of sales.
For its part, Rock Band 2 on the Xbox 360 (originally launched in September) and PlayStation 3 (launched in October) is currently leading over its rival band game in terms of units sold. Sales on the lead platform, the Xbox 360, declined to around 120,000 units from a launch month total of 363,000.
The PS3 version of Rock Band 2 was just behind the Xbox 360 version in October with just under 119,000 units.
The Move To Platform
The key question now is why the music game market appears slower this year than last. The fact that Guitar Hero has been a top 10 property for 21 of the last 24 months suggests that brand fatigue has begun to set in.
In addition, a videogame consumer may well pass up a premium product like Guitar Hero: World Tour or Rock Band 2 and opt for a less expensive new game or several used games, especially as evidence builds that the economy is headed for a deeper recession.
Some consumers who would purchased a game bundled with a guitar or drums last year will simply purchase the standalone game this year. Consequently, Activision Blizzard and MTV/EA will realize significantly less revenue from those software-only customers.
The fact is that big retail launches will probably be less important for Activision Blizzard and MTV/EA going forward.
Instead, each company will probably focus on establishing a steady stream of content via console network services and growing a larger pool of consumers over a longer term. Like the DVD and Blu-Ray markets, the goal is to provide a platform on top of which other goods can be sold.
Software Sales by System
From information released by Microsoft, we estimate that approximately 3 million units of software were sold for the Xbox 360 in October.
In fact, we estimate that Nintendo sold approximately the same number of units of software for the Nintendo Wii. Sony announced that 2.3 million units of PlayStation 3 software were sold during the same period.
Even if our estimate is strong only for the Xbox 360, the results point out an interesting difference between the two platforms.
That is, PlayStation 3 owners are buying more software (on average) than Xbox 360 owners, once we take the size of the installed base into account.
(Provided we have estimated Wii software sales correctly, the same would be true comparing the PlayStation 3 userbase to the Wii userbase.)
Roughly speaking, one in four Xbox 360 owners purchased a game in October compared to two in five PS3 owners.
With these software estimates, we can further calculate the year-to-date software sales for each of the current-generation consoles and compare to the same period in 2007.
The results above suggest that the PlayStation 3 was woefully behind in software sales during the first 10 months of 2007, but has made great strides in 2008 and effectively tripled its software sales.
(In fact, Sony noted in its press materials that software sales just for October were up 200% year-on-year, which is completely consistent with our estimates.)
By comparison, the more established Xbox 360 platform has increased its YTD software sales by a more modest 26% over the same period in 2007.
As the Wii dominates in hardware sales, so it also dominates in software, with an estimated 38 million units of software in the first 10 months of the year. In other words, Nintendo has sold over 2.5 times as much Wii software this year as it did during the same period in 2007.
Top Selling Games, Year-to-Date
Last week at the BMO Capital Markets Conference, Take 2 reportedly showed that its Grand Theft Auto 4 had sold to 32% of PlayStation 3 owners and 28% of Xbox 360 owners through the beginning of October 2008. Using this as a starting point, and bringing in approximate sales figures for other games, we can put together an estimated top 5 software ranking based on year-to-date unit sales.
While the figures for Super Smash Bros. Brawl and Grand Theft Auto 4 are estimates (neither of the publishers nor the NPD Group have released official data), the maximum possible error in each figure should not affect the rankings.
(For those interested, the PS3 version of Grand Theft Auto 4 had likely sold in the neighborhood of 1.8 million by the end of October.)
For comparison, here is the final top 5 for the entire year of 2007, as published by the NPD Group in January of this year.
Notice that Wii Play appears in both lists. Should Wii Play sell in November and December of this year as it did in 2007, it will have appeared in the top 5 for two years in a row with higher sales in the second year.
In a mere two months we will have the full 2008 results, and it will be interesting to compare at that time with the results today. Keep in mind that the titles in the top 5 year-to-date in 2008 still have the benefit of sales in the two biggest months of the year, November and December.
One contender for the top spot this year is Wii Fit. It has realized a higher weekly sales rate month after month, reaching a peak of 121,000 per week in October.
Should it continue at that rate through the end of 2008, it could get very close to 4 million units for the year, an astounding figure for a completely new property.
Finally, if we perform a rudimentary estimation of the top 5 games by revenue so far thist year, we arrive at the following ranking:
As expected, the higher price of Wii Fit puts it far ahead of the competition, with as estimated $250 million in revenue. Grand Theft Auto 4 for the Xbox 360 ranks higher than most Wii games with higher unit sales by virtue of its higher retail price.
As always, many thanks to the NPD Group for providing its monthly reports to the media, and in particular to David Riley for his additional assistance.