[Gamasutra analyst Matt Matthews take a close look at shifting market share among the big three video game console manufacturers as part of his monthly analysis of NPD Group U.S. sales data.
As Cowen and Company analyst Doug Creutz spelled out
in his comments last Friday, the industry has undergone a significant shift in the past year. In particular, the Xbox 360 and PlayStation 3 together account for a larger proportion of hardware sales over the past 12 months than did the Wii.
To the extent that the two so-called HD consoles represent a segment of the market separate from the Wii, Creutz suggested this change represents “a positive ongoing development for the U.S. publishers, who earn the majority of their sales on the 360/PS3.”
Last month we made a similar observation when we wrote that “the Xbox 360 sold 6.81 million systems in the past 12 months, compared to the Wii's 6.92 million” and that “110,000 unit advantage [for the Wii] could easily disappear by the end of March 2011.” However, our focus was primarily on the emergence of the Xbox 360 as the dominant platform over the past year.
Creutz took a more inclusive view of the market and noted that combined trailing 12-month sales of Wii, Xbox 360, and PlayStation 3 sales have remained relatively constant at between 17.0 million and 19.4 million systems per year since December 2008.
So the shift here is not in the total number of systems moved. Rather, it is in the share of the market that each system claims.
To see this, consider the 12 months from March 2009 to February 2010. Sales of the three main console are summarized below, showing how the roughly 18.4 million systems sold during that period were distributed.
During that 12-month period combined Xbox 360 and PS3 sales just barely edged out total Wii sales. (For historical context, in the 12 months prior to March 2009, the Wii outsold the PS3 by 3-to-1 and outsold the Xbox 360 by 2-to-1.)
Since February 2010, however, Microsoft has launched its Xbox 360 Model S (in June), which attracted many consumers, and then launched its Kinect sensor in November and has seen extraordinary hardware sales since that point. At the same time, the Wii has had several months of year-over-year hardware declines, bringing its annual rate down from its record sales peak to the level of the Xbox 360.
The result is the following figure, which shows the distribution of console sales in the past 12 months.
With total console sales in a 12-month period effectively flat at about 18 million units, only the shares for each console shifted around. The Xbox 360 was the clear winner with its share growing from 26% to 38%, and the Wii was the clear loser with its share falling from 49% to 39%.
However, in light of Creutz's claim that the HD console share is growing, we would observe that this glosses over the slight loss in PS3 share, down from 24.5% to 23.1%. The HD console share of the market grew precisely because the Xbox 360 has driven the growth and made up for a decline in PS3 sales.
What about the other part of the equations, software sales? While we are not privy to solid unit sales data, we can look at estimated software revenue in the same TTM windows. In the figures below, we note that the total software revenue in each of the periods is approximately the same.
Here is the picture during the 12 months from March 2009 to February 2010.
And the corresponding image for the 12 months from March 2010 to February 2011 is below.
The HD consoles increased their share of software revenue from just under 60% to just over 66% of the market in the past year, while the total software revenue has increased slightly. Since the value of this segment of the market increased only marginally from the period in the first graph to the period for the second, we can furthermore say that the absolute size of the Wii software market also contracted while each of the HD consoles increased their software revenues.
If we wanted to use a very coarse measure of unit sales, we could say that there are approximately five Wii games for every four HD console games. Under that assumption, we would end up with a software unit split in the past year that looks like 60% to 40%, compared to 50% to 50% a year ago. Again, we stress that is merely a rough estimate, but it does capture the dynamics well enough to demonstrate the general direction of the market.
As we stressed earlier, this is merely a matter of Wii sales becoming slightly above average after the wild period from 2007 to 2009 in which its sales – both hardware and software – were amazing.
However, given that decisions about software development are made at least a year in advance, it appears that the die is set for the near term. Third party support for the Wii may continue to contract while resources are directed toward the HD consoles, and by sheer number of titles those HD consoles will see greater software sales.
As but one example, in calendar 2009 Electronic Arts reported approximately the same amount of revenue from Wii software as PlayStation 3 software: $625 million compared to $696 million. In calendar 2010, those figures shifted to $266 million for the Wii and $915 million for the PS3.
The figures in the graph above are across all territories, including the U.S.
For Matthews' full, in-depth analysis of February's NPD U.S. video game retail sales data, read the full feature, available now on Gamasutra.