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Exclusive: Q1 Sales Analysis Illuminates Hardware

Following his analysis of 2010's first-quarter U.S. retail game sales, Gamasutra analyst Matt Matthews now looks at the hardware side --
[Following his analysis of 2010's first-quarter U.S. retail game sales, Gamasutra analyst Matt Matthews looks at hardware -- from normalizing Wii volume to the effect of price cuts and beyond.] We recently looked back at the best-selling videogame software at U.S. retail for the first quarter of 2010, according to the estimates reported by the NPD Group. While Nintendo's software continues to dominate the charts, we noted a rise in the software fortunes of Sony's PS3 compared to 2009. Today we look at hardware unit sales and the revenue fortunes of the industry over the past few years. As before, we are only considering the first quarter figures from each year in each comparison. Hardware: Wii Back to 2008 Levels Sales of the Nintendo Wii have been nothing short of amazing for the past several years, and while sales were down slightly overall in 2009, the console still managed to shift a stunning 3.8 million systems in December. Unfortunately for Nintendo it wasn't able to carry all of its holiday momentum through the beginning of 2010 as the company struggled to overcome hardware shortages not only of the console but also its key Wii Fit Plus software and the associated Wii Balance Board. Consequently, only 1.4 million Wii systems were sold during the first quarter of 2010, down from a high of 2.0 million in the first quarter of last year. In first three months of 2008 sales of the Wii were almost precisely the same: 1.4 million systems.
One must give Microsoft credit: its second venture in the console market has continued to perform well year after year, and in this case quarter after quarter. As the system soldiers through its fifth year on the market, its first quarter sales were up yet again. While the increase was somewhat modest 6 percent, the margin was more than enough to keep it ahead of its most direct competitor, Sony's PlayStation 3. And staving off Sony's charge could be no mean feat. While analysts like Wedbush's Michael Pachter have said they expect the Xbox 360 to outsell the PS3 at least through the middle of 2010, Sony has warned that it has had supply issues of its own. Given that caveat, the 140,000 unit differential between the two HD consoles looks very small indeed. Had Sony managed to sell an additional 10,000 PS3 systems per week since the beginning of 2010 it would have tied Microsoft's hardware sales during the first quarter. The real question we haven't seen answered yet is just how many systems Sony can sell in a non-holiday month at the $300 level. Looking back at September and October 2009 may not be an accurate guide since Sony's big software push in the past couple of months (God of War III, Heavy Rain, et al) may have shifted the perceived value for the average consumer. On the handheld side of the market, the story is all about Nintendo. Not only was the company successfully selling two models of its popular DS platform – the Nintendo DS Lite and the Nintendo DSi – but it then launched the upsized Nintendo DSi XL at the end of March. With just a few days on the market, the DSi XL accounted for 8 percent of the platform's first quarter sales.
After peaking in 2008, Sony's PlayStation Portable (PSP) hardware sales have been sliding downward ever since. In the first quarter of 2010 the system's sales were down nearly 35% from the same period a year ago. Looking back two years, sales in the first three months of 2010 are down a shocking 54 percent. There was a time when the Nintendo DS regularly outsold the PSP by a factor of 2 to 1. We can now look back on that period as the good old days for the system. The ratio so far in 2010 is nearing 5 to 1. With a software market known to be collapsing at a similar rate, the time of judgment appears to be coming for Sony's handheld – and soon. We still favor the announcement of a successor platform at E3, but caution that that is simply our speculation based on the market reality in the United States. The PSP remains quite viable in Japan, an inconvenient but unavoidable reality. Price Cuts Drive Industry Revenue Lower Since the beginning of 2009 Sony has cut the prices of its PlayStation 2 and PlayStation 3 (to $100 and $300, respectively) and Nintendo has dropped the price of the Wii from $250 to $200. While these price cuts have certainly helped increase or stabilize system sales, they have also taken a toll on the total revenue recorded by the industry each month. According to the figures reported by the NPD Group each month, the total revenue in the first quarter of 2010 was down over 7 percent from the total in the first quarter of 2009. NPD's figures are broken into three categories: hardware, software, and accessories. The lion's share of the differential between 2009 and 2010 was in the hardware sector where total revenues fell by over $200 million, a year-over-year drop of 15 percent.
Without that loss of hardware revenue, the industry would be down a much more modest 2.5 percent from the level in 1Q 2009. The hope for the remainder of the year is that hardware sales will accelerate into the holiday season, and consequently push software sales to year-over-year growth. With Nintendo's biggest 2010 titles yet to be released and Microsoft prepping Halo Reach for a fall launch, the hit software will certainly be there to assist. One key wildcard is the market's reaction to the release of Microsoft's Project Natal and Sony's Move later in 2010. Should one of these technologies catch the public's imagination, it is entirely possible that the corresponding platform will experience even stronger sales in the latter half of the year. Until software and pricing are announced at next month's E3 press conferences, however, we will decline to speculate further on these developments. [Thanks to the NPD Group, and in particular Anita Frazier and David Riley, for assistance with the figures in this article. Also, thank you to Wedbush Securities analyst Michael Pachter for his comments and monthly updates on industry sales.]

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