Tuesday, July 24, 2007

Console Post of the Week (Supplemental): Apples and Oranges, Plus June NPD Numbers

Take a look at this story:
Microsoft's growing troubles with the Xbox 360 video game console appear to be catching up to the company. Sales of the gaming machine plunged 60% in the fiscal fourth quarter, Microsoft disclosed Thursday.

In its earnings statement for the quarter, Microsoft said it shipped 700,000 Xbox 360 units during the period, compared to 1.8 million in the fiscal fourth quarter of 2006 -- a fall off of 61%.

This is one of the sloppiest pieces of journalism I've ever seen. In the second paragraph, Microsoft says it shipped 700,000 360's during the fiscal fourth quarter of 2007. They shipped 1.8 million in the same period last year.

Remember, Microsoft says it SHIPPED that many units.

In the first paragraph, though, the author of the article says "sales of the gaming machine plunged 60% in the fiscal fourth quarter."

Wrong, wrong, wrong.

It's apples and oranges. What this actually means is that Microsoft really did stuff the retail channel between comprehension at the end of last year, and their shipments are much lower because there was a gigantic inventory overhang to work off.

Oh, and it means one other thing: Microsoft is trying to drain the retail inventory swamp of the "old" units--you know, the ones that have catastrophically high failure rates. Even if the new units aren't being manufactured in quantity yet, there's no reason to keep shipping what they know is likely to break.

Having said that, let's look at the June NPD numbers, then try to do a real comparison:
Wii: 381,780
PlayStation 2: 270,760
Xbox 360: 198,440
PlayStation 3: 98,470

I believe June was a 5-week data month, so the PS3 is still chugging along at 20k units a week. Like I said, I think that's the floor for them in terms of weekly sales at $599, so it will be interesting when the July numbers come out in a few weeks to see the effect of the "closeout" pricing on the 60GB model.

In terms of NPD numbers, the 360 is actually down 33% for the fiscal fourth quarter. Even if Europe had a substantially steeper drop, at most I'm guessing they're down 40-45%. If Europe dropped at the same rate, then they're down a third.

And having said that--Microsoft, WTF are you doing? Do you think you can afford a sales decline like that?

I've been thinking about all this, and here's what I believe is a reasonable explanation. Microsoft knows their sales have dropped sharply, but they didn't want to cut prices on the console until they'd fixed the design flaw. Until then, they'd just be churning consoles with an incredibly high failure rate--it would be a financial disaster.

Once they believe that the inventory pipeline is full of the new units, that's when they'll want to cut the price. And you know they must be busting their ass to get as many redesigned units into retail as possible before Halo 3 ships on 9/25.

I've been shorting Nintendo in these weekly posts, but I've got a few items this week.

First, thanks to Stefan Stirzaker for the news that one of Australia's largest retailers, Harvery Norman, is negotiating with Nintendo to carry the Wii in its stores. Harvey Norman is the leading retailer for the 360 and PS3 in Australia, but didn't carry the Wii at launch--in part, due to inventory availability.

A note of comparison (sent in by Andy Herron): the Wii is $350US. The PS3 is $867US ($999 Australian). Ouch--if you think people aren't going to want to buy a $599 console in the US, how many are going to want to buy what is nearly a nine hundred dollar console?

Next is a link sent in by Steven Davis to an article where Japanese television executives are blaming the Wii for--well, here's an excerpt:
...Japanese TV executives are claiming that Nintendo’s Wii is responsible for a major decline in television viewing figures during the economically critical “golden hour”.

Not one show on any commercial station managed to attain more than a 9 percent share of audience viewing figures last week, something that hasn’t happened for nearly twenty years, The Times

Executives are now suggesting it is the Wii that is largely responsible for the decline in prime-time viewing figures.

The full article is here.

Marc Klein sent in a link to an interview with Shigeru Miyamoto, who is just as fascinating as always. You can read the interview here, and it reminded me of another difference in terms of how Nintendo and Sony are handling public relations: Nintendo's developers seem to give far more interviews than their executives. With Sony, the executives do all the talking, and seem to far more adept at jamming their foot up their asses.

They do it so often, in fact, that it seems to have become a hobby.

One last note. We've heard over and over and over again that no third-party Nintendo games are going to sell. Here's the list of the top ten console games in the NPD game sales in June:
--Wii Mario Party 8: 426k
--Wii Play w/ remote: 293k
--Forza Motorsport 2: 197k
--PS2 Guitar Hero 2 w/ Guitar: 197k
--360 Guitar Hero 2 w/ Guitar: 177k
--Wii Pokemon Battle: 157k
--Wii Resident Evil 4
--360 The Darkness
--PS2 Naruto: Ultimate Ninja 2
--PS2 Transformers: the Game

I saw somewhere (sorry, don't remember where) that Resident Evil 4 sold about 150,000 copies.

It's clear from those numbers that Wii owners (remember, still only about 60% of the installed base in the U.S. compared to the 360) want to buy software. And unlike the Gamecube generation, no one seems to be complaining about the support offered by Nintendo.

If third-party developers are whining that Wii owners won't buy their software, maybe they should put out some decent games.

That's a "them" problem, so to speak. Not Nintendo's.

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