Monday, April 21, 2008

Console Post of the Week: Using Numbers To Hide Numbers

Before we get started on NPD analysis, here are a few pieces of forensic work and commentary from you guys.

First off, Daniel Willhite had an interesting angle on the rumored Microsoft motion-sensing controller. I asked "WTF is Microsoft doing?" and he wrote this:
With respect to the rumored contoller - experimenting for their next console? Working out the bugs, so to speak.

It’s a pretty smart decision (if that’s the reason.) Microsoft creates a “waggle” API, developers explore the API and report back to Microsoft, and Microsoft adjusts the API and the “waggler” for the next console. Microsoft is very good at APIs and controllers, but not on the first pass at either. But they’re persistent and they learn and they update (I almost said “improve” but that wasn’t quite what I wanted to say.)

I’m willing to bet that Microsoft knows this won’t dent the Wii’s momentum, contrary to what their external face might say. I think they’re positioning themselves for their next console generation.

That's an excellent thought, particularly with the 360's successor coming out no later than November 2010 (only two and a half years away), I'm guessing.

Skip Key had an interesting theory in regards to 360 shortages and Wistron:
Microsoft assumed that they could get the OEMs to lower their prices because the cost always goes down over the lifetime, but the OEMs this time couldn't do it, mostly due to the fact that the dollar has totally tanked, squeezing out any increased margin. So as long as Wistron picked up a big contract to offset the loss, preferably paid in something other than US dollars, they'd be OK.

So I did a little searching, and found out where their manufacturing capability probably went. From July of last year, when the negotiations would have been going on: Wistron to manufacture Wii.

Given a couple of months to set the lines up, the timing's almost perfect.

Another excellent piece of analysis, and this Forbes article suggests that Wistron was going to begin manufacturing the Wii before the end of last year.

Several of you guys sent me a theory about Wii supply in the U.S. (and I apologize, but I can't remember who was first), and I think it's worth mentioning. The basic theory is that Nintendo, with unfulfilled demand in both Europe and the U.S., was trying to sate Europe first due to the favorable currency valuations. Victor Godinez (an excellent writer for the Dallas Morning News) sent me a link to a story he posted about an interview with Michael Pachter in which Pachter also subscribes to this theory.

Again, I don't know if this is true or not, but that was one hell of a spike in March sales for Nintendo, so maybe they've increased manufacturing capacity after all, but we just couldn't see it because the delta units were going to Europe.

Okay, on to the NPD's. Here are the raw numbers:
Wii-- 721,000
Xbox 360--262,000
PlayStation 3--257,000
PlayStation 2--216,000

First off, remember that March is a five-week data period, not four. So for Sony and Microsoft, their per-week average actually fell quite a bit in March. Here are February and March numbers, but on a per-week basis:
Wii-- 108,000
Xbox 360--63,750
PlayStation 3--70,250
PlayStation 2--88,000

Wii-- 144,200
Xbox 360--52,400
PlayStation 3--51,000
PlayStation 2--43,200

That's a clear picture. Wii sales were up 33.5%, but the 360 was down 17.8% and the PS3 was down 27.4%. The indefatigable PS2 was down over 50%. Still, though, the 360 and PS3 are up significantly from last year.

It's always interesting to see how these companies respond to the numbers, and it's easy to tell when they're using one number to hide another number. When a company is winning, it never pollutes the numbers--it just announces them. If a company is losing, though, they'll talk about percentages instead of absolute numbers, or they'll talk about a different timeframe--"shockingly", one that gives them an unfair advantage.

For instance:
Consumers continue to make the ultimate vote for Xbox 360 as the console of choice by investing $9.4 billion to date this lifecycle in the Xbox 360 experience, far outpacing that of other game consoles.

Nice. Microsoft uses a timeframe where they have a twelve-month advantage over their competitors and claims a total revenue victory!

Well done, calendar shufflers.

Then, in the same press release, Microsoft scores again:
Xbox 360 sales in Europe have more than doubled in the wake of recent retail price changes, solidifying its leadership position as the number one next-generation console in EMEA, owning 42% of the market in terms of life-to-date revenue.

Hey, sales have more than doubled--off some number that wasn't given. Plus, here comes that life-t0-date revenue number again.

Oh, and here's why they wanted to use that "doubling" number:
Microsoft this week claimed to have more doubled the Xbox 360’s European sales thanks to its recent price cut, but that still hasn’t been sufficient to put it ahead of the PlayStation 3 or the Wii in the UK.

...UK console sales monitor Chart Track confirmed that for the past 15 weeks the PS3 has largely kept ahead of the Xbox 360. However, a spokesman admitted that the two machines' units have been "extremely close" in some weeks.

I guess a press release that says "Microsoft this week claimed to have gotten "extremely close" to PS3 sales in the UK after a recent price cut" wouldn't quite sound right.

Sony also uses the math to hide math strategy:
This represents a year-over-year sales growth of over 98%. More than 1.9 million software units were sold for PS3 in March, representing a year-over-year growth of 139.2%.

Oh, yeah, be sure to focus on year-over-year growth, which has absolutely no relationship to your competitors. We're going to hear the year-over-year comparisons for the PS3 all year, because prior to the $399 40MB model being introduced in November, last year was shit.

Sony also loves to focus on "the brand" and give you "brand" revenue instead of information for individual consoles. Again, it's a way to avoid direct comparisons with a competitor.

Both Microsoft and Sony seem to be in disarray, and the math is just a symptom. Let's take a quick look at the highlights.

Microsoft, in particular, seems to have forgotten how to market their product. For one, it would have been a slam dunk to send out Falcon consoles to every person of note in the gaming press so that they could see the improvements. Then they would have gotten a slew of "it's quieter, it's cooler," articles written, and it would have drawn attention to how "bad 360" was in the past. Plus, it would also have seemed like another slam dunk to announce when all new units going forward would be Falcons.

Then there's Grand Theft Auto. Microsoft spent 50 MILLION DOLLARS to obtain exclusive Grand Theft Auto content from Rockstar. Given that there will be plenty of people buying consoles to play Grand Theft Auto, it would seem logical for Microsoft to let people know that their console will have exclusive content not available anywhere else.

In fact, they should be shouting it from the rooftops, and giving us as many details as they can, because it would make more people purchase 360's.

Instead? Almost complete silence. No special console bundle, no teasers, nothing. Even if they announce something this week, they've waited too long.

Sony has its own problems. Don't expect Sony to mention Japan anytime soon, because they have a giant pile of vomit on their sweatshirts. In the last eight weeks in Japan, the PS3 has sold 107,137 units. Last year, in the same eight-week period, it sold 180,880, and those numbers last year were ugly to begin with.

Cheaper than last year and sales are off FORTY percent?

In the U.S., at least, Sony's strategy is back from the dead. Even the PS3 is clearly going to fall far short of the record numbers of the PS2, at least it looks viable in the U.S. In Japan, though, it appears that they've completely failed.

Plus, if Sony is trying to establish a foothold with the PS3, it would seem reasonable to expect exclusive games, but in the first quarter, the only game Sony released was MLB 08: The Show. It's a superb game, but that's it? Oh, wait, we also got Hot Shots Golf: Out of Bounds. Woo!

And now, in April we get Gran Turismo 5: Prologue, which is a $39.95 DEMO. Excellent.

On the positive side, Sony is doing a much better job of in-store marketing. I've been in several retail stores in the last month and seen eye-catching Blu-Ray demo displays with big HD screens. That's a big positive.

Here's the question with Sony, though, at least in the U.S.: how badly is the installed base for gaming "polluted" by people buying dedicated Blu-Ray players? That's of huge importance to developers, because no one buys a 360 as a dedicated DVD player--the installed base is the game-purchasing base. With the PS3, though, there's a huge amount of fog.

For now, I think Grand Theft Auto IV will probably be the best test case we have available.

Think about it. GTA IV will probably be purchased by a higher percentage of PS3 owners than any other title in the console's history, and GTA has such an established reputation that it will pull in plenty of people who never intended to play a game on a PS3. So that should at least be a decent set-up to get an idea of real gaming demand for the PS3 in the U.S.

We will also be able to compare what percentage of the PS3 installed base buys GTA IV compared to the percentage of the 360 installed base. If it's the same, or close, that's a huge win for Sony. If there's a sizable gap, it's going to be tough to spin.

I always want to write more about Nintendo, but what can I say? They own the gaming world right now and they print money. Mario Kart Wii will sell a bajillion units, and so will Wii Fit.

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