Monday, April 19, 2010

Console Post Of The Week

Dave Yeager sent me an e-mail:
The console posts are some of my favorites but I do have a question - if the numbers every week are so consistently bad for the Xbox360 and the PS3 then how are the product lines still in business at this point? I mean basically for a couple years now the numbers have come out every week and they've been categorized as terrible.

Just curious - is it a matter of it being okay to lose money from Microsoft's and Sony's perspectives to just try to keep some market share? If they don't have sufficient market share due to a couple years now of bad sales, why are game companies still making games for them? Somebody must be making a profit somewhere.

Those are excellent and relevant questions.

It's true that I've generally had a negative slant on console hardware sales for Microsoft and Sony for the last few years--particularly Sony. That's both a reaction to how Microsoft and Sony position the numbers (often in ridiculous ways), and a longer-term view of what their current sales mean twelve months from now.

In this generation, incredibly, it's been all about Nintendo. They've printed money, while Microsoft (some) and Sony (lots) have lost money. So when I'm negative about Microsoft or Sony, it's because they've been successful enough to tread water (Microsoft occasionally swims), but not successful enough to do anything more.

Interestingly, the question about software companies has a somewhat surprising answer: almost no one is making money.

Look at the trailing twelve month results for the big players:
Electronic Arts: -749M
Take Two: -117M
THQ: -95 M
Ubisoft: -72.5M (that's a projection from the company for the fiscal year that ended March 31)
Activision: 112M
Konami: 39M

I'm sure I'm leaving someone out there, but a huge percentage of the industry is represented by those companies, and the picture isn't pretty. That's a lot of big companies losing a lot of money.

So what do companies generally do when they're losing money like this? They cut prices and offer more value. What is the video game industry doing? Neither, seemingly. This is one of the reasons I think that this is going to be an ugly, ugly year financially, along with the inevitable train wreck caused by everyone pursuing the same basic strategy (Activision's strategy, basically, with the exception that no one else has a World of Warcraft to print money with. Oops.).

Okay, let's move on to March NPD's. Here are the raw numbers again:
PS3 - 313,900
PS2 - 118,300

The numbers for March 2009:
PS3 - 218,000
PS2 - 112,000

With the exception of the PS3 numbers, this year is last year. And remember how I said that this year's PS3 sales in the U.S. are going to mirror last year's 360 sales? The variance for March: -4.8%.

Sony is crowing, as always:
We also remain the only console to see double digit growth of 44% when compared to last March and are up 36% at this point in the calendar year.

That's true, but it's also true that they cut their price by 25% compared to last year. Plus, three of the highest profile games to be released on the PS3 this year (MLB 10: The Show, Final Fantasy XIII, and God Of War 3) were ALL released last month. And their sales still basically matched the 360s sales from last year.

Even more remarkably, the PS3 sold 46,200 units LESS than in February, and March is a five week month for tracking purposes (compared to February, which is four).

Like I said, that number is so weak compared to where I expected that, at first, I thought it was a mistake. Then I thought about supply constraints, and I have to believe that the PS3 is severely supply constrained, even though even writing that boggles my mind. How in the world do you not have stores loaded with product when the release schedule was as packed as it was in March?

If the PS3 was selling 500,000 units in the U.S. each month, and previous demand had been 200,000, it would be easier to understand. But Sony cut the price by 25% in August, and since then, they've sold a grand total of 18,700 units more than Microsoft in the U.S. (and sold 133,000 fewer units in the last three months). They can't keep units stocked at those demand levels? What are they, a boutique outfit?

I think it's a foregone conclusion at this point that Sony ends this generation in last place in the U.S. They're almost 7.5 million units behind Microsoft at this point, and they're not catching up.In other regions, though--particularly Japan--consumers have responded far more substantially in the last six months, and next week, I'll show you what's happening in Japan.

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