Tuesday, May 21, 2013

First Impressions: Xbox One, Gamers Zero?

If you listen to the social mediasphere, the Xbox One is dead already. If you listen to common sense, however, you'll realize that the battle is just beginning. 

I found Microsoft's (MSFT) reveal of the Xbox One to be acceptable. I got pretty much what I expected from the event itself, and was even impressed at some of the things that the hardware will do. Fast-switching between different entertainment sources with only one input is a neat idea, and convergence in the living room is where I think we're headed. Microsoft seems bullish on the idea of diversified entertainment, widening its scope of potential Xbox One users instead of focusing mostly on the core gaming demographic. It's a strategy that's getting Microsoft ripped to shreds by video game fans, but could shake out to be beneficial in the long run if the theory that core gaming consumers alone can no longer support this business verifies. 

I do believe that kneejerk reactions from the social mediasphere when it comes to this alleged lack of focus on games can be mitigated by a more gaming-centric showing at Microsoft's pre-E3 keynote on June 10th. I don't believe that Microsoft is forsaking the core gaming community at the cost of attracting others, but rather that the company is picking its spots to showcase certain aspects of the platform. I can buy into the argument that this more general kind of presentation might have been better-suited to a different event, since many of the viewers were likely core gaming consumers and not analysts, retailers, or investors... but this by no means should be taken as a confirmation of lesser gaming importance for the device. 

What stands out to me even more is the rather stunning lapse in the chain of information from company to press when it comes to certain potentially controversial aspects of Xbox One. No mentions of used games or required Internet connectivity were made during the reveal, but after the event, stories began to surface about potential fees for used games and a requisite for at least daily Internet connectivity checks to maintain proper functionality of the Xbox One's feature sets. The fee for used story that Wired ran wound up getting contradicted shortly thereafter by another media source, but that didn't stop GameStop shareholders from dumping stock once the story broke. At one point, the stock sank by more than $3 per share before recovering late in the session to close nearly $2 lower at $36.78 (-5.11%). 

Misinformation and Microsoft's inability to share confirmed strategies about used games certainly hurt the reveal of the Xbox One. Perhaps the dozens of threats to buy PlayStation 4 over the Xbox One will ring hollow, but if they don't, who is to blame here? I charge that Microsoft should not have even bothered to field questions from the press about used games and required connectivity until a later date, when the company would be more prepared to give accurate, clear answers to these questions. Instead, there's a lot of crossed wires and even more doubt about the platform, which is only hours old to the public's eyes. 

It will be interesting to see how Microsoft deals with this suddenly negative perception and how the company approaches the core gaming demographic to allay fears and disappointment. Personally, I believe that we're at far too early a stage to damn the platform... but Microsoft must tread carefully over the coming weeks so as not to make a difficult situation worse. 

For now, I urge patience when attempting to gauge the level of interest or launch success for the Xbox One. There is still a lot of information to be shared before realistic, forward-looking analysis can begin. 

Saturday, May 18, 2013

April 2013 NPD Reaction: Spring Swoon

Speaking candidly, I don't believe that anyone was ready for the numbers that we saw from NPD for the month of April... regardless of whether you're an armchair analyst like myself or whether you're a top-line professional in this business. Hardware sales numbers, in particular, were just painful to digest. It wasn't a total collapse, but when you drop by more than 40% from the past year-- and when that April's comp targets weren't crazy to begin with-- it just looks awful.

We have to start by looking at the Xbox 360. It's great for Microsoft that the 360 was #1 again, but the context behind that accolade isn't too great. A 45% decline versus last April? Only 130,000 units sold? Perhaps we've come to expect a bit too much from the platform, which is just a few months from celebrating its eighth birthday, but with many pre-NPD projections pointing to around 200,000 units, there's no other way to look at 130,000 then to question what happened. In my full analysis for Popzara, I posited that the news of the Xbox 360's successor getting a reveal in May might have convinced consumers to slow down on buying and wait to see what's coming. Before then, we had a lot of speculation and hearsay about the new Xbox, but it wasn't real. Now it is, and the Xbox 360 aged rapidly in the span of a couple of weeks. I do think that sales will recover for the 360, especially as more games arrive in the August-November time frame, but things may stay on the slow side for a little while and we should probably scale back our monthly projections accordingly.

I've been very vocal in the past about the slowing pace of 3DS sales, and after a brighter March, April was a step backwards for Nintendo's handheld here in the United States. I do believe that, as more software hits stores later this year, 3DS sales will accelerate and that it should be at least a consistent #2 on the hardware charts (if not higher). What surprised me was that 3DS sales contracted despite the platform having two titles in the software Top 10 list. I expected residual game sales to help bolster hardware sales and keep the 3DS within striking distance of April 2012 numbers, but it just wasn't meant to be.

Analysts calling for price drops isn't a new tactic, but that's what I'm doing here when it comes to the PlayStation 3. $250 isn't moving hardware, no matter what pack-ins that Sony decides to add in order to justify the price point. We're not in the launch window anymore, and consumers would much rather pay a lower cost of entry and pick their own games than pay a higher premium and be stuck with games like inFamous and Gran Turismo 5. If Sony comes through with a price cut at E3, and couples it with the release of The Last of Us, I think it's capable of making some noise especially since the Xbox 360 will be in the midst of a moderate software drought.

Wii U numbers continue to be low, and its six-month LTD totals are tracking lower than the Xbox 360 and the PlayStation 3 during the same time frame. Nintendo announced a multi-game partnership with SEGA during its last Nintendo Direct event, which demonstrates a step forward in the third-party arena; however, this partnership doesn't come close to filling the hole that the EA departure has left behind. Mario & Sonic at the Olympic Winter Games is no substitute for the losses of Madden and FIFA on the Wii U, and the absence of EA's upcoming Star Wars games will be a considerable mark against the platform. Having said that, I'm still intrigued by what Nintendo will tell us during E3 next month. Obviously its relationship with Ubisoft is still strong, but what of Activision and Take-Two? Hopefully those will be shored up. Otherwise, Nintendo will be fighting this battle pretty much on its own.

Finally, seeing Vita move less than 20,000 units in a month is just poor. The platform is still relatively new, and yet it's been unable to find any sales momentum and is in danger of becoming completely irrelevant. If Sony is serious about the Vita's chances here in the US, drastic steps must be taken to prove it. Sony must announce a price drop to $200 (or lower) at E3 and the company needs to announce compelling software that will interest a wide audience. Indie games aren't going to get this done. Partnerships with third-party partners must be forged and Sony needs to involve its own first-party studios more seriously in Vita software development. If not, Vita is going to be a tough sell for retailers, even despite its ties to the PlayStation 4. Months and months of inaction from Sony need to come to an end, and I hope that E3 is the turning point.

While I'm surprised by the severity of the declines posted for April, it's important not to overreact and make assumptions about the overall health of the industry. What I think we're seeing here is the beginning of a wait-and-see period for consumers as Sony and Microsoft prepare to show off their new hardware platforms and try to sell people on them. Combine that with a relatively soft release schedule over the next 2-3 months, and we should keep our expectations in check. I believe that trends will turn more positive late in Q3 and into Q4. Conditions may be challenging until then, but it's not a long-term weakness.

Thursday, May 16, 2013

Pre-NPD: April 2013 Projection Comparison (versus Michael Pachter, Wedbush Securities)

In advance of this afternoon's release of NPD retail video game sales data for April, I wanted to compare my range projections with those of Michael Pachter from Wedbush Securities:

  • We both agree that the Xbox 360 will be the best-selling hardware platform for the month. Mr. Pachter's projection of 205,000 units is squarely in the range of 190-215K that I projected. 
  • Mr. Pachter believes that the 3DS moved 185,000 units for the month, which is considerably higher than my range of 140-165K. I'll be very interested to see actuals here; perhaps I'm not giving the platform enough momentum given residual sales of March games. 
  • As for the PlayStation 3, Mr. Pachter projects 165,000 units sold. That is within my projected range of 155-180K. If this verifies, it will be the second straight month where 3DS beat PS3 and will be worth considering for trend analysis and projections moving forward. 
  • Mr. Pachter projects Wii sales to be at 75,000 units. I did not put a number on Wii or legacy DS units for the month, but projected them to be 4th and 5th place respectively. Based on Mr. Pachter's numbers, this sounds like we agree. 
  • The Wii U moved 55,000 units in April, according to Mr. Pachter. This is at the low end of my 50-75K range. My instinct tells me that the raw number could be a shade higher, but I can see where the lower projection could verify. 
  • Finally, Mr. Pachter projects the Vita to have moved 30,000 units, which is below my projected range of 35-60K. 
I'll be very curious to see 3DS sales data. I think that it's a good sign if I'm underselling the handheld as that could signal strengthening for the device well in advance of more significant software releases later this year. It's also notable that the 3DS will likely be the only platform to show any kind of YOY sales gain, which is also a good sign. 

My full analysis of April's data will be live on Popzara soon. I'll also provide additional observations and opinions here over the course of the next few days as we digest the numbers and trends.

(Thanks to GameSpot and CNET for sharing Mr. Pachter's projections.)

Monday, May 13, 2013

Crystal Ball: April 2013 NPD Data Pre-Release Speculation

NPD sales data for April is set to arrive on May 16th. I don't expect many surprises nor many changes to the status quo when it comes to hardware sales rankings for the month.

It's most likely that that Xbox 360 will maintain its pattern of dominance for the US market. Given static pricing for the hardware and that few major titles debuted in April, expect YOY sales to be lower, even with Walmart sales included this time out. Last April's number was 236,000 units. Getting to 200,000 this time may be a challenge-- though it's not out of the question given late tax returns for some, continued strength of Bioshock Infinite, and the debut of Injustice. My best range estimate is between 190,000-215,000 units.

The most interesting platform to watch will be the 3DS. With residual sales of Luigi's Mansion and Pokemon from March out there and with potentially increased interest thanks to some big future game announcements, it could be the one platform to see a YOY increase. Last year's number was only about 150,000 units, so the target isn't impossible to reach. After passing the PlayStation 3 last month and moving into the #2 position, despite a pair of notable exclusives for the PS3 from Sony, I expect further jockeying between the two platforms for the second spot behind the Xbox 360. One month doesn't make a trend in and of itself, but it was a positive step to see the 3DS show YOY on the plus side last month... despite the slim margin of improvement. My best range estimate is between 140,000-165,000 units.

Much like the Xbox 360, I expect a YOY decline for the PlayStation 3. The reasons are the same as the Xbox 360; the price point is still the same and new software releases were slow (save for Injustice). Last April saw less than 200,000 sold, and I think that number could dip below 175,000 this time around. I'll put the range between 155,000-180,000 units.

Wii and DS will probably take the 4th and 5th place spots, though DS is likely to be declining in the months to come as production has ended and remaining inventory will be sold. Wii software is still available at many retailers and the price is decent (though could arguably be lower) for a budget-conscious family, perhaps looking at a console for a child's bedroom or for another room in the house. I'd really like to see Nintendo drop the pricing on Wii to $99.99 sometime soon and accelerate the move to get these off of store shelves. Unfortunately, I don't know that we'll see that happen-- at least, not anytime soon. We'll see what Nintendo announces at E3 next month.

Wii U will be next, in the 6th spot. At this point, enough criticism has been made about the platform's poor start and Nintendo's culpability in that. We wait now and see what Nintendo has up its sleeve in Los Angeles. It makes sense that Wii U will be an important piece of Nintendo's strategy, and I'll be curious to see what games are coming, what the schedule is, and what else the company has in mind to reverse course and to get Wii U units moving more briskly off of store shelves. Whether it's a price drop, consistent new game releases, or something else... you have to think that the gloves are about to come off. It'll be another sub-100,000 month for Wii U, probably ranging between 50,000-75,000 units, based on my best guess.

Bringing up the rear will be the PlayStation Vita. Soul Sacrifice won't be enough to bring Sony's new handheld out of its malaise. $250 plus memory card costs is considered in the court of consumer opinion as too much, especially when the 3DS is $50-$80 less and comes with its own SD card. The obvious solution here is for Sony to drop the hardware price, but the question is when. Could it be during E3? My guess is yes, but that's purely speculation on my part. My estimated range for Vita units sold is between 35,000-60,000 units.

What about physical retail software sales? Expect Injustice to be the best debut of the month. It could be #1, with at least a top three showing the most likely result. It'll be interesting to see whether Bioshock Infinite and/or Tomb Raider can stay in the Top 10 for a second straight month. With the NBA Playoffs on full swing, expect to see NBA 2K13 in the Top 10 again, along with Call of Duty: Black Ops II.

Overall, expect video game sales to show a decline from last year's $630 million at retail. My guess is between $525-$575 million, or a decline of between 9-17%. A lot of that will likely come from hardware declines. Packaged software was at $307 million last year but the best-selling game (Prototype 2) moved  less than 236,000 units combined, and I think that Injustice beats that... so software could be slightly below to slightly above last year.

My full analysis will be posted exclusively at Popzara.com within a day or two of the data release.

Please note that my ranges are all speculative and are for reference purposes only. My analysis is more on trends at large and my predictions are based on last year's figures and personal instincts. I do not have full access to full NPD data and take my figures from public information shared by NPD, Microsoft, and Nintendo along with various trusted sources.

Thursday, May 9, 2013

The PS4 Pricing Game: What might Sony do?

"Unlike PS3, we are not planning a major loss to be incurred with the launch of PS4..."

-- Sony CFO Masaru Kato, May 9th, 2013

It's understandable to want to jump to conclusions based on Mr. Kato's statement above. Does this mean that Sony would dare to repeat its $600 miscalculation from 2006? Could this mean higher costs than expected at retail and potentially put off consumers? Does this open the door for Microsoft to undercut Sony out of the gate?

To those of you asking these questions, I urge patience. While I'm comfortable at this point in projecting the suggested price point for the PlayStation 4 somewhere between $400 and $500, we've been down this road before. Flashing back to 2011, when Sony was set to unveil the Vita, there were similar questions as to the price point, given the tech involved. $250 was not what most people expected, even though Nintendo went on to drop the 3DS price point and made Vita seem far more expensive than what it was. I'm not saying that we should expect another bombshell in terms of asking price, but I'm suggesting that we leave the door open a bit wider when it comes to making pre-launch price estimates.

The $400-$500 window is not a mass-market window, and I believe that Sony and Microsoft execs know this. It is, however, enticing to early adopters and core consumers who have been waiting impatiently for new hardware and if that window is met, sales will be okay at the start. While we'd like console hardware sales to sprint off the blocks, the hardware race isn't a 100-yard dash. Generational transition will occur in waves, starting with early adopters and at least portions of the core consumer demographic in the launch window (first 6 months) and then will gradually expand to other demos from there as more games fill the channel and price cuts come.

The chances for actual launch pricing being outside of the $400-$500 window decrease on either side of the range. Anything more than $500 is risky given Sony's failure to drive the PlayStation 3 at a high price point and that it's still fresh in the minds of the consumer demographic that will be targeted at launch. Anything less than $400 would seem to call Mr. Kato's statement above, based on what we've seen and heard regarding the hardware. It's not going to be a cheap console to produce. If I had assign probability percentages for these ranges as of today, they'd look something like this:

  • Less than $400: 25%
  • Between $400 and $500: 60%
  • Greater than $500: 15%

It's fair to point out that the idea of subsidized console sales makes sense to limit losses on hardware while also presenting the platforms at an affordable up-front cost. Microsoft piloted the idea with the Xbox 360 last year and the plan expanded from its own branded stores to other retailers. I believe that Microsoft is in a position to do so again with its new console, and I believe that Sony can present a comparable subsidy plan to match for the PlayStation 4. In the long run, these subsidy plans can make more money for Microsoft and Sony than by otherwise selling the hardware at a base price thanks to multi-year commitments to their online services. Nothing has been reported or rumored in terms of potential Sony subsidy plans, but it makes sense as something to watch for-- either during E3 or a bit later this summer when launch details are firmed up.

Of course, the time for speculation will be replaced by more accurate analysis and projection once Sony and Microsoft come forward with their launch specifics and strategies. For now, though, based on what we know, I believe that Kato's comments should not be misconstrued for another exorbitant launch.

Wednesday, May 8, 2013

Two-Pointer: Addressing Bobby Kotick's Comments from ATVI Q1 '13 Earnings

“While we have had a solid start to the year, we now believe that the risks
and uncertainties in the back half of 2013 are more challenging than our earlier view, especially
in the holiday quarter. The shift in release dates of competing products, the disappointing
launch of the Wii U™, uncertainties regarding next-generation hardware, and subscriber
declines in our World of Warcraft business all raise concerns, as do continued challenges in the
global economy. For these reasons, we remain cautious. However, our focused and disciplined
approach to our business has served us well in the past, and through continued investment and
careful management of our costs, we expect to continue delivering shareholder value over the
long term as we have for the last 20 years.”

-- Bobby Kotick, CEO, Activision Blizzard, May 8th, 2013

I'm not going to completely break down Activision Blizzard's results or get into the publisher's specific future as I see it. I will quickly say that I believe Call of Duty: Ghosts will be the best-selling console video game of 2013, although Grand Theft Auto V will push Ghosts for dominance. I also believe that Skylanders: Swap Force will have strong competition from Disney Infinity this year.

What I want to address with regards to Mr. Kotick's comments are two very specific points he made:

1. "...the disappointing launch of the WiiU..."

Kotick is saying what we all know. Six months in to Nintendo's Wii U era in the US market, unit sales have barely broken a million. We have some ideas about the potential reasons for the new platform's struggles. NintendoLand wasn't the Wii Sports kind of all that Nintendo was hoping it would be to attract consumers. Marketing for the Wii U here in the US was spotty and many consumers didn't (and still don't) know what Wii U is. Games have been releasing in weak numbers. Pricing is perceived to be a bit high, especially by Nintendo standards.

Aside from stating the obvious, I believe that Kotick is putting Nintendo on notice a little bit here. Third-party partners who are still supporting Nintendo at this point see where the trends have been, and confidence is waning somewhat. I don't believe that Activision will pull an EA at some point in the near-term if Nintendo doesn't turn Wii U around. I do believe that Kotick wants to nudge Nintendo forward. A successful Nintendo platform is another platform that Activision can support and make its own revenue on. Skylanders can be successful on the Wii U (though Disney Infinity and perhaps a surprise NFC game announcement from Nintendo may limit potential), and Call of Duty should still have some appeal. If Nintendo can't reverse course and push Wii U into the kind of sales territory that it really should be in by early next year, there will be an important and difficult decision to make for Kotick-- especially as console generation transition begins to ramp up throughout 2014.

For the record, I do believe that Nintendo will do its best to impress at E3 in June. Despite the lack of a major press conference, the approach that Nintendo is using to hold separate events for media and for retailers/analysts/investors is a fair one. I believe that multiple new game announcements will be forthcoming and that Nintendo will have a solid lineup for the Q3-Q4 period this calendar year. This does mean another couple of months of relative quiet and likely weak sales for the Wii U platform, but I do believe there's a good chance that sales will respond once Nintendo sets its plans in motion.

2. "...uncertainties regarding next-generation hardware..."

Kotick's trepidation about this new generation of hardware is justified, especially early on. While it's certainly exciting to see what will likely be two new hardware platforms hit the market this fall, there's no guarantee that consumers are just going to jump in and purchase them because they're new. We know nothing yet about pricing models. We don't know if there's going to be a killer app that consumers will be unable to resist. We don't know what the initial allocations will be, which is especially important if demand (via preorders) is strong out of the gate.

Once we solve these variables, then we have the issue of competition from older hardware, which is also a battle that Nintendo will be waging in trying to get consumers to spend money on Wii U later this year. Call of Duty: Ghosts and Grand Theft Auto V-- the two biggest releases of the year-- will be available on cheaper and more strongly installed hardware platforms. Those two games will be joined by this year's iterations of Madden NFL and FIFA Soccer on the sports side, plus a new Assassin's Creed on the action side. Sony also has Beyond: Two Souls and potentially Gran Turismo 6 for the PlayStation 3 coming this year as well. I also fully expect price cuts for both the Xbox 360 and the PlayStation 3 by the end of the summer, if not well before then. These cuts position both platforms as budget-savvy and still very relevant purchase options for Q4 and remove some of the perceived need to upgrade to new hardware this year. Sure, consumers could spend $400+ on a PlayStation 4 plus the additional expense for controllers and games... or they could spend $200 on the PlayStation 3, plus buy additional controllers and several games for the same price it would cost just for the newest platform.

Nintendo, unfortunately, is also hurt by a general lack of third-party software options. Not having a Madden football release this year hurts in this market. If Grand Theft Auto V doesn't come out for Wii U, that's another popular game that consumers won't be able to get. It forces Nintendo to be solely responsible for Wii U's success and makes consumers have to choose between a Wii U to play the newest Mario game or a  cheaper PS3/360 to play Madden and GTA. Then you add the release of two new platforms which make kick Wii U out of the "new kid on the block" spotlight, and it becomes a difficult-- but not impossible-- hill to climb.

Either way, there's no guarantee that any of the platforms from this newest generation of consoles will light up sales charts at launch, and it's a safer play for publishers to keep a line of support coming for these older platforms for the short and medium terms. Of course, transition will occur more gradually as time goes on, but making that transition too quickly is an unnecessary risk and one that will harm a publisher's revenue potential. That's something that Kotick is warning about, and it's worth heeding for other publishers.

Wednesday, October 31, 2012

Blogging Before Bed: Take-Two Truth Comes Out

Take-Two finally confirmed that its fiscal year projections weren't going to be met after releasing its prior quarter earnings report this week. As time ran out on getting Grand Theft Auto V to retail stores, it was pretty much understood that Take-Two had aimed for the moon and never got out of the atmosphere when it came to its lofty projections. It was Grand Theft Auto V or bust-- and bust it was. 

That's not to say that Take-Two has been a total flop. Borderlands 2 has been selling briskly, and I think that the game will have at least an average sales tail. NBA 2K13 is off to a strong sales start. It looks like Bioshock Infinite is going to make its late February release window, which will help contribute to the publisher's projections. On the 2K Games side of the house, things are actually pretty good. 

The Rockstar arm of Take-Two is the problem. Max Payne 3 was a sales dud, especially by comparison to other Rockstar titles. DLC for the game has run into periodic delays. Now Take-Two is trying to resell Rockstar's current-gen catalog titles to try and make up some of the shortfall that the lack of Grand Theft Auto V caused. It won't matter. 

The revised $1.1 billion projection that Take-Two released is the one that we should have seen from Strauss Zelnick and his team in the first place. $1.6 billion was an obvious sign that Take-Two was counting on Grand Theft Auto V to see a release sometime before March of 2013, and when it became obvious that the game wasn't going to make it... it was easy to predict that projections would have to be slashed. That's a 30% cut, by the way. It's more than significant. 

Hopefully Take-Two has learned a little something about assuming that a flagship title is going to be ready, as opposed to ensuring that it is so. Once Take-Two put its anomalous number out there, even armchair analysts like myself could figure out that something big was expected. It's a bit misleading to investors to project such a number like $1.6 billion unless you know for certain that the flagship in question is ready to go.