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. 

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.

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.)

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.

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.

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.

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. 

On The Fly: Pre-NPD Thoughts (October 2012)

Let's get the obvious out of the way:

October will be the eleventh consecutive month of YOY declines. There's no escaping it, and we're likely to see the trend last for at least another month or two before lower 2012 results make for easy targets to hit.

Declines will be paced by poor performance in hardware sales, as generational fatigue and saturation have set in. Even with a price drop in October, the Xbox 360 won't make it's number of 393,000 units from 2011. I optimistically expect sales to be at around 300,000 units, though that number could be lower. 3DS sales should be relatively flat, despite launches of Pokemon Black & White 2. PlayStation 3 sales should post declines, perhaps moderately so, and Wii sales won't recover much despite recent price changes. Vita will be a non-factor once again.

Software is tough to predict, mainly because we're only privy to physical sales. My best guess is that NBA 2K13, Pokemon Black 2, and Pokemon White 2 comprise the top three games for the month. Expect Skylanders Giants and Just Dance 4 to also make the list, along with holdovers from September including Borderlands 2 and FIFA 13. Dishonored probably charts, but XCOM and Medal of Honor: Warfighter might not.

Overall, software should be down as opposed to last year. I'm not confident that NBA 2K13 and Pokemon can combine to sell 3.5 million units, as we saw Battlefield 3 and Batman: Arkham City move last year. As with prior months, software declines won't be as pronounced as we'll see on the hardware side.

I'm projecting October total revenue to come in somewhere between $840-$860 million. That's in the range of a 20-22% loss. That could be optimistic, but a decent slate of October releases and price cuts for Wii & Xbox 360 may mitigate some damage.

We'll see how everything shakes out next week.

On The Fly: Vita

Just took a look at Vita's sales numbers in Japan for last week, and they're not good. Again.

Over here, in the U.S., I don't expect great news for October sales when NPD data is released in a week or so. Assassin's Creed: Liberation came out after the close of the NPD October cycle, and there really weren't any significant releases for Vita for the period.

The question probably is: Does Vita break 60,000 units for October? It's not an impressive number, but it seems to be the base for movement-- up or down-- for unit sales. Over 60,000 means some strengthening, while less than 60,000 means that the platform is sliding back into irrelevance.

If you're looking for a healthy holiday season in the U.S. for the Vita, you're not likely to find it. The platform is not a priority in the handheld market, no matter what promotions Sony tries to run. As if competing with the more popular 3DS isn't hard enough, trying to compete for spend in a market that's leaning more and more towards mobile-- tablets and smartphones-- instead of traditional handhelds is a huge challenge.

I expect Vita to sell the lowest number of units of any current platform, outside of PlayStation 2 and PSP, over this quarter.

Take Five: GameStop's (GME) Q2 2012 Earnings & Conference Call

GameStop has released its earnings and financials for the second quarter of 2012, and recently held a conference call to discuss the details and more with investors and analysts.

Overall sales for the period were down by more than 11%, which was attributed to slow traffic due to a weak new release slate. Sales of pre-owned merchandise, which is GameStop’s most significant margin category, were also down more than 11%. The bright spot for the quarter was growth in GameStop’s “Other” category, which was up nearly 41%. This category includes mobile and digital sales, which are new sectors of business for the retailer.

Here are five other observations that I made during the earnings call:

1. DLC, especially at launch, is vital for GameStop and for publishers. GameStop CEO Paul Raines and his executive team made this a recurring theme during the call. Despite the negative associations made by some consumers with this practice, it was made clear during the call that it’s only going to expand moving forward. Quotes from the call driving this point home included “You need to have DLC at launch” and “Every single major title is releasing with DLC”. The market is increasingly as reliant on off-disc content as it is on what’s on the game disc.

2. The PlayStation 2 is (finally) dead. We’ve known for some time that GameStop has been taking its PlayStation 2 inventory out of some stores, and the reasoning is becoming more and more clear: Very few customers are buying them anymore. Proof of this point: Sales of current-generation preowned games were flat for the quarter, and yet overall sales were off more than 11%. It’s not hard to figure out what’s pulling the number down here. It was noted that PlayStation 2 inventory was moved to stores in more urban areas, generally with lower income levels.

3. Caution for Q3 and Q4... GameStop predicts that its 2012 revenue will be between 2-10% lower than 2011. The company is trying to be "pragmatic" with its projections for the remainder of 2012, especially with regards to the launch of the WiiU and how it will affect the retailer's overall results. While all the right words were said about the WiiU launch, there was a sense of doubt in terms of Nintendo's ability to meet demand for the WiiU. This can be attributed to supply issues with the launch of the Wii in 2006-07, but there continues to be some concern about how much product that Nintendo can get to retail due to "manufacturing issues". GameStop also seems to be concerned that, despite a solid release slate for the remainder of the year, traffic won't recover to former levels.

4. ...but a brighter Q1 2013. GameStop does, however, see growth returning in the first quarter of next year. There's a formidable release slate during the period, especially as compared to the rather weak slate seen this past year. Weak comps will aid the growth outlook, plus the WiiU variable will likely add to better numbers overall. It doesn't seem like much of a stretch to call for growth given the facts, but good news is still good news.

5. Gen4 and physical media seem be to stuck together. Observations from both GameStop execs and an analyst during the question & answer session of the call seem to point to Gen4 hardware from Sony and Microsoft as having some sort of physical media option. Gen4 consoles, according to GameStop execs, "will have plenty of discs in them." It should be noted that GameStop execs have not yet seen the purported new hardware from either Microsoft or Sony, but I believe that it's becoming safer to expect that physical media will stick around for the next generation, when it finally arrives.

GameStop seems to be doing all it can to keep itself relevant in a changing marketplace. Results in its digital and mobile sectors are showing some promise, and the retailer is continuing to expand efforts there. I think that GameStop is right to be concerned about Q3 and Q4 results, given recent trends and economic developments; however, if their hunch is right about Q1 2013, perhaps there's a light at the end of what's been a long and deep tunnel.

Mid-week Musings: July NPD Observations and Vita Post-Gamescom

My analysis piece covering July's NPD sales period is now live on Popzara Press. Considering that the piece ran over 1,000 words, I don't have a lot to add here without repeating too much from what I've already said, but consider these things:

1. Nintendo needs to consider what to do about the Wii. Despite the likelihood of 3DS hardware sales growth over the next few months, Wii sales hit their lowest point ever and are poised to continue sinking without a bit of help. I'm a little surprised that Nintendo hasn't yet proceeded with a price drop to $100 to stimulate sales ahead of the WiiU landing in November. Adding a few more titles to the Wii Selects line for bargain hunters and selling the hardware at $100 could generate some positive movement and help to clear retail shelves ahead of the holiday season. Even a release like The Last Story this month will offer little fuel for hardware sales. The August number will be interesting to watch. 

2. Nobody's talking about it, but Pokemon Conquest (NDS) charted in the Top 10 Individual SKU list for the second straight month. It hasn't been a huge hit, but in a period of mediocre releases and with the Pokemon name affixed, this game is doing all right... especially ahead of Pokemon Black & White 2. We'll see if it charts for a third straight month with August's results. 

3. Max Payne 3 is pretty much dead after two months. It disappeared from both the Top 10 Combined and Individual SKU lists for July. The lackluster performance will undoubtedly affect revenue for Take-Two, which expected a lot more from the game than it got. Pressure is now on catalog title sales and the possibility of a Grand Theft Auto V release before the end of March 2013 to meet revenue projections for the fiscal year. (The possibility of a Bioshock Infinite delay out of the fiscal year isn't helping Take-Two, either.) 

With that said, let's talk about the Vita. 

Sales are struggling, new games are still slow in coming, and the cost of entry is considered too high by at least some consumers. After word broke that fewer than 50,000 units sold in July, whispers of "Vita is dead" began to grow louder on message boards and in social media. Indeed, having sold fewer than 700,000 units in six months is a troubling sign. Having sold a third of those units in the first two weeks and then seeing a significant slowdown afterwards didn't help. 

With Sony's presentation at Gamescom on Tuesday, Sony attempted to show that Vita is far from dead. New IPs, hardware bundles, a new Cross Buy initiative (giving buyers of PS3 games the Vita versions for free), and the first trailer for Call of Duty: Black Ops Declassified highlighted Sony's press event. These are all positive things, and I applaud them. 

They also won't make much difference-- if any-- in new hardware sales. 

The new IPs aren't far-reaching enough to recapture a significant casual market that's gone elsewhere. The hardware bundles are nice in that they offer a game packed in, but a minimum of $250 is still required... and that may or may not include a memory card, which is practically a requisite. The Cross Buy initiative is interesting, but memory cards come into play here. Downloading Vita titles will take up storage space, which is still pretty limited. There's nothing here that grabs consumers and says that the Vita is a must-own. Even the release of Declassified doesn't mean success, especially since the game has been farmed out to a different development team. 

Vita has a very difficult road ahead. It's attempting to compete in a changing market climate that's seen revenue share for iOS and Android assume the lion's share. It's going head-to-head with the 3DS, a platform that's significantly cheaper, has a memory card included, and has a stable of first-party IPs that Sony cannot compete with. Take these two factors, add challenging economic conditions with rising food and fuel prices to the perception that $250 is already too expensive, and you have a mountain the size of Everest for Sony to climb. 

What's worse is that Sony cannot afford to follow in Nintendo's footsteps and slash the Vita's price point like we saw with the 3DS last year. We know the financial damage that price cut caused Nintendo; in fact, it's still in recovery mode a year later. I don't expect a price drop soon, either; Sony seems committed to the bundle idea as a value proposition instead of dropping the price outright, while hoping that new releases will woo new buyers. 

Vita isn't dead. I don't believe anyone can call a platform that's only been available for 6-8 months dead unless the hardware manufacturer says otherwise. Vita is, however, a platform that's going to need more than these Gamescom announcements to be upgraded from critical condition and out of the video game industry version of intensive care. My projections for the platform for the rest of 2012 remain bearish, and don't see the Vita passing the one million mark LTD until November at the earliest. 

Weekly Buzz: August 13-17, 2012

After a few busy months and after receiving some positive feedback, this blog is going to be returning to active service. It'll be going hand-in-hand with my Twitter feed and I'll be making occasional updates to expand upon posts and observations that are made elsewhere. 

It makes sense to move forward now since the busy season is almost upon us once again and there should be plenty of data to cover. New releases should be hitting retail with more frequency in the coming weeks and months, the 3DS XL lands in stores in just a few days, and the launch of the WiiU will be closely watched to see how consumers react to the first new console to see release since 2006. 

Here are some stories and situations to watch as this week begins:

1. Rumors of a GameStop (GME) buyout have been making the rounds over the past few days. Interestingly, the share price soared more than 5% during the last trading day and has risen nearly $2 in the last week. GameStop will be discussing its AMJ earnings on Thursday morning, so we'll see how investors react. 

2. Speaking of rumors, two separate rumors surrounding WiiU include a possible announcement of pricing and/or release date this week, as well as a rumor that production woes may delay the hardware launch in Europe and could significantly impact supply in the US. Current thinking is that WiiU will ship in mid-November for $300 in the US, likely with a Nintendo Land pack-in. Stay tuned. 

3. With PlayStation Vita sales falling under 50,000 units for the month of July, it's a bit disconcerting to hear Sony Computer Entertainment America President and CEO Jack Tretton say that sales of the struggling handheld are "acceptable". I'm not sure how a platform with such a strong slate of software at launch can be deemed to be selling at an acceptable level when its competitor is outselling it by nearly 2:1 in 2012 and that LTD sales are still short of 700,000 through its first six NPD periods. More games are obviously needed, but the question of a price cut is made more complicated by Sony's increasingly more challenging financial situation. 

Look for my full analysis of July's NPD data during this week over at Popzara Press. Furthermore, expect my analysis to appear on other sites as well throughout the rest of 2012 and beyond. As always, questions and comments are welcome either below or via e-mail. 

February 2012 NPD: A Tale of Two Portables

Lots of you are probably wondering who "won" the portable showdown last month. Early estimates of 300,000 units for Vita seemed likely to nudge it past the 3DS, which would have made sense given that Vita is the newer platform and that early adopters would push it to a respectable launch number.

That didn't happen, however.

While I can't confirm the raw number for Vita sales in February, I can confirm that the 225,000 unit sales data on NeoGAF is acceptably close to the real number. That means that, yes, 3DS outperformed the Vita during the reporting period by roughly 35,000 units.

Before people start launching into "bomb" comparisons and claims of doom for the Vita, I think that it's important to keep some perspective.

Market conditions that the Vita is facing are quite challenging. Aside from the obvious challenge from the 3DS selling for $80 less, Vita also faces increasing competition from tablets and smartphones. People can feel free to claim all they want that mobile games aren't real games, aren't as deep, don't have buttons, or whatever other reasons... but iOS/Android is the growth market right now. I also consider the rapid rises in fuel costs in February to be a factor as disposable income levels were likely affected by putting more money into the gas tank instead of retail.

225,000 units in 11 days isn't bad. It's not great, and comes nowhere close to the record that Nintendo set with the 3DS last March, but it's not a disaster. If the number had come in under 200,000 units, then I'd be a bit more bearish. That didn't happen, though. I think that it ranges on the low end of expectations and that we need to wait and see how the base builds over the next few months. If the 225,000 number drops by more than 50% (to under 113,000) this month, then I think there might be some concern... although the release of the new iPad could hinder sales for both Vita and 3DS this month. We will see.

As for the 3DS, February was a nice bounce from what was a tough January (171,000 units last month). An limited price cut to $160 at GameStop prior to the Vita launch might have helped to boost numbers, and it's being reported that several 3DS games charted outside of the Top 10 but in the Top 25 games in February. This month will be the first month that we have YOY data for 3DS, and lower YOY numbers should be expected.

3DS may have won this first battle, but the war of the handhelds is just beginning and should be interesting to watch unfold over the coming months.

February 2012 NPD: Sea of Red

In a way, it's good to see that there hasn't been the reaction to February's NPD data that I anticipated. On the flip side, February was another month of deep YOY negatives and presents questions to me about just how long the current console cycle can remain viable. 

Here are the numbers that leap out at me:

• Console hardware unit sales were -29% YOY.
• Console software unit sales were -25% YOY.
• Console hardware sales for the first two months of 2012 are -32% YOY
• Console software sales for the first two months of 2012 are -29% YOY.

I knew that February 2010 was going to be tough to match for hardware, but Xbox 360 unit sales declined by 110,000 units (-21% YOY)-- and that platform is your current frontrunner. PlayStation 3 YOY unit sales were slightly better (-13% YOY), but we're still looking at a double-digit decline. Add these disappointing trends to the Wii's run to obsolescence, and I think that you've got at least early signs of either saturation or declining levels of interest. Hopefully it's the former and that new hardware will re-energize consumers, but that's far from a given. 

Weakness in software is what concerns me a bit more. 3 million fewer units of software sold in February 2012 versus a year prior. That's a decline of $140 million. It wasn't like there wasn't software to choose from, either. Obviously there wasn't a Marvel vs. Capcom 3 kind of big seller last month, but no IP moved much more than 400,000 units-- and that was Modern Warfare 3. Final Fantasy XIII-2, the #2 best-selling combined release in  the February reporting cycle, barely mustered 350,000 units sold. Compare this with February 2011, when Marvel vs. Capcom 3 moved just shy of 800,000 units combined and four other titles all exceeded the 400,000 benchmark. It's not a pretty comparison. 

This month is already showing potential, with Mass Effect 3 well on its way to breaking a million units... but what else gets close? Mass Effect 3 sales will fill the 2.5 million unit gap left by not having a Pokemon release this March, but where this month's Homefront? Where's this month's Dragon Age II? I don't know if I see them. That should lead to lowered sales projections for March and should continue the trend of YOY negatives for yet another month. 

Frankly, while I understand why Sony and Microsoft don't publicly want to address anything past the PlayStation 3 and Xbox 360, this console generation will continue to see lower revenues and weaker unit sales whether new hardware is announced or not. It's been 5-6 years now. Most consumers who want one of the available platforms have already bought one, and sales of games in even the most established IPs like Final Fantasy and SoulCalibur are flagging. If something isn't done to shake things up and renew consumer interest, this period of correction that we've been experiencing thanks to the Wii bubble deflating is going to translate into permanent damage in terms of lost consumers and lost revenue. 

Before jumping completely on the "time for new consoles" bandwagon, I'll wait and see how March fares. If YOY declines continue to be in the 15-20% range (or worse), then I think it's time to stop being coy about new platforms. If we see better sales in March, then I'll be willing to back off a little bit and give more time. 

We will see next month.

Vita Price Cut: A Risky Assumption

It's interesting to read a prediction from Strategy Analytics that more than 12 million Vita units are expected to sell worldwide in 2012. That's a pretty lofty number for one year, especially considering weak sales in Japan and that we're still in the launch window in other territories this week.

The prediction comes with one caveat, however: There needs to be a price cut for the Vita this year, probably in Q4.

This prediction is null and void based on the assumption that Sony will follow Nintendo's lead and slash prices within six months. It's understandable that analysts believe substantial price cuts will drive sales, but consider these factors:

First, the platform is barely two months old in Japan, and two days old in other places. Without firm launch sales data to begin to draw analysis from, this prediction is making the assumption that Vita will stumble out of the gate. We don't know what sales expectations are, especially considering the target demographic for Vita at this point. With money still out there in the form of core consumers, it's possible that steady sales from that group can sustain Vita for some time. Here in the United States alone, over 20 million PlayStation 3 units have been sold. If 1 out of every 5 PlayStation 3 owners decides to take the Vita plunge in 2012, that projects to 4 million units. It's not an unrealistic goal for Sony to achieve in the first year before a price drop occurs.

Second, there's concern that Sony may not be able to afford dropping $50-$80 off of the the Vita price tag. We saw Sony's Q3 financials, and they were not pretty. Kaz Hirai has his work cut out for him, and it's fair to argue that slashing Vita pricing would only serve to make his job tougher. Can Hirai justify deeper short-term losses to build an install base for Vita? That's a tough sell, especially when it's expected that a drop for the PlayStation 3 is coming later this year to try and stem declining console hardware sales.

Third, there are no guarantees that Sony can replicate Nintendo's success with the 3DS by quickly dropping Vita prices. Nintendo had to deal with negative press and perception after its 3DS price drop as early adopters felt slighted, and similar bad feelings would likely be seen with the Vita as well. The gamble paid off as sales soared, but it can also be argued that the arrival of key software (in the form of Mario titles in Q4) propelled 3DS sales to the heights that they reached. Once the allure of new software subsided, however, we saw sales in January for the 3DS take a nosedive to a level below 175,000 units.

I'm not sure if the analyst here threw these numbers out to prove a point to Sony, or whether he's extrapolating based on currently available data, but making predictions based on a variable that's far from certain makes no sense. As I've mentioned before, it's vital that we give Vita fair time on the market and attempt to read and identify trends over that time instead of forcing analysis and making comparisons that may or may not verify. Even one month of raw data can give us a point of reference, compared to 3DS launch numbers 11 months ago, and we can begin to draw some conclusions then.

Five Burning Questions: The Vita Edition

With the wide release of Sony's Vita handheld leading this week's headlines, it makes sense that it's also the hot topic for this week's Five Burning Questions column:

Will Sony's last-minute Vita marketing blitz pay off? TV spots and in-store advertising have picked up just in time for the Vita's release, and this is important for increasing visibility for and interest in the new platform. I'm not sure how much of an effect that the campaign will have, but I think that the effect will be a positive one and at least positions the platform as something to own (or want to own). I would have liked to have seen the marketing come along a bit sooner to fuel preorder numbers and interest, but we'll see how Sony's strategy plays out over the coming week.

Is the Vita overpriced? No. When details about the Vita's pricing were unveiled last June, $250 sounded like a great deal for the hardware that consumers would get. It still is a great deal, despite Nintendo's 3DS price drop that quickly makes $250 now feel like $500 to some. The technology is still the same tech that most people thought was going to be a lot more expensive not even a year ago. The challenge for Vita isn't necessarily the price tag; instead, it's finding a way to override the perception that $250 is now a lot of money to pay for a handheld device.

Are retailers nervous about Vita sales and its future? I think so. PSP sales never came close to Nintendo DS sales, and many retailers were stuck with PSP software that never sold, leading to lots of games going out on clearance racks. There's an air of nervousness about how the Vita will fare, given Sony's weaker track record in the portable arena and (as mentioned above) the perception that $250 is now a steep price to pay. Setting aside shelf space and purchasing hardware and software that isn't necessarily going to sell quickly is a risky proposition that some retailers probably fear won't pay off.

What's the minimum number of Vita units that must be sold to be considered a launch success? 350,000 units sounds about right to me. If you consider that the 3DS moved just under 400,000 units for $250 in a seven-day launch period for NPD's March 2011 reporting cycle, then it's fair to expect a number only slightly below that for the Vita. Remember that the Vita had a limited early release last week, in addition to this week's wider general launch. Preorder numbers haven't been on a record pace, but walk-in sales could benefit from tax refunds rolling in and more disposable income available to some consumers during this launch period. There's a fine line between perceived success and struggling, however; anything less than 300,000 units sold will likely raise red flags with analysts across the industry.

How will Vita fare in 2012? I think that it's going to be important to reserve any kind of judgment on the Vita until we get to Q3/Q4. I'm expecting that Vita sales, like the 3DS last year, will dip significantly after the launch window closes. Once we get to the holiday period, when more software (including Call of Duty) becomes available, we'll have to see how much Vita sales increase and if it is able to hang with the 3DS in terms of sales. I do think that Vita will struggle to overall in 2012, but first-year jitters and uncertainty should be expected. Without having a launch number to judge a sales prediction from, I'm going to say that a minimum 2.5 million units should be the Vita's goal for 2012 and that it won't top the nearly 4.3 million that 3DS moved in its first 10 months on the market.

Since we're talking about handhelds this week, here's one bonus question:

Will smartphones and tablets make dedicated handheld gaming obsolete? While it's unwise to say that something will never happen, I think that the probability of this scenario coming to fruition is pretty remote. I do believe that smartphones and tablets are eroding some of the consumer base for dedicated portables, but I also believe that there's still a significant number of consumers who want the dedicated experience. There needs to be an adjustment in sales expectations for the dedicated portable market. Smaller successes are still successes. Over 4 million 3DS units sold in a little over 9 months. That demonstrates to me that strength remains in the portable market despite the mild iOS/Android exodus, and that's not factoring in how core consumers adopt the Vita over the coming months. The portable gaming market is changing, and may even be contracting a bit, but it's far from obsolete.

Feel free to offer your Vita launch predictions in the comments below. How many units will be sold in the February period? What's the minimum number for you to be satisfied that the Vita launch was a success? Do you think my Vita number for 2012 is too small or overconfident?

Next week's Burning Questions column will be all about February's expected NPD numbers.

Yellow Alert: Weak Modern Warfare 3 Sales and Activision Stock Downgrade

Call of Duty has arguably been the biggest and most successful IP that this console generation has seen. Yearly releases have set sales records and the first-person shooter genre reached heights never before seen. Activision has had a great run, and the publisher has become dependent on the success of Call of Duty to carry it to success.

Modern Warfare 3 looked to continue that success. Sales in November were staggering, with over 8 million units combined across the Xbox 360 and PlayStation 3 alone. Sales at that time were ahead of the pace set by 2010's Black Ops release and things were looking up early. The momentum eased a bit in December, as combined X360/PS3 sales dropped by over 50% from launch. The numbers still seemed all right, but Just Dance 3 for Wii outpaced both the X360 and the PS3 SKUs in that month. This was a bit worrisome, but with the first DLC map pack due in January, it was thought that sales would maintain at least some momentum.

We all know now how miserable a month for the console gaming industry that January was, and Modern Warfare 3 was not immune to poor sales performance. This article from the Financial Times mentions a few notable specifics:

• Sales of Modern Warfare 3 were 50% less in 2011 than we saw for Black Ops in 2010 during the same launch period. 
• 386,000 combined units of Modern Warfare 3 were sold in January 2012. That's a 49% decline from Black Ops sales in January 2011 and 41% less than Modern Warfare 2 sales in January 2010. 
• An analyst note from Cowen & Company's Doug Creutz warned that Modern Warfare 3 is now expected to sell "slightly fewer" units than Black Ops did. 
• Macquarie Securities' Ben Schachter downgraded Activision stock to a rating of Neutral on Friday, citing few "near-term catalysts" and saying, "Dark clouds and negative perceptions are hanging over the (video game) group right now."

There are some nervous analysts and investors out there right now. We saw evidence of this on Friday with lower stocks over most of the video game sector. It will be interesting to see whether cooler heads prevail this week, ahead of the Vita launch and with a broader number of software releases shipping to stores this month. What's troubling is that, if fewer consumers are answering the Call of Duty these days, it could be another sign of, as Ben Schachter put it, "an industry-wide problem".  

That problem would be fewer consumers, leading to fewer units sold, leading to less revenue being made. If Call of Duty falters, as staunch an IP as it has been, there may be stormy seas ahead for Activision-- and maybe for the industry at large. 

Final January 2012 NPD Hardware Sales Data Analysis

Note: These observations are based on raw NPD data for the month of January. Due to the sensitive nature of the data, certain specifics have been omitted. 

Here are the hardware rankings, based on unit sales, for January 2012:

1. Xbox 360 (270,000 units sold)
2. PlayStation 3
3. Nintendo 3DS
4. Nintendo Wii

I talked about the Xbox 360 last night in my preliminary analysis, and the unit sales number had already been made public. There's not really much to add to what I said. I expected a YOY decline, but a 29% drop was sobering to see. The "Kinect effect" seems to be waning, and the lack of new software combined with such a big year for Xbox 360 hardware sales adds up to a down month. Perhaps it's also a lesson for other analysts to dial back bullish projections for the Xbox 360 moving forward. I think that YOY numbers will continue to be on the negative side for most of 2012, although I don't think the declines will be this pronounced.

I may have underestimated sales of the PlayStation 3, but its second-place finish is a hollow victory. Sales were the worst ever for the January period, and total hardware/software sales declined over 28% from last January.It's notable that the PlayStation 3 pulled ahead of the 3DS, but I'm not convinced that the ranking change is due to strength for the PS3 as much as it is a correction for the 3DS after a highly successful Q4. We'll see if fortunes change for February-- or if PlayStation 3 money goes to the Vita. I expect continued YOY declines for at least the remainder of Q1 for the PlayStation 3.

I was far too bullish with my predictions for the 3DS. I expected more units to sell, given the evergreen nature of Mario titles, but 3DS unit sales dipped nearly 90% versus the previous month. That's a hefty drop. It's tough identify any one cause for the decline, though it's likely that lack of new games in January and a slowdown in general video game-related spending are the biggest factors. I don't think that interest in the upcoming launch of the Vita played a significant role, but we may know more after we see launch numbers. There aren't any YOY numbers to consider yet for the 3DS, but some notable software releases are due in February, including 3D versions of Tekken and Metal Gear Solid 3. 

I'm not sure what Nintendo does with the Wii at this point. Short of dropping the retail price to $100 and trying to make one last stand before the WiiU arrives, I don't see much to drive Wii sales. Perhaps we'll see a bump in February (which is a common trend), but beyond that, Nintendo has a decision to make. Do they focus on the 3DS and gradually sell through Wii inventory ahead of Q4, or do they act sooner with a price cut and additions to its Wii Select reduced price SKU line? I would say that a price cut should happen sooner, maybe in April or May, but it's tough to gauge what Nintendo's strategy will be. For now, keep an eye out for a price cut, but don't count on it just yet. Expect YOY declines to continue for the Wii for the foreseeable future as sales continue to wane. 

Overall, while it is too soon to panic, it is prudent to start watching for sales trends. I expect that new software releases and the launch of the Vita should combine to stem declines in hardware unit sales, but nothing is certain. If YOY numbers continue to sink into double-digit negatives through the rest of Q1, we may start seeing rumblings about price cuts. I'm still not convinced that new hardware platforms are the cure-all for trends like this, but I'm also skeptical of Microsoft's insistence that we don't see any info on its next platform at all this year. I think it's obvious that something exists now, and it's a question of when Microsoft decides to make its move. Sony is a bigger question mark, but I'll tackle that in another column.

Preliminary January 2012 NPD Hardware Sales Analysis

Note: This analysis is based on publicly available or shared NPD data as of 11:55pm EST on February 9th, 2012. Some data has been extrapolated and may be changed according to decisions of businesses to share their results with the press. Not all NPD data is made available to the public. 

At first glance, the preliminary NPD sales data that has been shared with the public for January 2012 incite fear and panic. Sales fell from $1.14 billion in January 2011 to $750.6 million in January 2012. That's a stunning 34% YOY drop and is the lowest number since 2004. Sales of accessories were down 18%, but hardware and software both posted declines of 38% over last year. The figures were so dreadful that Wedbush Securities analyst Michael Pachter wondered about the integrity of the data, in comments to Mike Snider from USA Today:

"It also makes no sense that sales are below the level from 2004, when games were cheaper and the installed base of consoles was much lower... I don't know if NPD is getting faulty data, but these numbers make no sense."

Before addressing whether there's cause for alarm, let's look at a few other findings and extrapolations from the available NPD data:

• 270,000 Xbox 360 units sold in January of 2012, which led all hardware platforms. This is a YOY decline of 29%, or 111,000 fewer units sold. 
• The Xbox 360 accounted for 49% of the consoles sold in January, which extrapolates to approximately 287,000 units combined of the Wii and PlayStation 3 in January. Sony and Nintendo have not issued specific unit sales data via PR comments and are not expected to do so. 
• New software launch performance in January 2012 experienced a 99% YOY collapse. January of 2011 had new software launches including Dead Space 2, Little Big Planet 2, and DC Universe Online. January of 2012 had zero major new software launches. 
• Residual sales from Q4 2011 struggled in January 2012, showing a 31% decline versus sales of Q4 2010 games in January of 2011. 

All of the evidence here looks damning. The decline in Xbox 360 hardware sales is steeper than anyone thought it would be, and the extrapolated numbers for the Wii and PlayStation 3 are even more. The decline in residual sales stings because the quality and quantity of sales in the Q4 2011 slate were arguably strong enough to stimulate post-holiday sales. 38% declines in hardware and software sales indicate that consumer interest waned considerably at retail and extends to a second straight month of steep YOY declines in hardware (-26% in December). 

The key factor that bears consideration here is the fact that new software releases in January were sparse, if at all. SoulCalibur V and Final Fantasy XIII-2 hit stores after the January NPD reporting period had closed, and those were the two January highlights. Without new software to drive consumer interest, declines are bound to occur. We saw this in August of last year, when Madden NFL 12 was delayed and wound up missing the NPD reporting window. YOY console hardware sales were off by 20% and YOY console software sales were off by 40%. Deus Ex: Human Revolution was the only notable new software release that month. 

We're looking at a repeat in analyzing January 2012 numbers, and the problem is exacerbated by tighter consumer spending after the holiday season. There was nothing to drive sales at all. No price cuts, no new games of note. 

Nothing. 

Just like August, though, we have new software title launches that leak into the following month. February could be similar to last September, when software sales rebounded to positive YOY territory thanks to late releases from the previous month and a solid slate of releases during the current month. We also have a new hardware platform launch in February with the PlayStation Vita, as well as temporary price cuts for the 3DS at select retail chains. All signs point to a stronger February with these factors in place, which should ease some of the panic and concern out there right now.

It's too early to panic. I do agree that price cuts are going to have to come if hardware sales continue to slow, but there is still a fair amount of life left in this generation of consoles. New software is coming, including an impressive gauntlet of games in the next 60 days. Consumer spending may loosen up a little with incoming tax refunds and as unemployment is starting to show signs of improvement. There are still challenges ahead, such as the possibility of current-generation console install base saturation, but it's advisable to hold severe reaction until after the end of Q1. 

On the Clock: Pre-NPD Thoughts

Microsoft has quite the streak going at the top of the NPD hardware sales chart, and the Xbox is still the platform to beat when January 2012 results are released tomorrow. Aside from a threat by the 3DS, which has been gaining sales momentum through Q4, the Xbox 360 doesn't look to have that much competition to defend against. Perhaps the biggest question is whether YOY numbers can be reached. 381,000 Xbox 360 units were sold in January 2011, which was 15% higher than in 2010. I don't see sales topping 381,000 this year, as there weren't any major software releases to stimulate sales in January. I think that Microsoft does emerge on top again, but will be looking at a second consecutive month with negative YOY and a sign that sales are slowing. 

Nintendo will be looking to the 3DS remain strong in January. Expected residual interest in Mario Kart 7 and Super Mario 3D Land can be cited as factors, and there's a certainly a chance that the 3DS can stay close to Xbox 360 numbers. Gift card redemptions and purchases by younger consumers may also play a role in 3DS sales for the month. The big question for 3DS is whether the upcoming Vita launch may have some consumers playing a waiting game and making buying decisions in February instead. As for the Wii, last year's number of 319,000 units is likely a longshot. Outside of the holiday shopping season, there are fewer reasons to invest in a console that is on its way out. Bargain hunters may look to Wii, but I don't see Wii finishing higher than third place, behind the Xbox 360 and 3DS. 

Sony is in a transition period as it prepares for the Vita launch in February. A weak slate of new software releases in January doesn't help the case for the PlayStation 3, and there isn't much-- if any-- buzz about Sony's console. Bundles, price drops, software exclusives, and Sony's free online service haven't been enough to sway consumers and I don't think this changes for January. The PlayStation 3 remains "the other console" and sees its comparative deficits to the Xbox 360 and maybe even to the Wii grow in January. Third place is the best possible scenario for Sony in January, and until a price drop hits or Microsoft reaches saturation with the Xbox 360, 2012 will likely continue this trend. The PlayStation 3 moved 267,000 units last January, and I don't think sales this January manage to hit that target.  

Overall, I think that hardware YOY comparisons will be down for January. It won't be a huge decline, but with very few software drivers to push sales and with consumers struggling to pay down holiday spending debt, I think that we'll see some red. When Vita comes into play for February's results, along with the infusion of tax refund spending, I can see hardware numbers being a bit stronger... but not in January. 

Look for a full analysis of available NPD data no later than Friday afternoon.