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.

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.

December 2011 NPD Analysis Part I: Hardware

Note: The following analysis has been prepared using the full NPD report for December; however, per NPD reporting policy, numbers that have not been shared publicly as of press time will not be shared here, either. Armchair Analysis thanks NPD for its hard work and for sharing some data with the public. Please understand that Armchair Analysis and its author are unable to reveal any additional numeric data without obtaining permission from NPD or the specific companies that it tracks. 

December 2011 is a month that, upon review of the NPD report, continues the slide that the console video game industry has seen for much of the year. Hardware sales were down 32% from a December ago, with weaker Wii and PlayStation 3 sales leading the decline. It's important to note that Wii sales are still sliding from extraordinary plateaus during the height of the console's popularity, so the YOY decline appears precipitous.

Gathered from publicly released (and confirmed) data, here are the hardware rankings and unit sales (where available) for December:

1. Xbox 360: 1,700,000+ units sold (-8.6% YOY)
2. Nintendo 3DS: NO PUBLIC DATA RELEASED [NPD report confirms 2nd place, however]
3. Nintendo Wii: 1,060,000 units sold (-55.0% YOY)
4. PlayStation 3: ~936,000 units sold (-22.6% YOY) [via NeoGAF extrapolation, close to actual]
5. Nintendo DS (Legacy): NO PUBLIC DATA RELEASED [NPD report confirms 5th place]

Microsoft led the way once again, closing an impressive year for the Xbox 360 as it finished 2011 as the best-selling platform of the year and logged the best YOY comparison (+7.3%) of 2011. This December wasn't as strong as last year, which is somewhat disconcerting given that there were supply constraints a year ago and the economy was arguably worse in 2010. That's the only blemish on what is a decent performance for the last month of the year. Expect the Xbox 360 to maintain its momentum in 2012, although I do expect YOY comparisons to stay flat or show slight declines for at least the first 6 months. 

While unit sales for the 3DS remain under wraps, it's worth noting that an extrapolation of 1,500,000 units isn't far from the actual number. The extrapolation can be made subtracting 2.5 million units (as of November 2011 NPD) from Nintendo's boasted PR figure of 4 million units installed. It's an increase of nearly 50% over November unit sales. Two Mario titles-- Mario Kart 7 and Super Mario 3D Land-- have helped to lead the 3DS' charge over the hump. With the release of the PlayStation Vita a little over a month away, it will be interesting to see how 3DS sales change. Nintendo will need to keep delivering first-party software and rely on strong third-party offerings (like Metal Gear Solid 3D and Resident Evil: Revelations) to keep numbers strong.

Wii sales are continuing their declines from where they once were, and that shouldn't surprise anyone. Lagging Wii sales are the biggest reason why hardware sales comparisons continue to bleed red. Having said that, seeing Wii outsell the PlayStation 3 is a bit of a surprise, given where the platforms are in this console generation. The Wii's December performance helped to nudge it ahead of the PlayStation 3 for overall sales in 2011 by less than 20,000 units, despite posting a -36% full YOY comparison versus 2010. Expect declines to continue in 2012 leading up to the WiiU launch, most likely sometime after August 26th.

It's tough to put much of a positive spin on the PlayStation 3. The platform is a sales enigma, unable to break 1,000,000 in unit sales in either November or December and in spite of attractive bundles, free online play, strong first-party exclusives, and Blu-ray capability. The 23% December YOY decline follows a lesser decline of 11% from 2009 to 2010. One bright spot for Sony is that the PlayStation 3 sold more units in 2011 than in 2010 (+4.3% YOY). A price cut for the second straight year seems to be in the cards for Sony, especially if the company seems to be shying away from next-generation console plans as Kaz Hirai indicated during CES this week. 

Troubling hardware sales numbers in December don't necessarily mean a bleak future. Microsoft and Sony likely have room for price cuts this year, if sales decline enough. It's also nearly impossible for YOY comparisons to be fair indicators of the health of the industry, given the anomalous sales cycle of the Wii. Take Wii out of the equation and the results have less gloom to them. 3DS has finally caught on, and despite being long in the tooth, Xbox 360 hardware is still selling at a decent clip. Results from Q1 2012 will be closely watched; if YOY figures for the Xbox 360 and PlayStation continue to be in the red, perhaps previous notions about playing the waiting game for next-gen hardware may need rethinking; however, it's also a risk given the tenuous state of the economy and smaller amounts of disposable income. Some consumers may be ready for the jump to the next generation, but is that number going to be enough? That's what we'll watch. 

Look for Part II of this feature soon, as Armchair Analysis covers the NPD software results. In the meantime, your feedback is always welcome. Feel free to talk about the format, the data, the predictions, or even offer your own interpretation on the numbers that we've been given.