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.

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.

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. 

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.

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. 

January 2012 NPD Hardware Sales Predictions

January has flown by and it's time for the first NPD predictions column of the year.

I'm not sure that we see many changes in terms of the hardware rankings from a month ago. New software releases were slim in January and hardware pricing remained the same, so there isn't much to alter buying trends. We likely won't see any platform move over a million units as the holiday sales rush has diminished and more normal buying habits resume.

As a refresher, here are the hardware numbers (courtesy of NeoGAF) from January 2011:

• Xbox 360: 381,000
• Nintendo Wii: 319,000
• PlayStation 3: 267,000
• Nintendo DS: DATA NOT RELEASED

All of those numbers were severe declines from December 2010. Wii sales were down by nearly 2,000,000 units. Xbox 360 sales fell by almost 1,500,000 units. PlayStation 3 sales were off by almost 1,000,000 units. The moral of the story here is that we're likely to see steep declines from December 2011 to January 2012, and that's a normal expectation. It looks jarring, but with consumers resuming belt-tightening as more cash flow goes to paying bills and less goes into disposable income, it's important not to overestimate hardware sales when making predictions. 

Here's how I think that the rankings will stack up for January 2012:

1. Xbox 360
2. Nintendo 3DS
3. Nintendo Wii
4. PlayStation 3

There have been two major things going for the Xbox 360 for January. First, the console still carries sales momentum with nothing to stop it. The Xbox brand has become stronger than the PlayStation brand here in the United States, and this will continue for the foreseeable future. The other major factor to consider is that new Modern Warfare 3 downloadable content (DLC) became available late in the month. Historically, DLC releases have led to hardware sales spikes for Microsoft because the Xbox 360 gets the DLC first. The one big difference this time around is that the DLC is tied directly to Call of Duty Elite and cannot (as of this writing) be purchased outright via the Xbox LIVE Marketplace. The release of the DLC does get the gaming community talking about Modern Warfare 3 again, and consumer interest likely rises at least slightly. I don't think that will be enough to keep sales from dipping below last year's number, but it shouldn't be by too much. The maximum number for Xbox 360 unit sales that I see is 400,000 units, but I expect to see a number less than that.

January is a big test for the 3DS. With the holidays done, can sales stay respectable for a $170 dedicated portable device? Having two Mario titles on the market is certainly an advantage, but the PlayStation Vita now looms large. Do consumers keep pulling the trigger on 3DS sales, do they slow down and wait for Vita,  or do they slow down for other reasons? There is new software on the horizon for the 3DS, but that doesn't really help sales right now. Nintendo has to hope that Mario can power the 3DS through one more month before Resident Evil: Revelations arrives in early February. Putting a number on unit sales is tough, but I think it doesn't exceed 300,000 units-- and that may be optimistic. 

The Nintendo Wii is a tough platform to call. The price is still right for consumers who have waited-- or who might want a second unit for another room in the home-- but enthusiasm seems to continue to be on the wane. New quality Wii software continues to be rare, although Just Dance 3 should perform well once again. It's a bit of a wild-card scenario; it could finish as high as second or as low as dead last. My best guess is a 3rd-place finish with less than 280,000 units sold. 

The PlayStation 3 is coming off of a comparatively weak month of sales performance, and trends don't seem to favor much improvement for January. The PlayStation brand has lost considerable strength among consumers, it's still perceived as expensive, and there just doesn't seem to be a draw to get people to buy in. The 2012 slate of PlayStation 3 exclusives begins in February with Twisted Metal, but that doesn't do much to turn things around right now. As we saw last year, the PlayStation 3 and the Wii will again be close competitors in the rankings. I'm going to cap sales at 265,000 units, which is basically a flat number as compared to last year. 

I believe that we'll see hardware post a negative Year Over Year (YOY) comparison against 2011. I think the trend actually began last month and continues in January and beyond. Call it what you will: console saturation, nearing the end of this console generation, or something else... but I think that, after 5+ years, most of the consumers who wanted in on this generation of consoles have done so. The Xbox 360 is destined to see its YOY numbers start to falter, and, when combined with the Wii's continued descent, that's a signal that lower overall hardware sales should be expected. 

We'll see how the final numbers shake out when they're released in a week or two. In the meantime, the Armchair Analysis homepage poll shows that the majority of you agree with my pick of the Xbox 360 taking the top spot in sales again for January. The Xbox 360 took 55% of the vote, followed by the Wii (22%), and either the 3DS (11%) or the PlayStation 3 (11%). If you'd like to try predicting the sales rankings and/or unit sales numbers, feel free to list your predictions in the comments below. I'd love to see what your thinking is on where sales will be and how close (or far apart) your predictions are to mine. Your questions, comments, and feedback are always welcome. 

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.