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.