Putting The Pieces Together

When it came to making predictions for hardware unit sales last month, my optimism was punished. Steep year over year declines hit just about every platform, save for the 3DS. I drank the Max Payne 3 Kool-Aid, buying into the idea that the game could fuel Xbox 360 sales. That didn’t happen -  and Max Payne 3 was a disaster for software. I thought that Vita sales would benefit from the start of summer and certain retailer promotions, but that didn’t happen either. I thought that 3DS would maintain at near 150,000 units, but sales were nowhere near that.

I’ve learned my lesson. There’s no reason to be bullish on any of the dedicated video game platforms right now. We’re getting very close to the saturation point for the Xbox 360 and PlayStation 3 consoles. The Wii has run its course. Handhelds are fighting to stay relevant in the broad market, and more prominent software is needed for them to have a real chance.

In short, expect NPD numbers for June to be strongly negative once again.

Hardware:

The big decliner in June looks to be the Xbox 360 once again. It’s a tall order to come anywhere close to the 507,000 units that sold a year ago. There was a lack of new and compelling software to generate any interest, and I don’t think that Max Payne 3 suddenly becomes a factor after its slow start. I’m expecting a maximum of 250,000 units to have sold last month, which would equate to a YOY loss of more than 50%. Note that 250,000 is a maximum. My guess is that the raw number will be closer to 200,000 units, and even that projection might be overly optimistic.

01. Xbox 360 (200,000 units)
02. PlayStation 3 (170,000 units)
03. Nintendo 3DS (130,000 units)
04. Nintendo Wii (65,000 units)
05. PlayStation Vita (55,000 units)

I expect PlayStation 3 unit sales to be lower YOY, as well. It’s estimated that 275,000 PS3 units sold last June, and at least some of that was due to the release of inFamous 2. There’s no such catalyst this year. Since the gaps between Xbox 360 and PlayStation 3 unit sales have been fairly consistent in 2012, and since they’ve consistently been the #1 and #2 platforms in 2012, I expect no change in a quiet month like June was. I’m thinking that the gap between Xbox 360 and PlayStation 3 sales is somewhere between 30,000 and 40,000 units.

Nintendo Nation doesn’t like hearing my continued analysis that the 3DS is struggling in the US. Nintendo’s Satoru Iwata, however, recently echoed my analysis during a recent shareholder Q&A session:

“Sales momentum in the U.S. and Europe is not so good. Considering that the U.S. and European markets are larger than the Japanese market in terms of the size of the population, sales in the U.S. and Europe are supposed to be larger.”

That momentum will not have improved much, if any, last month. There is a light at the end of the tunnel when it comes to the recent software drought, but that won’t affect what will be another ho-hum month for the 3DS. Unlike last month, when the YOY target was less than 100,000, the 3DS is now facing a target of 143,000 units just to break even with June of 2011. Could it happen? Sure. Will it happen? I don’t believe so, although it’ll probably be no worse than 15% lower than last year. There are more games coming this month and then New Super Mario Bros. 2 hits in August along with the pricier 3DS XL. I do expect sales to begin trending upwards soon... but not for June.

It’s getting harder to project the Wii over the Vita, but I’m still projecting that the Wii will come out ahead for June. It’s the least expensive platform. It has the largest library of family-friendly titles, and a considerable selection of cheap games. Wii Remotes and Nunchuks will be compatible with the Wii U. Meanwhile, the Vita has zero momentum here in the United States. New software is in drought, it costs as much as a PlayStation 3 (or more, when you consider the all-but-required memory card), and then there’s the rise of mobile gaming. These factors are making many consumers rethink whether an investment in the Vita makes sense. Until more software comes, Vita’s struggles will continue. In fact, it’s possible (though not probable) to see Vita unit sales drop below 50,000 for June. We’ll see about that.

Software:

Turning to the software side of the business, I expect the combined list of best-selling games to include LEGO Batman 2 and Spec Ops: The Line. Lollipop Chainsaw could make it in thanks to weak competition in its week of release, and Pokémon Conquest could get in based on IP loyalty. I think that physical software is going to struggle YOY once again when NPD posts its numbers, but as we know, it doesn’t track digital sales... so it’s tough to gauge how rough the sector is. The best-selling game in June 2011 was L.A. Noire, which moved 419,000 copies combined. That was followed by Duke Nukem Forever (376,300 copies) and InFamous 2 (369,200 copies). I don’t know that the top three games in June of 2012 can combine to sell more than 1.1 million units.

It’s likely that some will try to pass off what will be the seventh straight month of declines as the summer doldrums, but it’s very important to note that there isn’t any guarantee that consumers will come back in droves over the holiday season. Even then, we’re still a good three months away from the start of the annual software avalanche, which means that the freefall may last for nearly a full year before a turnaround might begin.

TheThere are still a lot of variables surrounding the Wii U, which retailers are hoping will spark some consumer interest and stop the bleeding. Will the hardware price be acceptable? Will software prices increase and turn off consumers? Will it be enough of a step forward to get consumers to buy in, or will they wait for the new Microsoft and Sony offerings? Or... will they pursue gaming interests on other platforms, like PC, tablet, or smartphone?

These are future questions, of course. Until the future gets here, we’re locked into more declines, more worries, and growing pressure on the industry to turn these trends around before consumers jump ship. We’ll see how bad the damage is for June when NPD shares its data soon.

Feel free to comment below, or you can drop a line to the Armchair Analysis Inbox, which is vgarmchairanalyst@gmail.com for those who are interested.