Why are video game sales looking so weak lately? Blame Nintendo.
By Kyle Orland | Published April 15, 2012 3:45 PM
If you're the kind of person that pays attention to the monthly reports on new retail video game hardware and software sales from industry tracking firm NPD, then 2012 has looked like a bloodbath. Industry-wide software sales were down 37 percent, 24 percent, and 26 percent for the first three months of the year, respectively, when compared with the same period in 2011. Hardware and accessory sales have seen similarly massive declines so far in 2012.
But the suffering is not being borne equally across the industry. In fact, if you had to distill the root cause of the downturn in NPD's reported numbers into a single word, that word would be the company that very recently helped the industry grow to new record heights: Nintendo.
"Everybody needs to realize that the Wii software segment is trending down 50 percent year over year, and has been for the last 12 months," Cowen and Company analyst Doug Creutz told Ars Technica. "That is a massive decline. There's no way you could not have a decline overall with that big of a decline in that portion of the software."
While software and hardware sales are also down for the PS3 and Xbox 360 in 2012, NPD analyst Anita Frazier confirms those high-definition system are "seeing less significant declines." That's especially impressive considering these systems are now pushing six and seven years old, which is usually considered the nautral end of a console's life cycle. Frazier also points out that 1.5 million units of gaming hardware sold in March, representing over one percent of all US households and suggesting the market for the current generation of high-end consoles isn't yet completely saturated.
But the same probably doesn't apply to the Wii, which definitely had a longer way to fall than its competition. For years after its late 2006 launch, the Wii dominated both hardware and software sales charts. It did so primarily by attracting consumers that hadn't been a big part of the video game market beforehand. But around 2009, Creutz says, those consumers started shifting over to mobile phone and Facebook games in a big way, leaving Nintendo nowhere to go but down from its historical highs (this tras*ition has also caused a lengthy dip in sales for the portable system segment that Nintendo has traditionally dominated).
Even with Nintendo reverting to the miccionan, though, there's reason to believe that the overall game market might not be in as bad shape as NPD's topline numbers suggest. The company's measurement of new retail sales leaves out the increasingly important market for downloadable games, including free-to-play titles that are bringing in big money on PCs and mobile phones. Even on consoles, NPD's core data doesn't include significant money brought in by downloadable content.
"When Activision sells a year of Call of Duty, they're not really getting $60. They're probably getting closer to $80 when you add in the average DLC sales downstream," Creutz points out, adding that the same is probably true for major titles like Battlefield 3 and Mass Effect 3.
This is all little comfort to Nintendo, though, which had few games with any downloadable content and even fewer must-have downloadable titles on the Wii (though the 3DS eShop is beginning to show promise). If the company wants to regain its recent sales glory, then the upcoming launch of the Wii U is going to have to recapture some of those non-traditional gamers that it caught with the Wii and DS years ago.
"Ten years ago, Nintendo largely catered to kids and Nintendo fanboys," Creutz said. "There was about a five year period they could expand their market beyond that, and now I think they're back back to the kids and Nintendo fanboys again. It's not a bad market but it's not a market that's going to grow enormously."
