The Microsoft Outlook

 

While Microsoft indicated it saw an increase in Xbox 360 sales alongside the launch of GTA4, sales for the month were lower than many expected. Some analysts have indicated that the expected bump in hardware sales will appear in the May sales figures. Regardless, the pressure is now on Microsoft to drop its prices.

 
Looking back, Microsoft chose to maintain the launch pricing of the Xbox 360 from November 2005 until August 2007. Apparently this resistance to price cutting helped push the Xbox project into the black, as had been previously promised. However, given the jump in sales after the price drop, Microsoft may have held its own platform back and lost significant ground to the Nintendo Wii in the meantime.

 
Microsoft probably should have cut the price of the Xbox 360 in February of this year. With a surefire product like GTA4 imminent, such a price cut would have spurred sales and set the stage for a very strong April. Remember that by the time Vice City launched on the PS2, that console was selling for only $200. However, if we take Microsoft's claim of hardware shortages earlier this year at face value, then it is entirely possible that an earlier price drop would simply have exacerbated its uncomfortable position. That is, it would have been in the embarrassing situation of dropping prices while not being able to offer the system to consumers.

 
Microsoft still has a strong software portfolio, and both Madden NFL 09 and Gears of War 2 should sell very well in the second half of the year. Provided its supply issues have been worked out, Microsoft should drop its hardware prices by $50 across the board. In doing so, it will undercut the Nintendo Wii while also putting downward pressure on the PlayStation 3.

 

The Sony Outlook

 

Just last week Sony executives appeared to signal that a price drop was not in the cards for the PlayStation 3. In particular, Nobuyuki Oneda (Executive Vice President and Chief Financial Officer) said that Sony expected to ship around 10 million PS3 systems in the coming year (a very modest year-on-year increase) and that they did not think they would need to adjust prices to reach that shipment target. The motive here is profitability, perhaps at the expense of marketshare.

 
A look at the monthly sales figures for the PS3, however, reveals that when the rate drops low enough Sony is forced to make adjustments. Sony first adjusted in July 2007, after system sales had dropped for several months straight. After a short bump, PS3 sales began to decline again going into the Holiday 2007 period, and Sony reduced the top price of its system to $500 and introduced its $400 model. Now system sales are declining again, and if they continue through May, a summer price drop seems Sony's only option.

 
It does have the alternative of adding value to the PS3, and for once this doesn't mean packing a game in with the system. Sony has announced that it will begin to introduce a video service in the near future, perhaps as early as this summer. If the PlayStation 3 can position itself as a video-on-demand player with quality content, an inexpensive Blu-Ray player, as well as a machine that plays Grand Theft Auto 4, then Sony could well have a winning combination. This adjustment, however, will not attract consumers who simply do not (or cannot) spend $400 on an entertainment device, regardless of the features.

 
If the PSP and PlayStation 2 were still providing a strong foundation for Sony, then the PS3 might still have time to find its footing. However, April marks two months of decreasing weekly sales rates for all three of its hardware platforms. It is unclear how much longer Sony can rely on impressive sounding “PlayStation brand” sales figures after each month's NPD figures are released.

 

The Nintendo Outlook

 
What to say about Nintendo that we haven't already said? Wii hardware sales have increased in tandem with increasing supply and Nintendo games are regularly taking several spots in the top 10 software chart. As noted last month, they are supplying their own big games on a regular basis and setting the standard for how to make successful software. The only thing they could do in addition to their current strategy is help more third parties break into the top 10.

The only question we have at this point is whether we will continue to see monthly declines in Nintendo DS hardware sales. Would Nintendo be more likely at this point to refresh the Nintendo DS hardware as it did in mid-2006, drop the price of the existing system, or look toward a new handheld?

 
With such robust hardware and software sales, it will be interesting to watch how well-received Wii Fit is during May. Expect a lot of discussion to be generated should Wii Fit make the top 10 software chart in May.

 

Marketshare Estimates: Nintendo on Top

 

Recently we have been interested in what share of the market can be attributed to each of the big three (Microsoft, Nintendo, and Sony). In January and February of this year, Microsoft's press releases gave monthly consumer spending data on the Xbox 360 (including software and accessories), as well as cumulative LTD consumer spending on the Xbox 360. In March and April, however, only the LTD figures appeared in Microsoft's press materials. Here is a possible explanation for the missing monthly spend figures: consumers are now spending more per month on the Nintendo Wii than they are on the Xbox 360.
 

By looking just at hardware sales and known software sales figures from the top 10, we can establish a minimum that consumers spent on the Wii in April 2008: $280 million. We estimate that at least $100 million more can be attributed to the Wii (from third party software and accessories), putting it close to $400 million, or nearly 1/3 of all videogame dollars spent during the month of April. Add in sales of Nintendo DS hardware (over $50 million) and Pokemon software (over $14 million) along with all other Nintendo DS software and Nintendo could easily have sold in excess of $500 million, nearing a majority of the videogame market for the month. (For the record, we have requested figures directly in the past, but the NPD Group does not supply this data to the press.)

 
We can get at the Nintendo figure another way: subtracting Microsoft's and Sony's marketshares from the total value of the market in April. According to Sony's press release last week, the “PlayStation brand” accounted for $387 million of sales for the month. Moreover, Microsoft's press releases have indicated that consumers had spent $9.4 billion on the Xbox 360 through the end of March and $9.7 billion on the Xbox 360 through the end of April. So the maximum value of the Xbox 360 market in April was $390 million. The remainder is over $450 million, and that should all belong to Nintendo.

 
Either way, it appears that Nintendo accounted for around $450 to $500 million of the videogame industry's revenue in April 2008. We will try to keep track of these figures in future months to see how these figures change.

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