Tie Ratios and Average Sale Prices

Picking through the public data from the past few months, we were able to piece together some estimates on software tie ratios for the three current-generation platforms. Remember that a software tie ratio is simply the total number of software units divided by the total number of systems sold. So a tie ratio of 5.7 means that 5.7 pieces of software have been sold for every system sold. As you might expect, a higher tie ratio is better. This is especially important for a system like the PlayStation 3 (and possibly the Xbox 360) where software fees are necessary to offset losses taken on hardware.

Using estimates from a previous article, along with data released in February 2008 and then again this month, we developed the following graph which shows how estimated software tie ratios have grown with respect to each system's installed base.



Here are some key points to take from this graph:
 

• When the Xbox 360 had an installed base of 8 million systems consumers had purchased nearly seven Xbox 360 games per system. With the Nintendo Wii just now passing 8 million systems, consumers have purchased just 5 Wii games per system. To the extent that publishers can exploit this two-games-per-system advantage, Microsoft's platform is more attractive.
• However, the Wii's attach rate curve is steeper than that of its two competitors, indicating that consumers are purchasing software more quickly as the user base increases. Since Wii games sell for $45 on average, lower prices and a growing library of Wii software could explain that acceleration. Should Wii owners continue to buy software at a faster rate, the Wii could begin to rival the Xbox 360 as a software-selling platform.
• The data shown in this graph suggest that the PlayStation 3 is selling more games per system than the Wii did when it had the same installed base. Provided PlayStation 3 owners continue to buy software at a greater rate as the installed base continues to grow, Sony will be in a better position to woo developers to its platform than it is today, either for exclusives or (more likely) for cross-platform releases.

The figures above are based on some exact figures along with some reasonable estimates, all gathered from public data. Per platform, here are the essential numbers: