Mobile Platforms Hurting Handheld Videogame Sales, Say Analysts

Mobile platforms are starting to hurt the sales of conventional handheld videogames, analysts said Friday, a day after NPD reported further DS and PSP sales declines in August. U.S. videogame industry sales were the worst for any August since 2006, NPD analyst Anita Frazier said, despite the strong performances of the Xbox 360 console and the latest entry in the Madden NFL football game series from Electronic Arts (EA).

All videogame categories were down in dollars and units, but portable results were “down to a greater extent” than home console results in August, said Frazier. Portable revenue across hardware, software and accessories tumbled 25 percent from August 2009, and console revenue fell 6 percent, she said.

Analyst Edward Williams of Bank of Montreal Capital Markets predicted “further declines” for conventional handheld videogames “as consumers migrate toward mobile gaming.” Wedbush Morgan Securities analyst Michael Pachter, who called the overall August videogame industry sales results “shocking,” singled out the iPod Touch as the main culprit among mobile devices for the weak handheld sales. He predicted that handheld hardware unit sales will “languish until the launch of the Nintendo 3DS (likely in early 2011),” and that traditional handheld videogame software sales “will continue to lag so long as the iPod Touch thrives.” Apple’s device “has become a credible substitute for the DS and PSP,” he said, pointing to NPD’s August data showing that PSP unit sales came in under 100,000 for the month and DS sales hit their lowest point “since a supply constrained January 2008.” He played down the effect of iPhone and iPad game downloads, telling us he didn’t believe there was much “overlap” between iPhone or iPad owners and DS owners, because of the iPhone’s required data plan and the iPad’s relatively high entry-price point.

Frazier said she believes the iPad, iPhone and iPod Touch were “having an impact on the game industry overall, not just the portable market.” NPD doesn’t take the Apple devices into account in its videogame sales data. “There are so many free games/apps available that some more casual or occasional users may very well be satisfied with the lighter gaming experiences,” she said. But Frazier predicted that sales of conventional portable videogames will “pick up over the holidays because they're a great gifting option even with the 3DS coming down the pike not long thereafter.” Nintendo said it will ship the 3DS, which achieves stereoscopic 3D effects without the need for special glasses, by March 31.

Total U.S. videogame industry sales fell 10 percent in August year-over-year to $818.9 million. That included hardware, software and accessories, but -- as always -- not computer products. Hardware sales fell 5 percent from August 2009 to $282.9 million, while software sales tumbled 14 percent to $403.5 million and accessory sales fell 6 percent to $132.4 million. 2010 industry sales fell 8 percent through August from a year earlier to $8.37 billion. Hardware sales were down 12 percent at $2.71 billion. Software sales were down 8 percent at $4.32 billion. In the one bright spot, accessories were up 4 percent at $1.34 billion.

The console “declines can only be explained as a combination of a weak economy” and “console fatigue at persistently high prices,” said Pachter. The last Xbox 360 price cut was in July 2008, and the PS3, Wii and 360 are “priced at the same point as the introductory prices for the last generation in 2000-2001,” he said.

The 360 was the best-selling hardware system for the second straight month. Sales of Microsoft’s console grew to about 356,700 units from about 215,400 in August 2009 (CED Sept 14/09 p7). But sales were down from about 443,500 in July this year (CED Aug 16 p7). Its U.S. installed base grew to about 21.4 million. The 360 “contributed more than” 33 percent of “total new physical retail sales across hardware, software and accessories” in August, and the PS3 contributed more than 25 percent of total revenue, said Frazier.

The PS3 was the only system with a sales increase from both the previous month and August 2009. Sales grew to about 226,000 from about 214,500 in July and about 210,000 in August 2009. The U.S. installed base grew to about 13.2 million. But that was still far behind the 360 and Wii, which along with the DS outsold the PS3 in August.

Wii sales fell to about 244,300 from about 252,900 in July and about 277,400 in August 2009. It was the system’s weakest performance in any month since Nintendo launched the Wii in November 2006, Frazier said. The Wii’s U.S. installed base grew to about 30.1 million.

DS sales tumbled to about 342,700 from about 398,400 in July and about 553,000 in August 2009. Its U.S. installed base grew to about 42.7 million. It’s not clear how much effect the $20 price cuts on the DSi and DSi XL that were scheduled to take effect Sunday (CED Aug 31 p5) will have on DS sales in September.

PSP sales remained weak, tumbling to about 79,400 from about 84,000 in July and about 140,300 in August 2009. Its U.S. installed base inched up to about 18.3 million. Unlike the DS platform with the coming 3DS, there’s been no announcement from Sony that stands to give the PSP platform a substantial lift.

EA’s Madden NFL 11 was by far the month’s best-selling videogame, moving about 920,800 copies on the 360 and 893,600 on the PS3, NPD said. Those were the month’s top-selling SKUs across all titles. Other versions of the game didn’t crack the top 10, offering more evidence to the widely held belief that Nintendo is usually the only publisher that benefits from its Wii and DS. Madden NFL 11 sales “were about 6 percent higher than last year’s” entry in the series during its first month, but “all of the gains occurred on the PS3 platform,” Frazier said.

Nintendo’s Super Mario Galaxy 2 for the Wii was No. 3, moving about 124,600 copies in its fourth month available. The 360 version of Take-Two Interactive’s Mafia II was No. 4, with about 121,600 sold. The PS3 version was No. 7, outsold by Nintendo’s New Super Mario Bros. for the DS and New Super Mario Bros. Wii. Rounding out the top 10 were Activision Blizzard’s Call of Duty: Modern Warfare 2 for the 360, EA’s NCAA Football 11 for the 360 and Nintendo’s Wii Fit Plus.

Activision Blizzard sold more than 300,000 copies of the computer game StarCraft II: Wings of Liberty for the PC in August, Frazier said. The game would have been the month’s No. 2 title if NPD’s data took computer games into account, she said. Overall PC game revenue grew 35 percent in August from a year ago, she said.

Along with the DSi and DSi XL price cuts, potential sales drivers for the industry in September include the coming release of Microsoft’s Halo: Reach for the 360 on Tuesday and Sony’s PlayStation Move launch for the PS3 on Friday. Microsoft’s Kinect for Xbox 360 motion control system won’t launch until Nov. 4, Microsoft said.