‘Hard to Know’ Holiday Supplies

Microsoft Says It’s Doing All It Can to ‘Expedite’ Kinect Shipments

November 15, 2010 by Jeff Berman|Top News

Microsoft is “doing everything we can to expedite” shipments to retailers of its Kinect for Xbox 360 motion-control system after early sellouts since the system’s Nov. 4 launch, Dennis Durkin, chief operating and financial officer of its Interactive Entertainment Business, told Consumer Electronics Daily at the Bank of Montreal conference in New York Thursday. But it’s “hard to know” if there'll be sufficient supplies to meet demand this holiday season after strong initial sales left retailers such as Best Buy out of stock, Durkin said.

The $149.99 SKU including only Microsoft’s game Kinect Adventures was nearly all sold out in the U.S., while bundles including the 360 console and Kinect were “in short supply” at some retailers, Durkin said. “Everything we ship in has been selling,” he said. Some of the initial Kinect games were selling “very well” also, Durkin told the conference. He didn’t specify which games were selling especially well, but later told us that while it was “early,” Kinect games that seemed to be especially popular included Microsoft’s Kinectimals and Kinect Sports, as well as Dance Central from Harmonix. Kinect also had a strong launch in the Europe Middle East Africa (EMEA) regions, and will launch in other regions this week, he said.

Kinect and PlayStation Move, Sony’s new motion control system, were both selling well, with no clear winner between the two, for GameStop, its CEO, Paul Raines, told us. They were both in stock at the retailer’s stores, he said, although the SKU including the Kinect sensor and Kinect Adventures was unavailable for online purchase Friday while all Move SKUs seemed to be available at GameStop.com. The retailer was, in fact, “pretty happy” with hardware supplies across the board, Raines said. But he said “you never know” if a supply problem will crop up between now and the end of the holiday season. Microsoft’s Durkin said Xbox 360 console supplies were in good shape now and he expected that to continue through the holiday season.

Microsoft was “not in this business to be number two,” Durkin told the conference, saying it was investing heavily in games to be the market-share leader. Since shipping the new 250-GB Xbox 360 SKU in June, it’s been the best-selling console each month in North America and EMEA, he said. There are now more than 25 million Xbox Live members, and “a little more than half” of them are paying, Gold subscribers, he said. Gold users spend about 40 percent of their time on non-game applications, including streaming Netflix movies, he said. Microsoft is comfortable with retail support for Xbox, and started investing in new channels to promote the platform, partnering with companies including Adidas, Bose, Burger King, Foot Locker, Home Shopping Network, Kellogg’s, Macy’s and Pepsi, he said.

While it was hard to gauge who was using a 360 console at any given time in a house, Durkin said Kinect will enable Microsoft to better target products and services to individual users due to the sensor’s ability to identify who’s using the system. Initial customer data indicated that core gamers want to use Kinect, along with more mainstream consumers, he said. Kinect should also help Microsoft sell the 360 in Asia, where it’s struggled to gain traction, he said.

BMO Conference Notebook

Despite new challenges, including the rise of social games, current-generation sales of videogame hardware are up 45 percent versus the prior generation in the U.S. and current-generation software sales are up 26 percent, said Nintendo of America Chief Operating Officer Reggie Fils-Aime. Nintendo’s systems remain the two best-selling hardware systems of this generation, he said. There’s been a significant decline in sales on the DS and Wii in 2010 versus last year, but Fils-Aime said the Wii is now running ahead of where the PS2 was at the same point in its life cycle. “Motion control has suddenly become the rage,” four years after Nintendo introduced it with the Wii, he said. It was “not for me to say” how long it will take Microsoft and Sony Computer Entertainment to sell as many products for their Kinect and PlayStation Move motion control systems as Nintendo has for the Wii, he said. Nintendo has sold 65.26 million Wii remotes, 52.93 million Wii Nunchuks and 12.07 million Wii Balance Boards in the U.S. alone to date, he said. The holiday season is “more important to Nintendo than other manufacturers” because its products tend to sell especially well as gifts for families this time of year, he said. In 2009, Nintendo hardware sales grew 48 percent in November and December, while sales of other game systems increased 41 percent, and software sales for Nintendo systems jumped 44 percent versus a 33 percent rise for games on other systems, he said. He predicted a similar kind of sales surge this year. Nintendo will be helped by a strong slate of game releases, including its own Donkey Kong Returns, Sega’s Sonic Colors, Disney’s Epic Mickey and Activision’s GoldenEye 007, he said. Retailers will continue to include Nintendo products in their holiday promotions, but he said it “will be up to retailers” how aggressive their promotions will be.

Activision’s Call of Duty: Black Ops took in first day sales of about $360 million in North America and the U.K. alone, Chief Financial Officer and Chief Operating Officer Thomas Tippl said. That’s more than the $310 million took in by Call of Duty: Modern Warfare 2 its first day last year, he said.

THQ is seeing strong support from Nintendo for its new uDraw GameTablet, but Nintendo “hasn’t committed to” making games for the new Wii peripheral, THQ CEO Brian Farrell told us. The companies are collaborating on marketing and Nintendo included uDraw on a Nintendo product mall tour, he said. THQ expects that Nintendo will also support uDraw on a global basis, once the device launches in other markets, he told the conference. The device was to ship Sunday in the U.S.

It’s not worth complaining about the used games market because it’s legal in the U.S. and will continue, said Take-Two Interactive Chairman Strauss Zelnick. It’s better for publishers to concentrate on making great games and great add-on, downloadable content for them because such content makes it more likely that consumers will keep titles for a longer period of time, he said. “You don’t want” games ending up in the used section of stores two weeks after their release because that cannibalizes new game sales, he said.

It’s “a little too early” to provide much data on Gamestop’s new PowerUp Rewards customer loyalty program, CEO Paul Raines said. But he said 10 percent of GameStop.com transactions were being made by PowerUp members and more than 20 million games had already been loaded by members into the PowerUp website’s game library, which shows what games members own and which ones they want, he said. He predicted aggressive promotional activity among retailers this holiday season, saying “everyone jumps into gaming” this time of year, including retailers that don’t have a large game business.

Sony Computer Entertainment is “happy” with the company’s partnership with Hulu on the PlayStation Network, said Susan Panico, PSN senior director. But she said there was no data she could share. The new Hulu Plus service recently became available to PSN users. It was “a little early to talk about that,” she said. Netflix, meanwhile, has been an “extremely valuable partner” for PSN, she said.

Tablets represent a “huge opportunity for Gameloft,” Chief Financial Officer Alexandre de Rochefort said. Apple devices accounted for 21 percent of Gameloft’s sales in the first half of 2010, versus 13 percent in the first half of 2009 and only 1 percent in the first half of 2008, he said. The iPad already accounted for a significant share of the Apple device revenue, he said.

Electronic Arts was noticeably absent from the conference. It was the only major U.S. publisher that didn’t give a presentation. EA declined to say why it skipped the event. Next year’s conference will be Nov. 10, BMO analyst Edward Williams said.