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Slowdown or Hiccup? August Gaming NPD Report

npd game metueThe video game industry has been on fire.  For twenty seven months, a streak almost unfathomable in electronics retail, the U.S. marketplace returned double digit year over year percentage growth (via NPD).  Every month had yielded a more than 10% gross sales improvement, every month until now.  The August NPD retail report came out this week and it showed a surprise slowdown.  In August, the industry grew only 9% year over year in the U.S.  Many are questioning what happened and if it’s cause for concern.

Gaming is one of those entertainment industries that is often called “Recession Resistant.”  In tougher times, the theory goes, people need their escapism and fun more than ever.  Even as they watch their spending, they’ll pay for a  movie ticket, or a DVD, or a new game to suspend reality. But most anyone who has ever owned a water resistant watch will tell you, water resistance isn’t the same as waterproof.  If you take that watch down deep enough underwater, it will let the water in. Recession Resistant is the same thing. It’s a reasonable safety zone but not a guarantee.

That fact has some analysts asking: did the gaming industry finally spring a leak?

Analysts have been weighing in on both sides.  Some seem certain the economy has caught up, that the numbers show a meaningful shift in spending patterns; consumers are holding back.  Others chime in with a different story.  To them, the performance is not symptomatic of troubled economies. Instead, a weak month is easily explained by other factors, things like distractions that kept consumers out of the stores, or temporary spending shifts to cover back to school expenses.

To be sure, there is some support for the optimistic view. For starters, August was host to the Olympics and expanding political news. There was plenty to keep people occupied and out of stores. Than there’s is seasonality.In the summer time, gaming purchases always wane compared to the holiday season. That was evident in July numbers too and surely was at least some factor.

The anticipation of price cuts has to be considered at least a partial contributor too.    Rumors had swirled for months that they were coming and there was some evidence to support the expectation. Earlier this year, Microsoft did cut global sales prices. Then, in July, Microsoft opened the E3 trade show with announcements that they would offer a $50 discount for existing store inventories of the 20GB Xbox 360 Premium. The limited sale pricing was aimed at reducing supply to make way for a new 60GB model. In August, Sony also announced a new SKU was coming for the PS3.

Between those events, more frugal or patient consumers willing to wait, had incentive to put off their purchases until September or later. (And for those who waited, there was reward. Microsoft cut Xbox 360 prices in the beginning of September).

The prevailing opinion among those touting the numbers as an anomaly is that the sum of these events conspired against a higher returning monthly report.  Critics point to the broader, macro economic climate.

Ultimately, one month isn’t really enough of  sampling to form a defensible view either way.  The slow down could have been economically caused, the symptom of a bigger problem.  It could also have been an a mere monthly hiccup. 

Year to date, the industry is up 32%

It will take at least another month of numbers, maybe two, to draw a factually supportable conclusion.  On the face, October sales (which will have the support of several hotly anticipated new software releases) will probably be the biggest test.   But September sales, fueled by the Xbox 360 price cuts along with the release of Rock Band 2 (Xbox 360 version becomes available on September 14) should also be an important indicator.  (Early word reported from Microsoft is that the Xbox 360 arcade sales rate is up by a factor of five or six).

What we know now are the August numbers. The differing analyst view points can’t dispute these. 

Y/Y Software Growth
March 48%
April 69%
May 41%
June 61%
July 41%
August 13%

In August, the overall industry returned $1.08b, down from $1.19b in July, and up only 9% over August 2007.   Software, was the strongest category performer for the month, up 13% year over year to $550.7m.  Still, analysts had expected more than 20% growth on average.  At 13%, the result was staggeringly low compared to the kinds of y/y growth reported since March.  (see inset chart)  Hardware, at just 3% year over year growth ($394.5m) was the weakest sub sector.

Breaking down within the categories, with hardware first: Nintendo continued to dominate.  The DS took the top slot and the Wii finished number two.  Microsoft reclaimed a higher spot than the PS3, finishing fourth.  (The PSP was third).  The PS3 slotted fifth with 185k units. 

At this point, the U.S. installed base for the consoles is reported to be about 14m for the Wii, 12m Xbox 360 and 7m for the PS3.

In software, the top story was unquestionably EA’s latest Madden football release.  The title, across platforms sold nearly 2.2million units and captured the top three positions on the monthly top ten list.    By a substantial margin, Microsoft’s Xbox 360 version proved to be the football fan’s favorite console. It finished first with a million unit performance. Sony took second and third with the PS3 and PS2 with 643k and424.5k respectively. (Sony’s corporate tally across platforms made them the biggest seller as a company). Nintendo’s Wii, with its lesser quality graphics and its different interface, was the least popular.  It sold about 115k units, good enough for 9th overall, but a tiny output compared to the other boxes.

Nintendo did make up for their Madden shortcomings elsewhere on the top ten list. Non-traditional gamers and the expanded audience targeted by Nintendo helped give them the meat of the sales chart.  5 out of the top 10 titles were for the Wii or DS including the fourth, fifth and sixth position on the list.

Here’s the rest of the August results,  by the numbers:

August Hardware Sales (in units sold) (July Result)
• Nintendo DS: 518,300 (608,400 )
• Wii: 453,000 (555,000)
• PlayStation Portable: 253,000 (221,700)
• Xbox 360: 195,200 (204,800)
• PlayStation 3: 185,400 (224,900)

August Software (Title (Platform) –Publisher -Units
1. Madden NFL 09 (Xbox 360) -Electronic Arts – 1,000,000
2. Madden NFL 09 (PS3) – Electronic Arts – 643,000
3. Madden NFL 09 (PS2) – Electronic Arts – 424,500
4. Wii Fit with Balance Board (WII) – Nintendo – 394,900
5. Mario Kart Wii w/ Wheel (WII) – Nintendo – 328,700
6. Wii Play with Remote (WII) – Nintendo – 200,200
7. Soulcalibur IV (Xbox 360) – Namco Bandai – 174,000
8. Too Human (Xbox 360) – Microsoft – 168,200
9. Madden NFL 09 (Wii) – Electronic Arts – 115,800
10. Guitar Hero: On Tour (DS) – Activision Blizzard – 111,200

Overall Industry Totals (Total ( % Change Y/Y)(Last month’s total))
Video Games: $1.08B (+9%) ($1.19B)
Video Games Hardware: $394.5M (+3%) ($446.9)
Video Games Software: $550.7M (+13%)($591.1)
Video Game Accessories: $137.3M (+13%) ($149.1)

For comparative data, NPD’s data from each month for the past year can be found by clicking the names of the month as follows:
2008: •January  •FebruaryMarchAprilMayJuneJuly
•February•March•April•May•June•July•August •September•OctoberNovember December

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