Numbers are fun: Year end edition

Heading into the holidays the question on the collective mind of the industry was which seventh generation system would emerge with the lead. For Xbox 360 this meant continuing to sell some units despite the fact that Nintendo and Sony were releasing their competitors in the market. For Nintendo and Sony, success meant shipping as many consoles to store shelves as possible and then selling all of them. So, now that the dust has settled, who has accomplished their goals, and who may be in trouble? It’s obviously too early to call the generation for one system or another, but the numbers do tell an interesting story. For our purposes, all the numbers below (unless otherwise noted) are US sales.

Microsoft’s Xbox 360 had a year head start on both of the other consoles. If we define the holiday season as the fourth quarter of the year, they came into the holiday season with just over 2.6 million systems sold. By now production has been ramped up to the point that it is relatively unconstrained, and it showed. Microsoft sold 1.8 million consoles in the fourth quarter of 2006. This beats the sales of the somewhat constrained Wii and dwarfs the sales of the severely limited Playstation 3. Nintendo did a good job of ramping up production and met (actually slightly exceeded) their initial projection of a million units shipped to the US. For all intents and purposes, all of these sold.

Everyone knows that Sony was having serious problems meeting their own projections for shipped units. They delayed the release of their system in PAL countries and cut numbers to Japan and the United States. They managed to ship just short of 700k units to the US and despite a few stories like this, sold substantially all of them. Because of the production problems I don’t think the hardware sales numbers are particularly interesting, especially when discussing the Wii and PS3. Despite some speculation to the contrary, there is no hard statistical evidence that these consoles would have met demand even had they doubled their shipped numbers. Or tripled or quadrupled them. There is no way to tell with any conviction how many systems Nintendo and Sony could have moved. Xbox 360 does seem to be enjoying some success (on our continent at least) but the question remains as to whether some people were buying Microsoft’s product because Sony’s were unavailable and it seemed like a reasonable alternative.

Potentially more interesting is the story told by software sales. In a comment over here I call for skepticism regarding the tie ratio, but in the nascent stages of a systems life it seems more relevant. First some raw numbers. Consumers purchased about 3 million Wii games and 1.2 million Playstation 3 games. These numbers are not easy to compare, however, since Nintendo packaged a game with their system. If they had not packaged Wii Sports and no one bought it, the tie ratios would be relatively similar (slightly less than 2 games: 1 system). There is something interesting hidden in these numbers, though. The Wii ratio has been relatively constant since the system was released. This is not the case for the PS3. At the end of November, the tie ratio for the PS3 was actually less than one. So why were consumers buying fewer than a game per system?

I think there are two potential answers to this question. The one I have heard more frequently is the “Auction Effect” – people were buying the PS3 with the expectation of turning around and selling it, so they would not have purchased a game with it. Also relevant, in my opinion, is the idea that people were buying the Sony machine for subsidized access to the Sony format, Blu-Ray. At a time when other Blu-Ray players are selling for a thousand bucks, paying six-hundred doesn’t seem so bad. By December the Auction Effect had worn off and there are a few more options for players in the market, so the people buying the system were buying games with them.

Largely on the strength of Gears of War sales, Microsoft saw close to 10 million games move off of shelves. That number is by far the highest of any seventh gen system, but does still lose out to PS2 software (30 million) and DS (13 million – more on these guys later). Something to keep in mind is that, for any potential successes and failures we have seen over the last few months out of any company, the PS2 is a monster. Month after month it steamrolls the competition.

From an industry standpoint I think the PS3 is the system most likely to head to an extreme. The Wii is still in incredibly high demand, as I know first-hand since I was told all of the Gamestops in my Manhattan neighborhood are sold out and do not know when they will get more. The only option is arriving at the Nintendo World Store before it opens, which I cannot do since I have a job. As mentioned above, demand is less clear for the PS3 and the bar of entry is much higher. Third parties realize what it takes to turn a profit on a PS3 game. Namco has claimed they would have to sell 500k games to break even, so lets use that as a benchmark. Developers such as Treasure understand that they will probably not be able to bring games out on the system for that reason, at least for now. It is a lot easier to sell 500k games on a system with the installed base of a PS2 than it is to meet that benchmark on a system with slightly over a million units shipped (700k to North America, 400k to Japan through Dec). This is the kind of effect that snowballs in one direction or another. Sony hopes consumers buy up systems as quickly as they can and the installed base grows, making it easier for developers and producers to meet sales goals, which in turn makes the system more attractive to consumers since there are more options in games and genres.

Will the PS3 ever make it to the point that someone would have taken a chance with Katamari Damacy (which easily cleared the 500k mark)? Will anyone be willing to take a risk on a game like Okami, which is much larger than KD in terms of development costs? Asking these questions makes it clear that the PS3 could also fall off that other slippery slope, where consumers are skeptical and wait to see what games are available, but very few games are available since producers cannot envision selling 500k games on its installed base. Which of these eventually comes to fruition remains to be seen, but for this system (and Sony’s format) to succeed Sony should do everything in their power to allay developers’ and producers’ fears that they will lose money. If this means forgoing some of their early licensing profits in order to realize a larger gain in the future, then so be it.

The story in Japan is probably about what you would guess. The Wii sold just short of a million units, with 1.7 million games sold. Keep in mind Wii Sports was not packaged with the system in Japan, so this number represents actual sales. Wii Sports was still very popular, along with the Japan equivalent of Wii Play, Hajimete no Wii (which has been released everywhere except North America). Both of these have outsold Zelda (North America’s best Wii seller) but this is probably because they are both significantly cheaper than Twilight Princess.

Sony has sold between four and five hundred thousand PS3s and less than four hundred thousand games. A poor tie ratio, but this may still be the two effects I mention above at work. Microsoft continues to have trouble making inroads into the Eastern World. There have been fewer than 300k total systems sold since late 2005 when it was released. These purchasers have bought fewer than two titles each. I am not going to speculate on the reasons for this but MS needs to take drasticc action. Blue Dragon may be exactly what they need. If that does not work, they may have to pull out all the stops and get a Dragon Warrior exclusive.

Good news for the gaming industry as a whole: In calendar year 2006 the industry grew almost 20% and is now worth $12.5 billion. That is the largest the industry has ever been. Our hobby is growing in dollar terms as well as mainstream acceptance. While this may mean that we get games with more polish and less content (which I would argue happened to film as it became mainstream) it may also mean talented people are attracted to the field and strong independent and alternative developers enter the industry (which also happened with film).

Handheld info coming soon!