After a long hiatus I have once again been induced to write an update on the financial state of the video game industry. My plan is to divide this write up into two main “chapters.” This first one will cover the “hard” numbers: hardware unit sales and earnings reports. The second will cover the “soft” topic of average player profiles, including online connectivity, hours per day, tie ratio, etc. This section promises to be densely packed with numbers, but it should not require an MBA or a degree in statistics (at least it shouldn’t, since I have neither). Please note, I will cover software sales with the “soft” numbers, since it is not easy (possible?) to get reliable software numbers.
Most people who follow games closely, whether or not they specifically check sales numbers, probably have a rough idea of how each of the three consoles has sold so far this generation, but putting some actual numbers next to these impressions should be helpful. Sales numbers are broken up according to region, and the Wii currently leads in North America, Japan, and “other” (mostly Europe and Australia) with over 53 million unit sales worldwide (the Wii is tracking slightly higher than the best-selling console of all time PS2 at the same number of months from launch). This compares to 31 million for the Xbox 360 and just shy of 25 million for the Playstation 3. This breakdown has led to some analysts grouping the PS3 and 360 together as HD Consoles and comparing that entity to the Wii (this is pretty much the only way to make it look like the Wii is losing). The apparent justification for this is that a hypothetical developer, when faced with the decision of what console to create a game for has the choice between the Wii or the HD Consoles. Maybe a developer could tell us if this is reasonable; once you have created a PS3 game, I understand it would be easier to port it to 360 than to Wii, but is it a matter of flipping a switch? I suspect not, but I do not know much about development.
Source: donny2112 @ NeoGAF
Underlying the World Wide unit sales are some drastic differences. The Wii leads in all territories, but by far less (in percentage terms) in North America than in Japan. In North America the Wii has sold 21.6 million units to Microsoft’s 16.3 million 360s and Sony’s 8.7 million PS3s. In (possibly xenophobic) Japan the Wii has sold 8.6 million units to Microsoft’s 1.1 million 360s and Sony’s 3.7 million PS3s. Worth noting is that despite the poor performance in Japan of the 360, this is more than twice what the original XBox sold in the region over its entire life. So in North America, the Wii is followed by the 360 and then the PS3, while in Japan it is followed by the PS3 then the 360; in the rest of the world the order is Wii, 360, PS3.
In broad strokes, year to date sales are quite similar to the life to date sales detailed above. The orders in each region are basically the same (in the “rest of world’ region the PS3 may be slightly ahead of the 360 this year, but they are reasonably close in both LTD and YTD sales). The main difference is that while all consoles sales have fallen significantly in Japan this year (the DS continues to do quite well in Japan, but handhelds are beyond the scope of this article, which is likely to be too long as it is) the PS3 has held up much better than the Wii; while the Wii has moved a few more units than the PS3 in 2009, the gap is quite small relative to where it had been in the past several years.
September (most recent available data) was an anomalous month because of the PS3’s price drop and remodeling. For the first time ever, the PS3 was the best selling console in North America (with 492k units to the Wii’s 427k and the 360’s 353k) and it won the month in Japan by a sizable margin (336k to 103k to 28k…poor Microsoft). As you can tell by comparing these numbers to the YTD unit sales, there was clearly some pent up demand for the PS3 that was either waiting for a price cut or a smaller (less ugly?) piece of hardware. Personally, the PS3 is the only one of the three I do not own, but the combination of the price cut, Uncharted 2 and Demon’s Souls in the past few weeks makes a pretty compelling case, so the jump in sales does not surprise me. The main question is how long the bump lasts. In a different month, I would say it stays elevated (above the 150-250k it had spent most of the year selling in North America) but comes down from that peak, but since the holiday season is almost upon us, my guess is that it may take a slight hit in October, but it (along with the other two) will have huge spikes in November and December.
Comparing total sales and operating income across the three hardware manufacturers is difficult almost to the point of being a fools errand. The most obvious issue is that Nintendo is primarily a games company, while Sony and Microsoft are conglomerates with many different operating segments. Until recently, Sony had an segment called “Games” which was convenient for those of us interested in video game company financial information because it did not include extraneous crap and allowed us insight into whether and to what extent Sony was profiting by being in video games. No more. They now have a segment called Networked Products and Services, which comprises PS2, PS3, PSP, Vaio, and a handful of other product lines. The cynical, conspiratorial side of me thinks they did this to obfuscate and mask the fact that the PS3 has cost them a ton of money. In any event, Microsoft has never had a games segment, but has for some time had an Entertainment and Devices Division, which includes the Xbox line, as well as Zune, PC games, and a slew of non-gaming products.
The next issue is a consequence of this first one: as a result of Sony and Microsoft reporting games income by segment rather than as a company, we can only get operating income, and not net income. Operating income is better than making up numbers, but not by as much as I would like. Essentially, certain costs that are not expected to be ongoing, or a part of the company’s operations (a relevant exclusion for these companies is foreign exchange losses, but a one time recall or a loss in a lawsuit would also not be included) will not show up in operating income, but would in net income.
Now that I have disclaimed all meaning out of these numbers here is how the companies/segments performed in the most recent quarter: Nintendo* had operating income of $713 million on sales of $3.3 billion; Sony NPS lost $654 million on sales of $3.9 billion; Microsoft EDD made $312 million on sales of $1.9 billion. In terms of operating margin, those are healthy numbers for Nintendo and Microsoft, but I can not think of a good way to spin that huge loss for Sony; their games division is hemorrhaging money. For Microsoft that $312 million is almost double the same period last year.
By listing the most recent annual numbers for each company/division we should be able to get some idea of how these quarterly numbers fit in a year long period. Yet another caveat: Sony and Nintendo fiscal years end March 31, while Microsoft’s ends in June. Regardless, the numbers should be relatively comparable since they all encompass one Christmas season, one summer, etc. In the most recent fiscal year, Nintendo made $5.7 billion in operating income on $18.8 billion in sales (Nintendo’s income would look quite a bit worse though still strong if the FX losses were included); Sony lost $597 million on $10.7 billion in sales; Microsoft made $169 million on $10.8 billion.
You will notice that the numbers for the most recent quarter are not approximately one-fourth of the annual numbers. Part of this is that the Christmas season distorts everything; many companies see half of their sales in the quarter during which Christmas happens.
There are a lot of numbers to sort through on this page, but they generally agree on a few points, but before I get into that, please note, these conclusions are taken from sheer numbers and do not necessarily reflect my gaming preferences; there are no qualitative judgments here. In broad terms, Nintendo has been very successful, both in terms of total hardware sales and the money those sales have made for the company. There has been a bit of naysaying recently since Nintendo’s profits are down this year and “the Wii has stalled in Japan,” but as the chart above shows, Nintendo’s earnings could fall by half and they would still have their best year over the period from the early 1990s through the Wii/DS-money-printing era. Microsoft has had smaller overall sales numbers, both in each region as well as worldwide, but they have recently started to make some actual profits from their games business (previously it seemed like a loss leader for getting Microsoft products beyond the office and into the living room, or possibly just to irk Sony).
This generation could generously be described as a disappointment for Sony, and more accurately as a small scale disaster. After the huge successes that were the Playstation 3’s progenitors, bringing up the rear in total unit sales and losing a ton of money in the process is a real let down. In my view, Sony’s only real hope for profitability in its games business in the immediate future is that the Slim has an impact on hardware sales similar to the effect the DSLite had on DS sales. This would then have to be followed by people buying a ton of games, since Sony can not rely on hardware sales to make money. It would not be the first time a console has turned things around, and many people think the Slim is exactly what Sony needs, but they have an uphill battle ahead of them.
* Nintendo reports only in yen, so to convert to dollars, I used a rate of 89.70 JPY per USD. Also, we are just finished Q2 and had Nintendo reported Q1 and then semi-annual results, so I did subtraction to get Q2 numbers.