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Wii Shoots for the Stars, PS2 Aims for the Basement

By Walaika Haskins E-Commerce Times ECT News Network
Apr 2, 2009 4:00 AM PT

Even as the recession grinds on, the gaming industry continues to draw in consumers' entertainment dollars. Nintendo hit a console shipping milestone last week with the Wii, while retailer GameStop announced a monster of a sales quarter.

Wii Shoots for the Stars, PS2 Aims for the Basement

Sony made a price cut that may have some players scratching their heads, while the "Rock Band" series has gamers bobbing their heads -- and game company executives rocking out all the way to the bank.

The Wii Has Been Very, Very Good to Nintendo

Nintendo President Satoru Iwata broke the news last week in San Francisco at the Game Developers Conference (GDC) that the company has shipped 50 million Wii units in the two-and-a-half years since it was launched. The news came just a few weeks after the hardware maker revealed that it's sold more than 100 million Nintendo DS portable gaming devices.

Roughly 20 percent of Wii consoles sold are now sitting in living rooms in U.S. households that previously did not have a gaming system at all, Iwata said.

The rate of sales for the Wii smokes the breakneck pace set years ago by Sony's fast-selling PlayStation 2. With over eight years in the North American market, however, the PS2's total shipments are nearly three times that of the Wii, with more than 140 million units.

"Nintendo has sold Wiis at a faster rate than Sony sold PS2s in the last cycle, so it's pretty impressive," said Michael Pachter, an analyst at Wedbush Morgan.

"Yes, Nintendo is tracking to PS2 levels. One benefit is that the competition is so much more expensive, so we'll see what happens when the PS3 is ultimately priced at (US)$149, but for now, you should presume that Nintendo will sell another 80 million units eventually," Pachter told the E-Commerce Times.

Nintendo is definitely on the way to breaking the 100 million mark, "with 50 million done and projections for another 20 million plus this year," he continued. "That would require them to ship only 10 million a year for the three following years, and there is no reason to suspect that they'll miss that level."

However, the planets may not be perfectly aligned for Nintendo, said Enderle Group Principal Analyst Rob Enderle, who has a decidedly more bullish take on the game maker's prospects.

Shipping 50 million units is noteworthy, he told the E-Commerce Times, "but the bigger issue is that the product isn't moving much in the way of games, compared to the number of consoles sold. It is almost as if it was sold more as a cool device than a true game system to many, which could be problematic for Nintendo long-term, as those folks who don't game aren't fully supporting the ecosystem."

It is possible for Nintendo to attain the exalted heights of the PS2, Enderle acknowledged, but "the product is aging and doesn't have the buzz it once had. [I] think it will need a refresh to move to the next level.

"I think it will plateau before 100 million unless something is done to refresh the platform reasonably soon," he predicted. "There are too many consoles in the market at the moment, and this is hurting the sales of all of them. Games typically are the most important part of a console, but with the Wii, the device itself seemed to be where the value resided."

Sony's Quixotic Fire Sale

Rumors last week had some gamers reaching for their wallets -- the word was that Sony would finally, at last, cut the price of its PlayStation 3 (PS3) console. However, as the company made clear this week, the rumor was both true and false. True: the price cut. False: PS3.

Rather than lower the price on its latest console, Sony opted to drop the price on the PS2 by some 25 percent, from $130 to $100. It seems the Japanese game maker is hoping that the last-generation console will be the gift that keeps on giving, as any money the company makes from sales of the old workhorse are bound to be almost pure gravy.

From a business perspective, the move is rather savvy and should pull in value buyers, Enderle said -- and "in this market, there are a ton of value buyers.

"One-hundred dollars is one of the magic price points, and for a family really counting their pennies but still wanting to give their child something to play with ... this could be attractive," he continued.

The move probably will not make much of a difference in the U.S., said Wedbush Morgan's Pachter.

However, with the PS2 making its way into new markets, Sony may be trying to extend the life of the PS2 with the price cut, a move that makes sense, he said.

"The lower price point will appeal to young families buying their first console ever -- in the U.S. and elsewhere -- allowing Sony to extend sales for another couple of years," he explained. "The large game library is relatively inexpensive -- around $20 per title -- so a new gaming household can buy a PS2 and five games for $200. That's not bad."

In addition, the entry-level gamer with a PS2 is far more likely to buy a PS3 than someone who never owned a Sony console, Pachter noted.

As for the newer console, the rumors may one day come true -- possibly as early as this summer, when Sony is likely to cut the price of the PS3 by about $50, according to both Pachter and Enderle.

Rolling in Dough

Things over at GameStop were humming last week and apparently have been for some time. The game retailer disclosed record-breaking financial numbers for the fourth quarter of 2008, which saw the company's sales increase nearly 22 percent to $3.5 billion. That's about $600 million more than GameStop earned for the same quarter in 2007.

For the company's fiscal year, which ended Jan. 31, earnings increased 38.2 percent to $398.3 million. Total sales for the year grew 24 percent from $7.1 billion the previous year to $8.8 billion in 2008.

Assuming consumers keep on spending, GameStop expects 2009 to be a good year, albeit with more modest growth. Total sales are anticipated to increase between 10 and 12 percent, with earnings growing 18 to 22 percent.

"The market is making choices, and games appear to be considered one of the market bargains. For a small amount of cash, you can tie up your kid for a lot of hours," Enderle noted.

Billion-Dollar Baby

Meanwhile, the band kicked it into high gear over at MTV Games, Harmonix and Electronic Arts -- the last 15 months have proven to be very lucrative for makers of the "Rock Band" franchise. The trio announced that the series has officially surpassed the $1 billion mark in retail sales in North America, according to figures released by the NPD Group.

Helping to push sales were the 40 million paid individual song downloads that have been sold through the "Rock Band" platform since its launch. The game earned the No. 1 spot for game revenue in 2008 across all game genres, according to NPD.

With a Beatles-focused version set to launch on Sept. 9, look for "Rock Band" to be a revenue generator for some time to come.

The title's success could even prove to be a boon to rivals. Game developers will take note of the franchise's success as a signal that they should produce more-innovative games with peripheral devices.

"While there is clearly risk to peripherals, done right they can add enough to an experience to create strong markets for the related products," Enderle said. "Emulators are a given."


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