November marks the one-year anniversary of the release of both Nintendo’s Wii and Sony’s PlayStation 3 as well as the second anniversary of the debut of Microsoft’s Xbox 360. It has been a long year for the three console makers, one in which the former leaders, Microsoft and Sony, were blindsided by the phenomenal success of the Wii and nonplussed by the lackluster performance of the PS3.
After a turbulent 12 months, however, the gaming industry now has to gear up for its busiest season — the holidays — which begins with Black Friday this week. For the industry, the period starting the Friday following Thanksgiving and winding up just after Christmas is a make-or-break time of the year, bringing 40 percent of the industry’s total sales.
With retailers pulling out all the stops and pressure mounting on parents to purchase the right system for their pint-sized and teenaged gamers — or even grown-up friends and family members — what console will emerge victorious after the holidays? Each platform has its own unique set of challenges and strengths — the question is how their pluses and minuses will play out as consumers start hitting the stores in a shopping frenzy.
The video game market is in the midst of a breakout year in the U.S., with sales of both game hardware and software coming in at US$10.5 billion thus far, an increase of 49 percent over the $7 billion for the same 10-month period in 2006. Looking forward to the holiday season, hardware and software vendors will most likely find their stockings filled with gold, not lumps of coal.
“It looks like game consoles are going to sell reasonably well. They show up on the list of top 20 things people are planning to buy, but at the bottom of the top 20, so there are other things that are higher, at least in regards to consoles,” said Rob Enderle, principal analyst at the Enderle Group, told TechNewsWorld.
“Games are a natural gift item. I’d like to see stronger titles for the PS3, but at this point it looks like we’re going to see some decent sales in the segment,” he continued.
“All three consoles will sell equally well,” Ted Pollak, an analyst at Jon Peddie, told TechNewsWorld. “because the PS3 is finally getting some games, and internationally the PS3 will give the Wii and Xbox 360 a run for the money. The Xbox 360 is an awesome value, and their online stuff is really hitting on all cylinders. And the Wii is still a huge deal.”
The great success of Nintendo’s Wii game console came as a surprise to much of the industry. Even its own executives at Nintendo underestimated how popular the platform would become. As a result, Nintendo has struggled to produce enough units to keep the Wii on store shelves.
In October, Reggie Fils-Aime, president of Nintendo of America, announced that the company, which had struggled to keep up with demand since the Wii was launched, had ramped up production as much as it could. Increasing production and putting more consoles in stores was not a switch that could easily be turned on and off, he explained, so the company expects supplies to remain tight throughout the holiday season.
Nintendo’s inability to sufficiently boost production to meet the strong demand for the Wii could be the one factor that will knock the console of its perch as the No. 1 seller. So far, consumers have been able to get their hands on some 14.21 million Wii machines, according to VG Chartz, a video game sales tracking firm. That gives the Wii a little more than 42 percent of the market, while Microsoft’s Xbox 360 accounts for just under 40 percent at some 13.37 million consoles sold. Sony’s PS3 brings up the rear with a scant 17.7 percent of the market and just 5.93 million consoles in homes around the world.
“[Wii] is going to be the one people want the most. But it is manufacturing-constrained, and so it is unlikely to be the top seller,” Enderle told TechNewsWorld. “When you have a product that is manufacturing-constrained, sales often move. And the thing that is selling closest to it in terms of volume is the Xbox.”
Stock woes or not, Pollak thinks that the Wii will manage to hold onto its lead despite a strong push from Microsoft. The Wii’s interactive gameplay is a strong pull for consumers and is its greatest strength, he stated.
“The Wii’s going to stay on top on average,” he said.
Celebrating its second birthday this month, the Xbox 360’s one-year head start over its competitors has given it a distinct advantage — specifically, a more extensive catalog of game titles. That alone will play a significant role in whether the platform is able to move out of the No. 2 spot and snatch the lead.
It takes game developers about a year to start putting out games that take full advantage of new technologies hardware makers have built into their next-generation devices. The scores of games that have been released for the Xbox 360 in the past six months lends support to that idea.
Going into the holiday season, Microsoft is coming off the release of the third installation in its mega-selling “Halo” franchise. The game broke all media entertainment records with an estimated US$170 million in sales in its first 24 hours on the shelves last September, and it sold some 3.3 million copies in its first few weeks. The game’s release helped Microsoft sell about 527,800 consoles that month, according to NPD Group, a sales tracking firm. In October, “Halo 3” stayed in the top spot with 433,800 copies sold.
Giving Microsoft additional momentum is the release of the Xbox 360 Arcade, a bare-bones system with a hard drive of just 512 MB that the company hopes will be able to compete for the dollars of casual gamers who cannot find a Wii.
“That’s their big thing for actually expanding the market and trying to address some of the Wii’s advantages,” according to Enderle. “But Microsoft has the largest portfolio of existing games, and it’s games that move product. That’s where the advantage is.
“We’re probably going to end the year with the Xbox outselling the Wii,” Enderle stated. “If the Wii wasn’t manufacturing-constrained, it would be the clear winner. But the fact that they can’t build enough of them is going to cause a problem.”
Bringing Up the Rear
Although Sony has introduced four different models since the PS3 made its debut a year ago — 20 GB and 60 GB models that were replaced with 40 GB and the 80 GB versions — sales did not start to tick up until the company slashed the price on its 80 GB model, lowering it from $599 to $499.
In the first full week following the lower prices, the PS3 beat out the Wii in sales in Japan for the first time. Japanese consumers purchased almost twice as many PS3s — 63,037 — than the 32,783 Wiis that were sold, according to statistic from VG Chartz. However, even with an increase in sales in Europe, the U.S. and Japan, Enderle and Pollak said the PS3 will still linger in third place.
Sony has hedged its bets, putting a renewed focus on its PlayStation 2 (PS2) console, the PS3’s predecessor.
“Sony appears to have doubled down on the PS2 to at least get people to buy PS2 games and PS2 consoles so they can stay in the game for when they come back next year,” Enderle said. “The PS2 remains the bargain in the segment.”