Examining Video Games’ Life Cycles
January 30, 2007
In the new issue of Video Game Journal, authors Jason Kraft and Chris Kwak explore the deterioration in the video game sales throughout the console life cycle.
According to the article, a majority of video games that are released generate nearly 85% of their lifetime sales in the first year of availability; after that many of these games are replaced by newer versions. Some annual treats like as Electronic Arts’ NCAA Football, actually generated more than half of their lifetime sales within the first three months at retail, according to the most recent NPD data. Such a trend, however, does not apply to all titles or franchises, such as those which may be influenced by one-time events, such as EA’s FIFA Soccer.
In addition, the writers further add that a game’s life cycle may also be impacted by the sale of used games, particularly by major U.S. video game retailer GameStop, though the report notes that very little information concerning used game sales figures has been released by the retail chain.
Kraft and Kwak believe that “used-game sales probably explain a significant portion of the phenomenon of the shrinking half-life of games through the cycle. It is not that used games take up more shelf-space (the premier AAA titles, we contend, remain untouched).
“It is that used games are substitute-SKUs not captured by NPD. So while the data may suggest that demand for a title falls more rapidly through the cycle, we posit that it is not the demand at issue but rather the supply meeting some of the demand that NPD data does not capture,” they report.
When a game console’s user base is rapidly growing within its first two years of availability, “the revenue concentration distribution is distorted by the sheer force of the new consoles entering the market.”
Their article hypothesizes that the quicker a console’s installed base expands, the broader its software sales distribution will become. However, as a console’s installed base slows following its first two years of availability, the writers note that “sales distribution [should] ease into a stable curve where non-console factors have a greater impact.”
An example: “Imagine if Europe received one unit of the PS3 in November 2006 and Resistance: Fall of Man were attached to that game. If no new PS3s came to Europe until March 2007 (when Sony dropped 1 mln PS3 units), Resistance: Fall of Man would generate 0% of its first twelve months revenue in the first three months.”
Kraft and Kwak note that very little may be done to extend the life of titles on retail shelves: “The various causes of the phenomenon we observe (especially console installed base and brand expansion) will likely repeat every cycle. The used-game phenomenon, however, may be something the industry could address. Addressing this issue would probably temper the slope of the trend.” The “ideal solution,” the authors maintain, would have GameStop releasing used-game data with NPD for analysis of its impact.
Analysts: Sony Profit to Fall 50%
January 29, 2007
A median estimate from five analysts surveyed by news agency Bloomberg has predicted that Sony’s third quarter results could see profits fall by a half, due to slower than expected sales of its flagship PlayStation 3 video game Blu-ray Disc console.
New estimates suggest that the company will see group income fall to ¥84.1 billion ($689 mil.) for the three months ended December 31st. Sales for the games division alone are estimated at ¥390 billion ($3.20 bil.), with operating results predicted at a loss of ¥50.9 billion ($417 mil.).
The “unexpected” success of the Wii, rather than direct competition from the Xbox 360, is cited as the major reason for the shortfall. However, the group as a whole may still exceed its full year profit targets thanks to a weak yen, good sales of the Bravia range of high-end televisions, and growth in the company’s movie division.
Analysts predict that Sony’s game division will lose as much as ¥191.9 billion ($1.57 bil.) for the full fiscal year, compared to a profit of ¥8.7 billion ($71 mil.) the year before. The company’s official fiscal results for the third quarter are expected to be released later this week.
PS3 sales in Japan dropped further in the week to Jan. 21 as the games market there suffered from lackluster demand compared to recent week. PS3 suffered its worst week of sales since launch for the second week in a row. A total of 21,105 of the consoles were sold during the week, said Media Create Co. Ltd.
Sales of the Nintendo’s Wii console and Microsoft Xbox 360 were 8,395 and 7,041for that week, Media Create said; both down from the previous week.
NPD: Top Sellers for 2006
January 22, 2007
The NPD Group, a consumer research firm, has released its overview of U.S. PC game sales for 2006, with retail revenues over $970 million, a 1 percent increase over PC based revenue posted in 2005.
The firm detailed the top ten PC titles in the U.S. for the entirety of 2006, which saw World of Warcraft on top of the annual chart; this chart does not yet track digital downloads of games.
Electronic Arts’ popular The Sims 2 franchise that enjoyed the most representation on the chart, with the core game and three of its existing expansions being counted among the year’s top 10 PC releases in the U.S.
Top 10 PC games of 2006:
1. World Of Warcraft
2. The Sims 2
3. The Sims 2: Open For Business Expansion Pack
4. Star Wars: Empire At War
5. The Sims 2 Pets Expansion Pack
6. The Elder Scrolls IV: Oblivion
7. Age Of Empires III
8. The Sims 2 Family Fun Stuff Expansion Pack
9. Civilization IV
10. The Sims 2 Nightlife Expansion Pack
The overall game market in 2006 was $13.5 billion in North America, and turning to the console market, it was EA’s seminal Madden NFL 07 that managed to secure the top sport in game sales within the U.S.
EA titles proved to be the dominant force on the console chart for the year, with NCAA Football 07, Need for Speed: Most Wanted, and Fight Night Round 3 also being represented.
Top 10 console games for 2006:
1. Madden NFL 07
2. Cars
3. Lego Star Wars II: The Original Trilogy
4. NCAA Football 07
5. New Super Mario Bros.
6. Need for Speed: Most Wanted
7. Gears of War
8. Call of Duty 3
9. Lego Star Wars
10. Fight Night Round 3
The Supply and Demand for PS3 & Wii
January 17, 2007
A new report from PJ McNealy of American Technology Research has revealed that many retailers had PlayStation 3 consoles in stock, and none had Nintendo’s Wii console.
“Our channel checks yesterday of 52 retail stores, from boutiques to big-box retailers, showed that 28 of the 52 stores had PS3 consoles in stock, while none had Wii consoles in stock,” McNealy’s research note states.
Most stores only had a handful of PS3 units for sale, but with one major retailer having more than 60 machines available - suggesting that it may not be symptomatic of lower demand for the PS3. “It isn’t because demand has weakened (for PS3), it is because we have kept the supply pipeline moving,” explains Sony’s Dave Karraker
The current North American statistics are the NPD charts for December, which revealed that the “scarce” PS3 was found to have sold through 490,700 units for the period, with 687,300 units sold since its launch in November.
The Wii, however, had sold 604,200 units for the month, putting its total North American number sold at 1.1 million units. Thus far, it’s unclear whether the PS3 bottleneck has cleared, flooding more machines into the market than can be swiftly picked up by consumers, or whether the PS3 is simply less desired.
With Karraker indicating that 100,000 units per week are being flown in to North American stores and Nintendo keeping quiet on exact shipping amounts on a week-by-week basis, further channel checks, combined with NPD data, should provide a much clearer picture early next month.
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