Analysis: Can Wii Surpass PS2's U.S. Installed Base?

[At 35 million units sold in the U.S., can the Wii, with its recent price cut to $150, eventually surpass domestic sales of Sony's venerable PlayStation 2? Gamasutra analyst Matt Matthews examines the numbers as part of April's NPD U.S. retail sales analysis.] At U.S. retail, it has been established for some time that the Wii market is cooling rapidly while the Xbox 360 market has heated up significantly and the PlayStation 3 market has continued at a slow burn. Despite having no price cut since August 2009, the PlayStation 3 is continuing to eke out growth over last year. The same is true for the Xbox 360 which hasn't had a proper price cut since September 2008, although the top-line model was cut to $300 from $400 in August 2009. While we can attribute some of the Xbox 360's growth to the ongoing success of Microsoft's Kinect initiative, the case is harder to make for the PlayStation 3. It would be advantageous for Sony to attribute that growth to its own motion-control system, PlayStation Move, but there is simply little indication that there is any causation. The Xbox 360 has reached its peak rate of sales since its launch, with an annualized rate of 7.1 million systems, based on sales since May 2010. The PlayStation 3, by comparison, is running at about 90 percent of its peak rate of 4.9 million systems (achieved in the 12 months from September 2009 to August 2010). With January - April sales falling to half the level demonstrated in 2008, the Wii is truly on a downward trajectory. Wii's successor, "Project Cafe," is already on the horizon, but we can say for now that the Wii has had an extraordinary and successful run that is in its final phase. Will the Wii outdo sales of last generation's industry leader, Sony's PlayStation 2? We believe it will come close, but not surpass the final installed base for the PlayStation 2. The PlayStation 2 has just passed the 46 million system level in the U.S. by our estimates, and that puts it about 10.5 million systems beyond the Wii's 35.4 million unit installed base. At its peak the Wii was selling over 10 million systems per year in the U.S. but in calendar 2010 it moved only 7.1 million and its annual rate has dropped to 6.6 million systems, judging by the last 12 months of sales. If the price cut to $150 fails to reignite the system's sales, it has at most two Christmas seasons remaining - one in 2011 and one in 2012. If sales recover to their 7 million unit level for 2011 (certainly not a guaranteed outcome), we believe that news of Project Cafe is likely to diminish interest in Wii sales in 2012 pushing the system's lifetime sales to around 44-45 million unit level in the United States. On the handheld side, the Nintendo DS and Sony PSP are also experiencing significant declines. The figure below shows this as well as demonstrating just how dominant the Nintendo DS has been over Sony's system in the U.S. The extraordinary January - April sales for the Nintendo DS in 2009 are from the introduction of the Nintendo DSi, which launched at the end of March that year. Without the boost from that model, and the introduction of the Nintendo DSi XL in 2010, the system's sales would have declined even more quickly. As we have said several times before, the PSP has ceased to be relevant to the U.S. game industry. Its annual sales rate is at an all-time low of 1.7 million systems, and we expect that that trend will continue for the remainder of the year (and, in fact, the system's lifetime). Taking all the figures above into account, we can see that total hardware sales fell from 7 million units in the January - April period of 2010 to 6.7 million units in the same period in 2010. Remarkably, that decrease in hardware sales did not translate into a decrease in hardware revenue; in fact, hardware revenue grew from $1.47 billion to $1.57 billion during that period. The explanation, we believe, is that consumers are spending more money on HD consoles rather than the more inexpensive consoles. The least expensive platforms - Wii, PS2, Nintendo DS, and PSP - have all seen their sales decrease at the same time that the most expensive platforms - the Xbox 360 and PS3 - have seen increases. Xbox 360 Kinect bundles (driving up the average Xbox 360 price) and the launch of the 3DS (adding about $148 million in hardware revenue) also contributed to new hardware revenue in 2011. [The full April NPD analysis for U.S. video game retail is now live on Gamasutra.]