Analysis: The Wii U Announcement's Impact On U.S. Wii Sales

[As part of his monthly analysis of NPD Group's U.S. physical retail sales estimates, Gamasutra analyst Matt Matthews examines the future of Nintendo's aging Wii, and how the press surrounding Nintendo's Wii U "will have a chilling effect on Wii sales."] Now that Nintendo has officially released details on the Wii U, a tablet and console combination, the days are numbered for the original Wii. While the final release date for the Wii U is still unknown, we believe that Nintendo will consider releasing it as soon as March or April of 2012. Even if Nintendo makes a March 2012 launch, that leaves at least nine months during which Wii sales are likely to decline precipitously. The company has attempted to slow that descent by cutting the system's price to $150 as of May 15, 2011 and bundling Mario Kart Wii with the hardware instead of the Wii Sports Resort. The May figures reported by the NPD Group are the first measure of the effect of that price cut, although they do not yet reflect any effect from the Wii U announcement, which did not come until 7 June, well into the new month. According to comments made by Wedbush analyst Michael Pachter, approximately 236,000 Wii systems were sold during the May 2011 period. That's a rate of 59,000 units per week, up from 43,000 units per week in April. Naturally, we'd like to know how much of that increase is due to the price cut, and we'd ideally like an idea of how long that price cut may have a significant effect on sales. Both are tricky questions. The figure below shows the average weekly sales rates of Wii systems so far in 2011. (Note that the NPD Group uses five week months for the months ending each quarter and four weeks for every other month.) On the first question, about how much the price cut helped in May, there are a few points we can consider. First, according to figures provided to us by the NPD Group, we know that the average selling price (ASP) for the Wii coming out of April was around $180. Moreover, the ASP fell to $156 - $157 in May. Let us presume that the Wii maintained its April ASP through the first two weeks of May and that it dropped to the new MSRP of $150 for the last two weeks. These are merely approximations of the situation, since some systems were sold prior to the price drop at or near $150, and after the price drop some systems were sold (and are still being sold) at a price lower than $150. Regardless, under these simplifying assumptions we can estimate that approximately 55,000 Wii systems were sold during the first half of May and around 180,000 during the latter half. Because these are based on simplifying assumptions, they must be treated as rough approximations. Still, it is entirely believable that the sales rate fell sharply during those first two weeks of May after the price drop was announced but before it was in effect, and then sales rose dramatically as retailers promoted the new price and new bundle. However, as our diagram above shows, the rate of Wii sales in February of this year was already well over 100,000 systems per week. A rate of 180,000 units over two weeks does not suggest that Wii sales have rebounded even to that level. However, if it maintains that rate and sales of the Xbox 360 continue at their current level, the Wii should be the top-selling console for June. Going forward, all the press surrounding the Wii U debut and launch will have a chilling effect on Wii sales. In fact, if we look for guidance to the PSP, another aging system with a successor on the horizon, the news is not good. Sony announced in January that the PlayStation Vita (then code-named NGP) would succeed the PSP and about a month later dropped the price of the PSP to $130 from $170. During that first month after the price drop, sales of the PSP approximately doubled, but by the next month were back near the pre-cut rate. As shown in the figure below, PSP sales are lower now than they were before the price cut just three months ago. One cannot simply draw a one-to-one comparison between a price cut for the Wii and a price cut for the PSP. Among other points, we note that one is a wildly successful console from Nintendo and the other is a very successful handheld by Sony. However, they are both older technology long priced under $200, with a limited lifetime on shelves and few key software titles on the horizon. In sum, the price cut will have an effect limited to at most the summer months, and certainly won't bring back the level of sales the system enjoyed from 2007 through 2009. After June, when sales could near 400,000 units, we expect Wii sales to begin another downward slide with a modest bump around the holidays.