The 2011 U.S. retail software sales breakdown

[Gamasutra analyst Matt Matthews offers an extensive breakdown of 2011 U.S retail video game sales in his latest Behind the Numbers column.] Earlier this week, I looked at overall U.S. revenue and hardware trends for December 2011, and full-year sales estimates from the sales-tracking NPD Group for the retail video game market. Today I want to look at the software situation, breaking out not only some information about the top sellers in December and the year, but also some information about the leading consoles and their software fortunes. The domination of Infinity Ward's Call of Duty: Modern Warfare 3 continued into December after its monstrous launch the previous month. According to Liam Callahan, an analyst for the NPD Group, sales of Modern Warfare 3 in November and December were up only 3 percent from the level set last year by the previous Call of Duty game, Black Ops. According to my notes about last year's figures, Black Ops had over 8.4 million units in November, approximately 3.6 million units in December, and a total of approximately 12.1 million units by the end of 2010. If Modern Warfare 3 is up 3 percent over that total from last year, I'd expect its sales to be in the 12.4-12.5 million unit range for its first two months, which breaks down to about 9 million in November and 3.4 million in December. That is, sales of the new Call of Duty game were up 6 percent year-over-year in November but then down by about 5 percent in December, for a net growth of 3 percent. This fits precisely with the narrative I drew from the revenue figures: the industry's holiday sales were shifted more toward November. NPD's Callahan elaborated that this trend was seen across all November launches, with those titles selling 19 percent fewer units in December than their counterparts the previous year. Have sales "crested"? Are there other explanations for Modern Warfare 3's slowing sales? I suggested to Wedbush analyst Michael Pachter that perhaps Call of Duty sales have reached their limit, and he responded that "it is possible that sales have crested" and that it will be difficult to know whether sales will remain at a high steady-state going forward or decline. Ultimately, though, he felt they'd stabilize at this level for a couple of years. On the same topic, Andrew Connor of Piper Jaffray noted to me that some of the slowing growth was "obviously some share opportunity loss to Battlefield 3," but that fatigue both with this console generation and even the popular first-person shooter genre figured into the dynamics. Even so, Activision Blizzard may not feel the pinch just yet, since he thinks - and I agree - that the Call of Duty Elite service will "raise the average spend per user." This isn't new, of course. Over two years ago, I estimated based on available figures that the average Call of Duty: World at War owner was spending about $65 on the game, including an average $9 on DLC. The Elite service is simply another step in a developing business model. The top games With all that said, here is the top 10 chart for December 2011, with Call of Duty: Modern Warfare 3 taking the top berth. We already know that Call of Duty represents approximately 3.4 million units on the chart above. Nintendo's Mario Kart 7 for the 3DS also sold over 1 million units during December, which means that both Just Dance 3 and Elder Scrolls V: Skyrim were also over 1 million units when all versions were combined. In following up with Pachter, he elaborated on the other million-selling single SKUs for December 2011. The aforementioned Mario Kart 7 almost hit 1.2 million units while Call of Duty: Modern Warfare 3 on the PS3 was just over 1.25 million, and the Xbox 360 version moved almost 1.9 million copies. And the top-selling SKU for the month was Just Dance 3 for the Wii, with sales of well over 2.5 million units just in December. According to Ubisoft, the third installment of the hit music game has now passed 7 million units in sales worldwide, while the franchise has racked up 25 million units across six titles. It will be interesting to see where the franchise and its sales trends go from here, as its primary platform - the Wii - is in terminal decline. Will it pick up where it left off on the Wii U, or will consumers seek it out on other platforms? Before moving on to platform unit sales and revenue, I want to put up the top 10 for all of 2011. Here is the chart. Two things really stand out to me when I see this chart. First, the persistence of two titles that launched in 2010: Black Ops and Just Dance 2. Those two titles, and their sequels, undoubtedly account for the majority of unit sales in this chart. Moreover, they represent to me the archetypal opposites on which the industry is built: HD consoles versus the Wii, hardcore gamers versus the casuals, online focus versus local multiplayer. When a platform finally captivates both of these groups, it will be like catching lightning in a bottle. The Wii almost had it, and the Xbox 360 with Kinect is tantalizingly close. The second point that that chart brings out is just how sequel-driven the top end of the market has become. Every game, with the exception of Just Dance 2 and Batman: Arkham City is a sequel of sorts several times over. I'm just now beginning to try to follow the mobile/tablet gaming market, and while many of the games I see there are derivative, the ones that appear to sell exceptionally well are still original in many ways. If there really is generational fatigue, as Piper Jaffray's Connor suggests, and consumers are "spending more time on Facebook and the iOS app ecosystem," then perhaps this heavy dependence on sequels is contributing to that trend. The Big Three Finally, I want to look at some estimates for software unit sales and revenue for the big three consoles. According to official NPD Group figures, the current tie ratios for the Nintendo Wii, Sony PlayStation 3, and Microsoft Xbox 360 are given in the table below. The last time I got official tie ratio data was back in mid-2011. At that point, the Xbox 360 tie ratio was 8.9, the PS3 was 7.9, and the Wii was 7.3. (As a quick reminder, our use of tie ratio means total units of software sold divided by total units of hardware sold. This excludes software titles bundled with hardware like Wii Sports but includes Wii Play, which was bundled with a controller.) The Xbox 360 figure, in particular, is interesting to me because it has increased at the same time that Xbox 360 hardware sales have been increasing. That means that software is more than keeping pace with the rate of hardware sales. Putting these tie ratios together with hardware sales, I come up with the following picture of software unit sales for each of these platforms over the past three years. Because I am constrained to using rounded figures and not provided raw sales data from the NPD Group, there is an inherent margin of error. However, I believe that the figures here are accurate enough to capture the underlying dynamics. The Wii's software unit sales appear to have declined in 2011 by about as much as the Xbox 360's unit sales grew. After a sharp increase from 2009 to 2010, the PS3 saw its unit software sales grow far less than I would have expected, and it still remains behind the Wii. For perspective, however, remember that the PS3 is just now passing 20 million systems while the Wii is closing in on 40 million systems. Now, we look at the corresponding graph for revenue, and the PlayStation 3 moves ahead of the Wii by a significant margin. Truly, Wii software is generally priced lower than software for the PS3 and the Xbox 360, but there's actually a bit more at work here than just the simple price differential. This point was highlighted to me in an email from Pachter, and it is very interesting indeed. According to him, the average selling price (ASP) of Wii software fell nearly 18 percent from approximately $40 per title in 2010 to just under $33 per title in the past year. For comparison, the ASP for Xbox 360 software also dropped, but by only 6.5 percent, and PS3 software prices declined by about 3 percent. Software ASPs for the two HD consoles are essentially the same, at between $47 and $48. It appears that, except for very cheap software and Just Dance 3, consumers are largely done with the Wii while Xbox 360 and PS3 owners are still willing to pay around $50 for the software they're buying on those platforms. Regrettably, customers as a whole are spending less on software and simultaneously buying fewer titles. For the full year 2011 the average price of a unit of software was approximately $38.50, down from $40 for all of 2010. Moreover, total software unit sales in 2011 came in at essentially the same level that the industry saw in 2010 and in 2007 - the first full year that the PS3 and Wii were on the market - as demonstrated by the following graph. The above figure is suggestive that software unit sales may be bottoming out, but it will take a good part of 2012 to know for sure.