With sales on the decline, has Call of Duty hit its peak?

One of the more fun parts of watching the video game market is seeing which software sells well, and watching the month-to-month and year-to-year trends. Today I want to take some time to dig into the July 2012 sales chart, and highlight some key features and compare to some historical trends. As always, this is just a chart of retail software sales and does not include any data from online outlets like Steam, Origin, Xbox Live, the PlayStation Store, or the Wii Shop. In some distant future, perhaps we can get those kind of comprehensive charts, but the industry stubbornly clings to the idea that hiding its digital sales figures under a bushel is somehow advantageous. According to the NPD Group's latest figures, the chart given below shows the top 10 titles for July 2012. The listing of platforms beside each title indicates the ranking of the sales of the individual SKUs. As we saw last year, July's sales chart is filled with older software titles, typically referred to as catalog software. Two titles, Batman: Arkham City and Dead Island, appear to have tried to capitalize on this weak spot in the release calendar by putting out Game of the Year editions. According to NPD Group data, the top seven titles on this list sold more than 100,000 units. That compares with six titles which sold over 100,000 on the July 2011 chart a year ago. As expected, NCAA Football 13 from EA Sports took the top spot. According to Doug Creutz of Cowen and Company, sales of NCAA Football were off from last year by about 12 percent, which would put the total at around 700,000 units at launch based on data from last year. Creutz elaborates that since EA put more effort into promoting NCAA Football last year “as a hedge against a potentially extended [NFL] strike” that might have hurt Madden NFL sales, the decline in NCAA Football sales need not all be attributed to the inherent weakness of the market. I would add that total unit sales across the industry were off about 20%, so NCAA Football is already beating the average significantly. Last year, four copies of the Xbox 360 version of NCAA Football 12 were sold for every three copies for the PlayStation 3. According to the NPD Group, that ratio remained about the same (1.3 to 1) this year. That gives us a clearer picture of the history of NCAA Football sales over the past few years, as shown by the figure below. I've excluded the PS2 from this data for NCAA Football 2008 through NCAA Football 2011, so the graph above really shows the growth of the franchise just on the HD platforms. Except for the bump to around 450,000 units last year, the Xbox 360 version has been remarkably stable with sales between 330,000 and 400,000 units. Underneath NCAA Football 13 and a couple of other newer releases, several older titles made reappearances on the list, including Call of Duty: Black Ops. That title launched in November 2010, over 20 months ago. This is yet more evidence that Call of Duty: Modern Warfare 3 has been lagging behind its predecessor. In fact, it now appears that Modern Warfare 3 will not surpass Black Ops in lifetime sales, at least in the U.S. According to official NPD Group data, lifetime retail sales of Black Ops stand at 16.4 million copies through July 2012 while sales of Modern Warfare 3 are at 13.7 million copies. You might recall that Modern Warfare 3 initially launched at a level 10% higher than Black Ops, but was falling behind in comparable period sales by the early months of 2012. On the other hand, Modern Warfare 3 has already surpassed sales of Modern Warfare 2 (2009) by about 800,000 units. Activision recently commented that its a la carte sales of DLC for Modern Warfare 3 were down relative to a la carte DLC sales for Black Ops, but that premium Call of Duty Elite subscriptions mitigated the revenue. This suggests that the revenue from the latest games is not a disparate as the unit sales would suggest. When asked, Michael Pachter of Wedbush Securities told me that "MW3 has no chance of catching Black Ops" in unit sales but that in terms of revenue it "will be close." Which leaves open the question of what will happen to the next installment, Black Ops II due out in November of this year. Will Black Ops remain the peak for the series in terms of unit sales, or will Modern Warfare 3 simply have been a small step back before hitting a new high? Perhaps more importantly, will the millions of Call of Duty Elite subscribers renew their subscriptions, and how many of them will pay for the premium service? Pachter had an interesting take on this, and one that I think is worth considering. He described the Call of Duty series as "under assault from other military-style multiplayer shooters", including EA's Battlefield series, Microsoft's Halo 4, Bungie's upcoming game, and possibly Respawn's first title. The brand is becoming fatigued, he added, and as a result its "audience is getting fractured." Given the importance of the series in each of the last three years, the direction that its sales take this holiday and into the coming year will be significant for the industry. When Black Ops launched, for example, it accounted for 25% of all software units and 33% of all software revenue in November 2010. Activision isn't sitting still, of course. Just take a look at this slide from its latest presentation to investors. If you want to know part of Activision's plan for dealing with a possible decline in Call of Duty revenues, I believe you have to look no further. In my personal experience the first Skylanders game enjoyed a sizable and prominent position at retail. The plan to increase that visibility by 50% with Skylanders Giants and build the franchise into a business that brings in billions of dollars should be interesting to watch.