Analysis: Xbox 360 S Model Tracking Ahead of PS3 Slim

[Gamasutra analyst Matt Matthews looks at how new slimlined consoles are driving growth year over year for the Xbox 360 and PlayStation 3 platforms, comparing the two consoles' performance -- and finding the Xbox 360 S is out ahead.] Prior to the launch of the new Xbox 360 S in June of this year, sales of Microsoft's console were already up 6.7 percent in 2010, year-to-date. For a console finishing its fifth year, that's a significant accomplishment. After three months of Xbox 360 S hardware sales, the system is up a staggering 34 percent, year-to-date. While sales in August were still short of the 400,000 unit level we favored after seeing the July figures, we can still say with confidence that consumers are buying the new model on its own merits and not simply snapping up clearance-priced older models. Given the launch of the PS3 Slim model last year, we felt it might be useful to compare the sales bump for that system to that for the Xbox 360 S model. The table below shows the year-over-year PS3 sales growth for August – October 2009, and the corresponding YOY growth for the Xbox 360 from June – August 2010. The Xbox 360 S model clearly demonstrates growth quite similar to that of the PS3 Slim, even though the comparison isn't perfect. In particular, the first month of the PS3 Slim was just barely in August 2009, when some systems arrived in stores just before the end of the NPD Group's reporting period. So, while sales were up modestly, the full effect was not felt until September. Sony's Slim boosted its annual system sales by 66 percent, up from 2.95 million to 4.90 million. Were Microsoft to realize a similar rate of growth by the end of May 2011, they would have realized sales of 8.07 million systems annually, up from 4.86 million in the previous 12-months. (For a bit of perspective, the Nintendo Wii still realized sales of 8.99 million systems in the past 12 months, even with its recent weaker sales.) Naturally, Microsoft should also realize stronger software sales in the coming months as a result of the higher hardware sales. Again, looking to Sony's experience as a guide, Sony saw its software sales increase by over 25 percent in the year following the launch of the PS3 Slim. By our estimates, based on Microsoft's periodic press releases about its software sales and analyst comments on growth rates, that would put Microsoft's software sales in excess of $3.2 billion during the 12 months after the launch of the Xbox 360 S model. None of the above estimation takes into account Microsoft's first ace in the hole: Halo: Reach. According to analyst Doug Creutz of Cowen and Company, sales of that title could reach 3.6 million units in September alone. Sales at that level could add $250 million to Microsoft's software revenue, and just from a single title. We also expect that hardware sales for September will easily exceed 400,000 units. Microsoft's second ace is its ability to drop its hardware prices at the time of its own choosing. Provided its hardware sales remain strong through the end of the year – and we see no reason for them to slow down – it can easily afford a $50 price drop on all its systems in early 2011. We feel the Xbox 360 offers a superior value, and at $150 the Arcade model could do exceptionally well throughout next year. Whether Kinect, the new motion control technology launching on the Xbox 360 in November 2010, will represent a significant factor in the system's sales remains unclear to us. (For the sake of completeness, we are also not clear on Sony's strategy for its Move system.)