DFC: Wii To Set 2008 Record For Most Consoles Sold?

Author: by DFC Intelligence

Will the Wii set the record for most consoles sold in a year in 2008? In its latest brief, analyst group DFC Intelligence looks at the ongoing console wars following Memorial Day channel checks and predicts it may, but still concludes that PlayStation 3 will surpass software sales for the Wii by 2012. The full text of the report follows: Led by the PlayStation 2 (PS2), the “128-bit” generation of video game systems has reached a record global installed base that is expected to exceed 180 million units. Of course, the PS2 was the best-selling game system ever. With high hardware prices and a slow start for most of the current generation of game systems (Microsoft Xbox 360, Nintendo Wii, PlayStation 3), DFC Intelligence had originally forecasted that it would not be until 2012 that the installed base for the current generation started to match that of the 128-bit systems. However, 2007 was a record year on all fronts, as sales of PC and video games reached an all-time high and overall worldwide industry sales soared over the $50 billion mark. DFC Intelligence forecasts that sales for the current generation of systems will pass the $180 million mark in 2011. Ironically, a slowing economy can actually help the game industry. Video games provide a high rate of entertainment return and high gas prices actually encourage people to stay home and play games. The latest DFC Intelligence forecasts predict that all three systems (360, Wii, PS3) will have a solid installed base. Nevertheless, it looks like the Nintendo Wii will be the overall installed base leader. The Wii has enormous momentum and appeals to the broadest audience. In doing retail checks over Memorial Day weekend, the item that everyone was asking about was the just launched Wii Fit. However, none of the retailers we visited had any in stock. It is because of this type of demand that DFC believes in 2008, the Wii could set a record for most console systems sold in a single year. Of course, many of the biggest games are not even coming out for the Wii. Halo 3 and Gears of War were exclusive to the Xbox 360. The upcoming Metal Gear Solid 4 is only going to be on the PlayStation 3. The biggest title of 2008, Grand Theft Auto IV, is only available for the PS3 and Xbox 360. In other words, for many third-party publishers the more important race is between the Xbox 360 and PlayStation 3. Two years ago about this time, DFC Intelligence asked the question, “Could Sony Go From First to Worst?” At the time, our less than definitive answer was: maybe. We argued that much would depend on the execution of Sony and its competitors over the next few years. Two years later, DFC can say with more confidence that we do not think the PlayStation 3 will be the third place system. DFC forecasts that the PS3 will overtake the Xbox 360 in 2009 and finish in a strong second place behind the Wii. The price of the PlayStation 3 has come down to a reasonable level and the software lineup is finally starting to look fairly strong. Most importantly, Sony was able to keep the PlayStation 2 installed base active. For its recently ended fiscal year, Sony Corp. reported that hardware unit sales of the PS2 were down by 7%. From our perspective we would say they were ONLY down by 7%. This is amazing for a system that launched in 2000. The PS2 managed to outsell both the PS3 and Xbox 360 in 2007. The sales performance of the PlayStation 3 has been less than stellar, but Sony has survived. The Xbox 360 was unable to take advantage of Sony’s struggles to build the type of large lead needed to maintain a long-term advantage. The PS3 survived the onslaught of AAA Xbox 360 titles that hit the market from late 2006 through 2007. Halo 3 had great sales, but it did very little to enhance the Xbox 360’s overall position in the marketplace. The Xbox 360 is the system of choice for fans of high-action first-person shooter (FPS) games. However, for the 80%-plus of game consumers that DO NOT play FPS games, the Xbox 360 is not the system of choice. In our upcoming Genre Forecasting report, we look at expected sales by platform based on genre. While the Wii may have the highest installed base, there are not expected to be any mega-hit FPS titles on the platform. The average FPS title is expected to have 60% higher sales on the Xbox 360 over the PS3 and over three times the sales of the average Wii FPS game. The biggest uncertainty in forecasting the market five years from now is estimating the impact future, unannounced systems will have. In building our forecasts, DFC Intelligence has assumed that some new systems will launch in the 2011 to 2013 time frame. However, these forecasts are very hypothetical and are made under the assumption that a new generation of console systems will look very much like the past generation of game systems. This may not be the case, and right now we do not even know who the major players will be. How soon will Nintendo want to launch a new system with the Wii being so successful? Will Microsoft still want to stay in the game business given their losses? Is Sony really serious about pushing the PS3 to a ten year plus life cycle? Will new game systems just be an extension of the current game systems with some enhanced features and services? These are questions we are currently unable to answer. One thing that is worth noting is that DFC has built in different models for how fast the current systems will be retired and how heavy consumer purchasing of software will be for each system. We call these factors respectively the active installed base and software tie ratio. The Xbox 360 has a high software tie ratio, but given technical problems among many early units it also has a fairly high retirement factor. The Wii has both a lower software tie-ratio and a higher than average retirement factor. On the other hand, one advantage with the PS3 is its durability and what is expected to be a fairly strong software tie-ratio in the long-term. For this reason, the DFC Intelligence forecasting model indicates that software sales for the PlayStation 3 will surpass software sales for the Wii in 2012. Of course, by this time, software sales for all systems are expected to be on the decline. The biggest story over the next few years may be the declining overall importance of the console systems. Last year Sony’s biggest selling game system was the portable PSP. Meanwhile, the Nintendo DS blew out all records for game system hardware unit sales (portable or console) in a single year. From a pure revenue perspective, the biggest system for software sales in 2007 was the PC, if you include revenue generated from online services. Like we said, 2007 blew away sales records on all fronts. Right now it looks like 2008 will be even better.