The Divnich Tapes: Is Nintendo Finally Meeting Demand?

[Throughout this week, EEDAR's director of analytical services Jesse Divnich is presenting exclusive Gamasutra analysis of April's hardware and software trends, using data from Electronic Entertainment Design and Research (EEDAR), The simExchange, NPD, IGN GamerMetrics, and GameTrailers. Today's chart analysis examines gray market sales data to determine whether Wii pricing fluctuations are a sign of Nintendo increasing its supply enough to meet demand. Previously: no need for hardware price cuts, the implications of April's underperforming software sales and Microsoft and Sony's GTA IV victories.] Most of us are familiar with black markets and legal markets -- one sells goods through illegal means, the other does not, something pretty simple to understand. Regrettably, Economy 101 is not that black and white, as there exists another market in between those: the gray market. Gray markets are by nature built into any free economic system, and, by definition, are a legal market that sells goods through unofficial or unauthorized channels. As it applies to the video game industry, it essentially means games and consoles that are re-sold through websites like Amazon.com, Half.com, and Ebay.com. As you might imagine, publishers dislike these channels. The website Videogamepricecharts.com provides a service for video game resellers that tracks the selling price of new and used items through these unofficial channels. This allows us to analyze the current supply or demand constraints on the Nintendo Wii console. Since its inception, the Nintendo Wii has been in short supply, as evidenced by charts like the one above showing consumers paying above-retail prices. Think in terms of the gas prices: demand is exceeding supply, therefore prices increase. In this case, though, Nintendo can't change its retail price, but these gray markets can. What makes this interesting is the decline in the gray market price since its holiday season peak (I would regard the spike in early February as an anomaly). This would indicate three possible situations: 1. demand for the Wii is declining, 2. supply through legal channels is increasing or 3. a combination of both. Given that Wii sales in March and April exceeded 700k and gray market prices are on the decline, it is likely that Nintendo’s supply constraints are easing and demand has gone unaffected. If that theory is true, May should produce the same level of hardware sales as March and April. For reference, I will include the same graph but for the $349.99 Xbox 360 hardware SKU, but keep in mind that these prices include the sale of used and refurbished systems, which would explain why gray market prices are well below the retail price. Note, though, that the Nintendo graph also included refurbished and used Wiis. This is far from being an exact science, and there are flaws when you group new, used, and refurbished sales into a graph, but over a long period -- say, 10 months -- you get a good visual average of the current supply and demand constraints on a hardware unit. All of that being said, I would not expect a Nintendo Wii price drop until well into 2009. [Jesse Divnich currently serves as the director of analytical services at Electronic Entertainment Design and Research (EEDAR). The following is the views and opinions of one person and not of EEDAR, The simExchange, GamerMetrics, or Gametrailers.]