Nintendo Wii vs Sony PlayStation 3 vs Microsoft Xbox 360: Q2 2007
August 25th, 2007
Daniel Eran Dilger
Back in March, I outlined first quarter 2007 sales for a new generation of consumer electronics, including the Nintendo Wii, Sony PlayStation 3, Microsoft Xbox 360 and Zune, and estimated sales into the future. The numbers ended up working out largely as was predicted, as the graphics below indicate.
Worldwide Sales Numbers.
Nintendo’s Wii, while nearly impossible to find in retail stores, sold slightly above the company’s second quarter June 2007 goal of 9 million units, reaching sales of 9,270,000.
Sony’s PlayStation 3 also edged slightly above its 6 million goal for Q2 by shipping 6,210,000 units to stores. There is still significant inventory left unsold in stores, which prompted Sony to cut the PS3’s price in July by $100, to $499 and $599 for the two PS3 models, the same price points as Apple’s iPhone.
Microsoft had originally set a target of 15 million Xbox 360s by the middle of 2007, but dropped that target down to 12 million. Even with lowered expectations, the company was still unable to meet its goal, having only shipped 11,600,000 units by the end of June.
For the first half of 2007, while Nintendo sold 6 million units a quarter and Sony shipped 2 million per quarter, Microsoft was only about to push out 600,000 units a quarter, in large part because the retail channel is already full of unsold Xbox 360s.
Here are the expectations I published in March compared to actual numbers for June, and expected results for September:
Watch for Falling Prices.
Sony announced that PS3 sales were up 135% for the first two weeks of July following its PS3 price cut, which ended up increasing July sales by 61% over sales in June. However, Sony still only sold 159,000 units in July through US retail stores as reported by NPD.
Plagued by “red ring of death” hardware issues, the Xbox 360 narrowly edged ahead of the PS3 in July sales, with NPD reporting retail sales of 170,000 units. However, Microsoft’s console unit sales lead over the PS3 fell from comfortable 100,000 units in June to a margin of only 11,000 in July.
Microsoft was forced to announce its own $50 price cut on the Xbox 360 to boost stagnant demand and remain competitive with the PS3; that cut was made the first week of August. In addition to lowering the price of new units, Microsoft also had to offer a warranty extension and allocate over a billion dollars for repairs of existing units due to extraordinary failure rates.
Across the 11.6 million Xbox 360s sold, that means Microsoft has set aside $100 per unit for repairs, enough to buy back every third unit sold. Imagine Apple having to layout $11 billion dollars to fix failing iPods, or Sony having to spend a similar amount to fix a third of its PS2s!
Wii Takes the Lead.
Meanwhile, Nintendo’s Wii jumped in retail sales from 381,000 in June to 425,000 in July, despite highly constrained availability of the consoles. That increased Nintendo’s sales lead over the Xbox 360 by 183,000 and then 255,000 units per month in June and July.
The NPD monthly sales numbers cited above only include US figures for retail stores, excluding online sales through stores such as Amazon as well as sales through Wal-Mart and other major retailers who do not participate in NPD’s point of sale tracking.
NPD’s US numbers are skewed in favor of Microsoft, since the company’s Xbox 360 systems are predominately sold in the US. In Japan, while Nintendo sold nearly 74,000 Wiis and Sony sold almost 22,000 PS3s, Microsoft sold fewer than 2,500 Xboxes in the same period.
Worldwide, Year Over Year Sales.
When looking at actual worldwide sales reported by manufacturers, 360 unit sales are flattening out dramatically.
Microsoft has now had two quarters of sales well behind last year’s sales. While pundits like Troy Wolverton love to jump on iPod quarterly sales whenever a blockbuster holiday quarter isn’t matched by the following January to March quarter, the iPod has never fell year over year.
In its second year, the Xbox 360 is slipping behind every quarter in year over year sales, and not by a little. This years’ Xbox 360 sales are less than half those of 2006’s.
While Windows Enthusiasts like to deride PS3 sales as low, Sony’s relatively high priced console is selling at identical levels to Microsoft’s 360 figures from last year after its initial stumble out of the gate.
In other words, the PS3 is matching the Xbox 360’s first year sales while 360 itself isn’t, allowing Sony to incrementally catch up while Microsoft languishes with static sales.
In just half a year, Sony is at half of Microsoft’s sales, despite the Xbox 360 having been on sale for over a year and a half. Nintendo’s Wii, however, is taking off in a way that leaves both of the HD consoles behind. It appears poised to pass total sales of the 360 next month at the end of the third quarter.
Software and Installed Base.
So much for Microsoft’s year long head start. Of course, the real money in console games is in software. That’s why Sony’s older PlayStation 2–with the largest installed base by far of any console–continues to dominate the sales of video game titles in the billion dollar a month video game industry. Four of the top ten video game titles in July were for the PS2. While Sony will be happy to catch up to Microsoft in the HD console race, the PS3 is really fighting for attention against Sony’s own PS2.
Nintendo’s accelerating hardware sales has given the Wii two of the top ten video game titles, tying it with the 360 and putting both in front of the PS3’s single top ten title. By March 2008, Nintendo forecasts sales of 22.3 million Wii consoles, more than double the number of Xbox 360s Microsoft sold in its first six quarters.
That large installed base will dramatically influence the development of new software titles. As a software developer, Nintendo makes money on that side of the aisle as well. The company has already sold 44.8 million Wii titles, and plans to sell over 100 million Wii games by March 2008. No doubt a lot of other developers will want to get in on that action, too.
The remaining top ten title is for Nintendo’s handheld DS platform, which is also the only handheld with a top ten title. The Nintendo DS is outselling Sony’s PlayStation Portable by nearly a factor of two. Adding in handheld video game systems, Nintendo sells over three and a half million game console units per month.
Nintendo still reports earning more revenue from its video game hardware than from software sales; in the April – June second quarter of 2007, it reported $2 billion from hardware sales and just under a billion dollars of software. On those sales, it made a quarterly profit of $775,000; it would appear Nintendo makes much of its profits from software sales.
However, Nintendo’s ability to earn money in both video game hardware and software–contrasted with the staggering quarterly losses suffered by Microsoft ($1,199,000,000) and Sony ($250,000,000) in their own video game hardware and software efforts–indicate that it isn’t state of the art features or “HD” that are backing up the profits in video games. Instead, it’s innovation in playability at lower, consumer-friendly prices.
While the war between Microsoft and Sony to deliver the next video game platform is really being overshadowed by Nintendo on the gaming side, Microsoft and Sony are also fighting to deliver the HD replacement for the DVD.
The next article takes a look: Blu-ray vs HD-DVD in Next Generation Game Consoles
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