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Games Continue Record Pace

24 Apr, 2007 By: John Gaudiosi

Bolstered by sales of something new (Nintendo's Wii) and some things old (Sony's PlayStation 2 and Nintendo's Game Boy Advance), Q1 2007 set the pace for a record year.

Despite rampant shortages of Wii and Nintendo DS hardware, hardware sales doubled from $659 million in Q1 2006 to $1.3 billion in Q1 2007, according to tracking firm the NPD Group. March hardware sales, alone, were up a whopping 93% to $257 million over last year's total.

Overall sales of video game hardware, software and accessories raked in $3.3 billion, up 54% from the same quarter last year. Game software sales were $1.6 billion from January to March 2007, up 30% Q1 2006. Overall March game sales (hardware, software and accessories) were up 33% to $1.1 billion versus $818 million last March. The sale of game software alone was up from $501 million last March to $574 million last month.

“Q1 is looking like the beginning of an up-cycle year,” said Billy Pidgeon, video game analyst, IDC. “There's good software movement, but hardware is stalled a bit by short Wii supply and stagnant demand for 360 and PS3.”

In March, Sony sold 280,000 PS2s and 130,000 PS3s. which tells the tales of two different systems — one a $130 winner that has a global audience of 100 million-plus games, and the latter a $600 next generation console that sits on store shelves. Microsoft sold 199,000 Xbox 360s last month, as well as 43,000 Xbox 360 HD-DVD drives in Q1. Nintendo sold 259,000 Wiis in March and could have sold more, had it any in stock. Consumers of all ages continue to buy it up as soon as it hits retail shelves.

Nintendo also has had continued success in the portable gaming space, which was up 33% to $114 million for March. Nintendo DS, also in short supply, leads all game hardware with sales with 508,000 units sold in March. Nintendo also sold 148,000 Game Boy Advances last month. Sony sold 180,000 PSPs in March.

“I believe the Wii will continue strong growth although supply continues to be a problem,” Pidgeon said. “I'd like to see Wii hardware shipping in larger quantities or mass market consumers may cool on it. Having said that, I don't believe supply will meet demand for the Wii until 2009. Xbox 360 and PS3 need system-selling games ASAP. Halo 3 will help, as will Lair and Heavenly Sword, but that leaves a hole in Q2 which will be filled by Wii, DS and PSP hardware and software. We'll also see more PC and PS2 software picking up the slack.”

With the first quarter of 2007 now completed, Wii already has notched more than a million systems sold in America this year, while the DS now stands just shy of 1.25 million for the same period. Wii remains the fastest-selling new console in more than a decade, based on NPD sellthrough information over the first five months of availability. So far this year, Nintendo has sold more video game systems than all other manufacturers combined. Game accessories were up 48% in March to $145 million, thanks in large part to sales of Wii peripherals.

Wii sales actually dropped 22% from February to March due to supply constraints. Xbox 360 hardware sales slipped 12.7% and Sony saw a small increase (2.3%) in PS3 sales from February to March. Despite all of the next-generation hype over the past year-and-a-half, it's still the old PS2 console that's propelling the game industry to new highs.

“It still seems to be the year of the PS2,” said Michael Pachter, video game analyst, Wedbush Morgan Securities.” Notwithstanding all of the other choices, consumers keep buying PS2 games, with barely any drop off. Virtually all of the year-over-year growth is attributable to a slower than expected decline in PS2 software sales.”

Pachter said that with the big movie lineup over the next few months (Spider-Man 3, Shrek the Third, Transformers, Ratatouille, The Simpsons and Harry Potter and the Order of the Phoenix), he expects PS2 software sales to remain quite strong through September, and he believes the industry will see an 18% to 20% growth increase this year by the time January comes around.

"Hardware sales have been on fire, but two platforms stand out in particular: the PS2, because although it was thought to have a long life still ahead of it, that was mostly on the software side," said Anita Frazier, videogame analyst, the NPD Group. "To see continued sales of the hardware now that we're fully into the ‘next-gen' raises the status of this machine from what would have been a legacy system, to one that fully has rights to claim a spot in the ‘now-gen' collection of hardware systems which includes the Xbox 360, the Wii, the PS2, the PS3, the DS and the PSP. Second, the DS has elevated portable gaming from a ‘kids' option for gaming to one that is enjoyed by a wide variety of gamers."

In the top games category, in less than one month, God of War II has become the top-selling game of the first quarter, with sales of 833,000 units in March. Ubisoft's Tom Clancy's Ghost Recon Advanced Warfighter on Xbox 360 sold 394,000 units in March, and Activision sold 291,000 copies of Guitar Hero II for its Xbox 360 launch. Disney Interactive's Spectrobes for Nintendo DS broke the Top 10, as did Electronic Arts' Def Jam Icon for Xbox 360. Two baseball games topped March sales as well, Sony's MLB 07: The Show for PS2 and 2K Sports' Major League Baseball 2K7 for Xbox 360.

"It's hard to identify ‘trends' in games sales because they're so title level driven," Frazier said. "I wouldn't say any real trend sticks out to me, except for the fact that folks seem to be surprised that the majority of game sales tend to be E/E+10 or T rated. Although the M-rated games seem to get a lot of public attention for a variety of reasons, folks outside the industry seem to be surprised by just how dominate more family-friendly fare is in tallying up total sales."

Four of the top 10 games of March were for Xbox 360, two were for PS2, two were for Nintendo DS, one was for Wii (Wii Play w/ Remote with 273,000 units sold) and one for PS3 (MotorStorm with 199,000 copies sold). Only two of the Top 10 games of March were rated ‘Mature,' while five were rated ‘Everyone' and three were rated ‘Teen.'

"I do see the momentum for the industry continuing through the rest of this year," Frazier said. "That does not mean that I expect each and every month to outperform the same time period in 2006 to the same extent that it already has this year, but I don't think we'll see a correction that would minimize the gains."

Lifetime Hardware sales units in the United States:

DS (released November 2004): 10.4 million
PSP (released March 2005): 7.2 million
Xbox 360 (released November 2005): 5.3 million
Wii (released November 2006): 2.1 million
PS3 (released November 2006): 1.2 million

Top games, March 2007:

God of War II (PS2): 833,000
Ghost Recon: Advanced Warfighter (360): 394,000
Guitar Hero 2 (360): 291,000

Top games, Q1 2007:

God of War II (PS2): 833,000
Wii Play w/ Remote (Wii): 644,000
Lost Planet: Extreme Condition (360): 573,000

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