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Video Games Break Record in 2006

16 Jan, 2007 By: John Gaudiosi

The sales of video game hardware, software and accessories broke a record in 2006, totaling $12.5 billion, according to research firm The NPD Group. That's up 19% from the $10.5 billion games brought in for 2005 and it's the highest total ever for a year of game sales. Numbers do not include the sales of PC games.

Although game sales have been surprisingly solid throughout the year, it was the month of December that really pushed the annual take to its current record. The industry raked in $3.7 billion in December, which was up 28% from last year. Traditionally, the months of November and December account for over half of annual game sales.

“The year was, simply stated, fantastic,” said Anita Frazier, video game analyst, The NPD Group. ”The only category within the industry that didn't see growth from a dollar standpoint was portable hardware, but it grew in unit terms, so the very slight decline was just due to falling price points for the hardware itself.”

While PlayStation 3s were hard to find, consumers gobbled up Nintendo DS systems. Overall, hardware sales were up 59.2% in December to $1.6 billion. Nintendo sold 1.6 million Nintendo DS systems, bringing the life-to-date U.S. installed base to 9.2 million. The big winner for consoles was Sony's PlayStation 2, a stalwart that just doesn't slow down with age. Despite any additional price drops or bundles, Sony sold 1.4 million PS2s in December, bringing its U.S. installed based to 37.1 million.

Sony's marketing push for its PSP helped December hardware sales reach 953,200, which brings the total installed base to 6.7 million in the United States. Nintendo, which won the portable war with Nintendo DS, also came in third with Game Boy Advance, which sold 850,700 hardware units and brought its total U.S. installed based to 35.1 million units.

Overall, hardware sales were up more than 42 percent to $4.6 billion for 2006. Console hardware raked in $2.9 billion, which marked an increase of 87.5 percent from 2005. Sales of next-generation hardware helped bolster these numbers, but it was current-generation that ruled the day.

“Nintendo certainly hit a home run with how they managed the DS this year,” Frazier said. ”And the PS2 has proven to be a system with a life that will continue for at least a couple more years.”

The head start that Microsoft got with its hardware launch in 2005 allowed the game maker to win the next-generation round this past Christmas. While PS3s and Wiis were nearly impossible to find, retail shelves were stocked with Xbox 360s. Microsoft sold 1.1 million Xbox 360s in December, bringing its U.S. installed base to 4.5 million. Nintendo sold more than 604,000 Wiis in December, bringing its U.S. total for the year to 1.1 million. Sony sold nearly 491,000 PS3s in December bringing its U.S. total for the year to 687,300. Sony said it shipped 1 million PS3s in 2006, although that number includes Canada.

“Nintendo has done a really amazing job of positioning the Wii,” said Frazier. ”They are not trying to compete head to head with Sony or Microsoft in terms of owning the living room, but instead are focused solely on gaming, and on gaming that brings in more non-traditional gamers. Assuming we'll see more third-party support for the Wii than we did for Gamecube, I see a shining future for this system.”

Frazier said the PS3 has struggled. November sales were remarkably similar to that of the PS2, but December sales were low, due to supply constraints.

“Sony will have to focus on content, both from themselves and their third-party supporters, that is exclusive enough and compelling enough to drive hardware sales,” Frazier said. ”The price point is high and so many are focusing on that as a barrier. But frankly I see content as the key. If they have great content, the price point becomes less of an issue. Sony certainly has the brand name equity in their favor with PlayStation. I think the times of rocky console transitions are behind us because the foundation from legacy systems is now so substantial.”

Microsoft sold an additional 51,000 Xbox 360 HD-DVD drives in December, bringing its total U.S. installed base to 92,000 units. The $200 device has about a 2 percent attach rate based on the 4.5 million Xbox 360s in home.

“Microsoft worked out its 360 supply issues and is set to soar,” Frazier said. “They've caught up to the pace that was set for the Xbox and now can capitalize on its first-to-market advantage. They need to keep the content coming, whether it's from themselves or their third-party partners. That would be the best way of insuring continued leadership in this next-gen race.”Frazier said 2006 was a much less volatile transition than folks anticipated. She believes there are two factors helping the changeover. First is the continued strength of the PS2, which provided a very stable base for the industry. Second is the Nintendo DS, which was successful in driving the handheld market to an older consumer without ignoring the core consumer of the Game Boy.

On the software front for 2006, game sales were up 6.4% to $6.5 billion. Consumers spent $4.8 billion on console games (up 2.6% ) and an additional $1.7 billion on portable games (up 18.%). December brought in $1.7 billion in game sales alone.

Five of the top 10 game sales of the year were on PS2, which has the largest U.S. installed base. Electronic Arts's Madden NFL 07 took the top spot with 2.8 million PS2 units sold and it also came in eighth place with the Xbox 360 version selling an additional 1.1 million copies. Overall, the exclusive NFL game franchise sold more than 5 million copies in the United States. EA also had a winner with NCAA Football 07 on PS2, which sold 1 million copies to earn 10th place. Other PS2 winners included Square Enix' Kingdom Hearts II, which sold 1.7 million copies and came in fourth place. Activision's Guitar Hero II sold 1.3 million units and came in fifth place. Square-Enix' Final Fantasy XII sold 1.3 million units and came in sixth place.

On Xbox 360, Epic Software's Gears of War sold 1.8 million copies in the U.S. alone since its Nov. 12 launch, putting it in third for the year. Tom Clancy's Ghost Recon Advanced Warfighter sold 1 million copies for Xbox 360 in 2006, earning the game ninth place.

Nintendo DS games rounded out the Top 10 of the year. Consumers bought 2 million copies of New Super Mario Bros., which came in second, and picked up 1.1 million units of Brain Age: Train Your Brain, which came in seventh place.

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