A Very Early Attempt at Timing the Wii U/ PS4 / X720 Launches
by Jacob Mazel, posted on 14 July 2011 / 6,060 Views
Introduction: Looking at Saturation & Decline
New consoles from Nintendo, Sony, and Microsoft are coming fairly soon. No one knows just when, but there are a couple market realities that suggest sooner rather than later, and the last time I attempted launch timing (with 3DS) I did get a fair number of the main points right.
First, over 193.5m Wiis, X360s, and PS3s have sold globally to date between November 2005 and the end of June 2011. Between November 1998 and June 2011, only 208m PS2, Xbox, GC, and DC systems sold globally. Excluding Dreamcast, 198m PS2 era systems sold from March 2000 to June 2011. Currently, about 370,000 - 420,000 current generation consoles (Wii, X360, PS3) are selling each week even with penetration of nearly 200m.
Next off, for the week ending July 2, 2005, six years ago prior to the point of our most recent weekly data, 327,000 PS2 era systems sold (PS2, Xbox, GC) compared to 383,000 current generation systems in the week ending July 2, 2011. Including Dreamcast, 136m systmes had sold through July 2, 2005, about 65% of the (nearly) final penetration for machines of that era. As hardware sales are over 40% higher to date than through July 2, 2005, while weekly hardware sales are only 17% higher, its fairly likely that current generation hardware is at a similar penetration level, on a percentage basis, compared to the (nearly) final sales of PS2 era machines. That would suggest another 105m Wiis, X360s, and PS3s will be sold over the next six years - but that still pales in comparison to what has been sold to date. The 105m remaining systems also assumes we're only 65% through the generation, current generation hardware sales over the next few years could be far less if we're 70% or more through. Moreover, even with 105m current generation consoles remaining something like 30-35% of those systems will probably sell in 2012. Starting in 2013, Wii, X360, and PS3 console sales should each regularly be under 100,000 per week. In 2013-2014, software sales will join hardware sales in becoming largely irrelevant for the current machines.
Finally, it is also important to remember how quickly declines do come once they arrive in full. All you have to do is look at weekly sales. I've used mid-year rates as price cuts tend to come in Spring or Fall, so mid-year tends to be the part of the year least impacted by the cuts.
July 1, 2000 PS2 era system sales: 96,000 (PS2 in Japan only, DC)
July 7, 2001 PS2 era system sales: 246,000 (PS2 & DC)
July 6, 2002 PS2 era system sales: 431,000 (Xbox & GC first full year)
July 5, 2003 PS2 era system sales: 341,000
July 4, 2004 PS2 era system sales: 359,000 (Xbox peak induced spike)
July 2, 2005 PS2 era system sales: 327,000 (-9%)
July 1, 2006 PS2 era system sales: 216,000 (-34%) / Current Era System Sales: 79,000
June 30, 2007 PS2 era system sales: 173,000 (-20%) / Current Era System Sales: 413,000
June 28, 2008 PS2 era system sales: 144,000 (-17%) / Current Era System Sales: 750,000 (Wii peak, PS3 recovery)
July 4, 2009 PS2 era system sales: 104,000 (-28%) / Current Era System Sales: 300,000 (-60%!)
July 3, 2010 PS2 era system sales: 59,000 (-43%) / Current Era System Sales: 542,000 (Wake of Wii / PS3 Price Cuts & HD Slims)
July 3, 2011 PS2 era system sales: 25,000 (-58%) / Current Era System Sales: 383,000 (-30% - even elevated 50k by Wii price cut)
Going by what we know is coming later in the year - a PS3 price cut, and probably a X360 price cut, total console sales might hold at around 300,000 per week in mid-year 2012, but after that the declines should accelerate. To be perfectly frank, even 300,000 units is fairly pathetic for the three machines as it is - if you go back to Fall 2009 (before November), Wii and PS3 were selling at that level individually pretty regularly in the wake of their price cuts. With all of that in mind, we'll take a look at the specific factors for each company that will determine when their next console launches.
Factors Behind the Wii U Launch (Estimate: July 1, 2012 for Japan & Oct 1, 2012 for the West)
Nintendo will be under considerable pressure to launch Wii U successfully in 2012, as 3DS has had a bumpy start for hardware and software sales. The issue with the transition is Wii software sales are still larger than even the peak levels reached on NES or SNES - so Nintendo will not want to kill off Wii too quickly, especially as Wii U plays all Wii games. A soft launch for Wii U though, especially if 3DS hasn't begun to turn around by mid-2012, will make it look like Nintendo has fully lost its way. In the wake of Wii and DS, which produced record results for Nintendo, that would destroy much of Nintendo's market value.
There are essentially three scenarios regarding the timing of the Wii U launch in 2012 based on Nintendo's existing systems and their fiscal year projection:
In the best case software scenario seen above, Wii and DS decline slower than Nintendo expects in the wake of price cuts. 3DS would also meet its software projection, despite its relatively weak launch. This would allow Nintendo and third parties to prepare strong Wii U software as Nintendo thrives off the long-tail of the Wii and DS software markets. Most of the long tail would be on Wii in this scenario, probably on the white-hot performance of dance games like Just Dance 3, Zumba Fitness 2, the Black Eyed Peas, and whatever else shows up over the next 18 months. Wii U, with strong software, and a slightly lower launch cost due to more time in development, launches well in Japan in September 2012, and then performs well in the West after launching November 2012.
In reality, 3DS, Wii, and DS are each looking a bit weaker for software sales over the next two years than what is shown above. A situation like this looks more likely:
In 2011, Wii should remain Nintendo's biggest software market. Software that is presumed for 2012, Mario Party 9, Dragon Quest X, and a few others should keep Wii from deteriorating as fast as DS, but Q4 2012 still looks like the last big Wii Christmas for software. From that point on, 3DS or Wii U should overtake Wii as Nintendo's largest software market. DS software has also been pretty weak in the wake of Pokemon, and will now function as bonus revenue / gravy for Nintendo as PS2 has for Sony in recent years if 3DS software grows to anything substantial. At the moment though 3DS is not offsetting DS declines, and it looks like retailers have yet to burn through the first shipment of 3DS software, so its hard to imagine 3DS meeting Nintendo's projection for software. In order to prevent the back half of 2012 from being too weak then, Nintendo will probably launch Wii U in Japan around July 1, 2012, and around October 1, 2012 in the West. The downward trend in Wii software should then accelerate throughout 2013-2014 depending on how Wii U performs. It does look like Nintendo will have three semi-viable platforms through at least 2014 though, as Wii / DS / 3DS should each be 30m+ sw markets this fiscal year and next fiscal year, followed by Wii / 3DS / Wii U and whats left of the DS market in the March 2014 year.
In the worst case transition scenario, Wii software only holds up for a little while after Christmas 2011, and DS / 3DS software is substantially lower than currently forecast. That would force Nintendo into a global Wii U launch by June 2012 as software declines are much more difficult to stop than hardware declines and also the key to profitability in video games.
The worst case scenario is probably the least likely of the three. While DS is declining quickly, and 3DS is growing slowly, Wii still has a number of long-sellers & huge hits set to release over the next 18-months to prevent its software market from collapsing. Japan still is getting Just Dance 2, Epic Mickey, Wii Play Motion, Go Vacation, Inazuma Eleven, Kirby, Dragon Quest Collection, Zelda, Dragon Quest X, Rhythm Heaven, Mario & Sonic and Mario Party 9 from now to the end of 2012. The West is getting Kirby, Dragon Quest X, Rhythm Heaven, Mario Party 9, Rayman, Zelda, Fortune Street, Just Dance 3, Zumba Fitness 2, The Black Eye Peas, Mario & Sonic, and filler content (COD, Madden, etc). 3DS is also pretty likely to rebound significantly over Christmas on Mario Kart, Super Mario 3D, Sonic Generations, and a couple other major titles - so the final outcome over the next few years will probably be a blend of all three scenarios by platform.
Overall, my take is Ninendo will not allow software shipments to drop below 45m per non-holiday quarter on its platforms for any length of time if it can avoid it as Nintendo would post modest profit figures, and even a couple losses with software sales and revenue below that point. Depending on 3DS growth and how well Wii holds up after the holidays, we're looking at a July - November launch for Wii U at $300 - $400. Price will likely be determined by how strong buzz is for the new system immediately ahead of the launch. Look for Japan to get Wii U around July 1, 2012, once the Dragon Quest X bump for Wii has completely faded (even on the huge DS base, DQIX lifted hw for a month) while the West gets Wii U around October 1, 2012, as Zumba / Zelda / Just Dance / Mario & Sonic and legacy Wii software begins to really slow, even with Wii at $100 by the end of 2012. There will probably still be minor titles for Western Wii owners in Christmas 2012, Xenoblade, The Last Story, Pandora's Tower would all make sense if Nintendo and third parties are essentially out of big content for Wii by the end of this fiscal year - which could easily be the case.
Factors Behind the PS4 Launch (Estimate: October 2013 Globally)
Sony has confirmed that PS4 is fairly far in development. Rumors state the device will be unveiled at E3 2012, suggesting a late 2012 to late 2013 release date window. Sony's forecast for the current fiscal year does not include a Vita hardware forecast, but maintains software shipments at "about" in Sony's own wording the level seen last year. That suggests even with Vita software growth and flat to slightly up PS3 software for the fiscal year, PSP and PS2 are going to decline quickly. It also means that Sony could have three systems declining for software either this fiscal year or in the March 2013 fiscal year. There will certainly be three declining Sony platforms (if PS2 is still around) in the March 2014 year - which Vita can not offset by itself. This all points to PS4 launching by the end of 2013 at the latest, rather than in 2014 as some have speculated.
Vita is supposed to release in the March 2012 year, at least in the USA and Japan. A European / developing market release is likely for the April to June 2012 quarter. If we go by that, and examine Sony's software forecast in more detail, there are once again three rough scenarios that will drive the PS4 launch.
In the best case, PS3 game purchasing rates decline slowly again this fiscal year, and Vita launches as a roaring success. Sony would probably then launch PS4 in late 2012 to early 2013 across the various global markets, as the company's economics would make such a launch relatively easy to afford. Sony would still have plenty of cash coming in from the still large PS3 software market and rapidly growing Vita software market, and so despite the cost of launching PS4, Sony would be able to use PS4 to avoid dropping to a lower plateau for software shipments in the long-term, making an expensive launch a reasonable short term cost given the gains in the future.
In this scenario, the Vita and PS4 would offset accelerating PSP / PS2 declines completely, as well as the first modest PS3 software declines in the March 2013 year. With PSP / PS2 mostly over as a software market in the March 2013 year, but Vita / PS4 growing quickly in the March 2014 year, software shipments across Sony's four platforms (no more PS2) would reach 260m or so, roughly the level Sony achieved in its best years and about 20-30% higher than Sony's recent performance.
Quite a bit has to break right for the above scenario to pan out though. The more likely scenario is that PS3 and PSP software declines begin to accelerate a little bit earlier, in 2012 rather than 2013, while Vita follows the difficult path for expensive portables in the West (see: 3DS launch).
The 'likely scenario' above assumes a couple things. For the March 2012 year, the main assumption is that PSP's biggest software market, Japan, will decline very quickly once Vita launches. While PS3 software is forecast to be slightly up for the March 2012 year, the decline of PSP and PS2 lead to a flat year. The following year, ending March 2013, PS3 software joins PSP and PS2 in declining. Even with steady Vita growth in the March 2013 year, financially speaking it doesn't make sense to launch PS4 before mid 2013 in this scenario, as total software shipments would not be able to cover Sony's initial losses on the hardware or keep software flat. The 'best scenario' further above had about 40m more non-PS4 games sold in the March 2013 year, hundreds of millions of extra dollars to cover the costs of a new console - making it easier to justify an expensive launch in late 2012. Still, once Vita starts to become a large platform in the March 2014 year, Sony launches PS4 in late September as hardware costs for the new console will be down and software shipments on non-PS4 platforms will be up enough to cover the launch.
In a worst case scenario, PS3 and PSP software decline more quickly than expected, the West largely rejects Vita as it did PSP, and Sony's desire to launch PS4 affordably for both its bottom line and consumers causes the system to launch well after the next Xbox and Wii U.
In this scenario, without a huge established platform like PS2 to prop up new poorly launching platforms, software shipments on Sony platforms would fall to around 160m in both the March 2013 and March 2014 year, down 110m per year from Sony's relatively recent late PS2 era highs and down another 20% from PS3 era levels (200m). As with Nintendo, the worst case scenario is somewhat unlikely. It would require essentially, a lousy start for Vita, 3DS taking off explosively after a lousy start, X720 launching well in late 2012, Wii U launching well in mid-late 2012 and PS4 launching in late 2013. I could see as many as three of those things happening, but its unlikely that all five will break badly for Sony.
My take overall is that Sony will not allow new Nintendo and Microsoft systems, which are both more successful brands with motion gaming, to launch any more than a full year ahead of PS4 in the West, given how much ground Sony has lost in the massive American market from the PS2 era (46m / 65% console share) to the PS3 era (17m / 21% share to date). If Wii U launches around October 1, 2012 in the West, look for PS3 to launch around October 1, 2013 in the West. Sony and Microsoft seem less and less concerned with Japan though, so look for the PS4 launch to be global in late September-October 2013, rather than split between regions. With another big graphical leap, some sort of advanced Move-like controller bundled with all PS4s, and a later launch than the next Xbox and Wii U, look for a price of around $400-$450.
Factors Behind the X720 Launch (Estimate: November 2012 Globally)
Microsoft doesn't provide software shipment figures, so we have to look at their launch prospects from another angle. At the moment, Microsoft is an interesting position with the X360, as Kinect has provided a nice lift. Nonetheless, X360 is now down on its weekly pace of a year ago and will be for at least another month until Microsoft cuts price. Even with a price cut, Microsoft, like Sony is rumored to be showing off the next Xbox at E3 2012, which suggests they don't believe the impact of the lift will be long-lasting. A price cut to Kinect & X360 would probably slow or reverse the downward trajectory the Kinect has been on since 2011 began though: Kinect shipments reached 8m in 2 months (Nov-Dec 2010), 10m through February (4 months), 10.4m in 5 months (Nov 2010 - March 2011), and roughly 11.2m in 8 months (Nov - June 2011 based on VGC numbers). Even so, it isn't unreasonable to conclude that a price cut to Kinect and X360 won't have the same impact as the massive Kinect launch and X360 Slim / older model clearance sale of late 2010.
The other issue is how can the next Xbox be susbtantially improved when Kinect is already a compelling feature in the current era? Graphics and physics engines can become slightly more photo-realistic, and Kinect can become more accurate in tracking human movement if Microsoft wants to launch it with all X720s. Some will probably find that type of upgrade hard to swallow though, especially for $400 at launch with an initially small library. The upgrade will sting most to people who bought Kinect in this round of consoles. Someone who bought Xbox in 2004 and then went to X360 and Kinect in 2010 at $300 had a huge upgrade - better graphics, more games, more genres, better online and a new way to interact with games. Buying X720 with better graphics and a slightly better interacting mechanism for $400 after that upgrade to X360 is probably a hard sell as its a smaller leap. Jumping from X360 to X360 and Kinect and then to X720 looks worse in some ways, as paying an extra $150 enabled your X360 to do what X720 will probably only do slightly better for $400. Hopefully Microsoft has some kind of solution to these issues, like another new interface as the coming Xbox transition is a bit analogous to trying to sell Wii in a world where GC already had motion controls by 2006 even though Microsoft's Xbox graphical leap will be larger than the GC to Wii transition.
The other major issue with X360, and also PS3, is that publishers see the two competing consoles as one market. In effect, this should mean that as X360 and / or PS3 software dries up, software support for BOTH systems should decline since it will become twice as hard to profit on a game that sells roughly evenly on both platforms. In the near future, it actually looks like what I'd call "Core X360" buyers, that is to say new X360 owners not buying Kinect - could fall below 70,000 per week on a global basis, if the numbers aren't that low already. With some PS3 owners buying Move as well, its possible that we're already at a point where 'core' X360 & PS3 sales combined are already well below 200,000 units per week. As game purchasing rates are in decline for both systems its pretty safe to say that the "Core" market on X360 & PS3 is at, just past, or just below its peak figures. Kinect / Move could keep overall software flat, but publishers that are reliant on massive core / shooter hits will want a new platform at the first hint of big 'core' declines.
With the Wii U now known to be launching by the end of 2012, some of the 'core' audience will probably migrate to the new system. The figures for the original Wii in its first year actually suggest the console had tremendous "core" support at least initially - as the first 20 million Wii users on average bought five games by the end of 2007. If Wii U has similar figures in its first year, X360 and PS3 should see a fairly substantial dip in annual purchasing rates, just as PS2 did in 2007 after new consoles launched. Even with stronger in house support though, Activision, EA, THQ and others would probably prefer to support X720 and PS4 over Wii U - so there will be tremendous pressure to get at least one other new system out in 2012 in case the Wii U flops or gathers an audience that rejects big Western titles at a time when game purchasing rates are declining on X360 / PS3.
Where this gets interesting is Microsoft probably doesn't want to launch a new system just yet, as the company could lose much of what it has built in recent years to Sony and / or Nintendo. The Xbox brand is also the strongest it has ever been, with substantial profits in most quarters now. Third parties will probably have to do their homework quite well to convince Microsoft that its next system should be out next year. There is a good argument for a new Xbox in 2012 though. Third parties can argue that Microsoft has a shot at coming out on top with its next machine by completely dominating core software (by launching ahead of Sony) and motion software (if Kinect proves bigger than Wii U). Launching ahead of Sony again would also give Microsoft a substantial economic advantage over its rival, as Sony likely doesn't want to launch an expensive new platform before its profits are steady and large once again. If the next Xbox takes off and launches earlier than PS4, Sony will essentially have to choose whether to go for market share or profit again, as it did with PS3.
Given all of that, and the co-dependent nature of publishers on the current HD software market, Microsoft probably will reveal their next system at E3 2012, and launch globally in November 2012 for $350-$450. With two new systems out in 2012, the PS3 software market should decline fairly quickly, as the small gaming audience (10m people?) that buys the most software (six plus games annually) will start to move to X720 and / or Wii U. An X720 launch in 2012 would hurt the X360 software market as well, but Kinect's success and another price cut would probably keep X360 at about what PS3 sells in Microsoft's main markets, the US & UK. Going head to head with Nintendo in late 2012 is also probably the best way to try to tame the Wii U if the new controller entices people in the way that the original Wii did. In theory, the next Xbox and Wii would lead to the X360 / Wii finally selling for $100 - $150 as well, preventing Sony from achieving a PS2ish long tail in many Western markets, as the "core audience" would buy one of the new systems having already bought the older systems, while the "casual audience" would buy the cheaper and more motion-oriented Wii or X360. The mainstream audience, which is what Sony tends to lock up in years five to seven, would probably still buy X360 if it wanted a new core system with hundreds of games due to its cheaper price point, or Wii, if it wanted a motion system with a cheap price point and hundreds of games rather than the pricy new systems with limited libraries.
Conclusions
New consoles are likely to cost $200 - $300 more than whatever the existing consoles on the market cost at launch. Assuming Wii is $100, PS3 is $200-$300, and X360 is $100-$200 by the end of 2012, the current consoles will continue to sell for quite a while at marginal to fairly solid levels. We're therefore likely to see another slow ramp up to peak sales, with a peak for the next round of hardware coming in 2014 or even 2015, six to seven years after the Wii-era peak. There should be numerous challenges for each of the companies in their launch periods, as Wii U will be Nintendo's most expensive device ever with another risky controller, and X720 / PS4 could easily be lesser leaps than Xbox to X360 and PS2 to PS3 in terms of content, control style and online capability. Overall though, the industry should continue to grow - if Wii, X360 and PS3 end up at 125m, 85m, and 95m, which is roughly where we seem to be heading, against 156m PS2s, 25m Xboxs and 22m GCs, then there is little reason to doubt that Wii U, X720 and PS4 can sell 350m - 450m units lifetime - figures which could support one - three 100-150m bases consoles, or two super consoles (150m-200m) and an also ran. That would be incredible growth - a doubling of the PS2 era machines in two generations.
Contact VGChartz at jmazel@vgchartz.com
