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Iwata Breaks Down U.S. Sales in 2012: The Market is Shrinking

It’s normal for markets to expand and contract during the life cycles of various products, and in the games industry, that means sharp dropoffs at around the five-to-six-year mark of a system’s life. Since so many new game platforms came out at around the same time for this last generation, that means a painful contraction of the U.S. market – according to Satoru Iwata, the games hardware market shrunk by 27% and the software market by 23% last year.

This doesn’t necessarily call for doom and gloom – it’s just time for the market to move on, and for a new product cycle to begin. Nintendo’s attempting to get into the game with Wii U, but the system just isn’t ready to penetrate the market on a wide scale yet. Hop inside for Mr. Iwata’s overview of the hardware and software markets in the United States.

Mr. Iwata began by describing the industry-wide decline in home hardware sales: despite massive price reductions for the holiday season, PlayStation 3 and Xbox 360 just aren’t maintaining their sales presence – again, due to the product life cycle effect I described above. Meanwhile, Wii combined with Wii U managed to maintain about the same presence as last year – and in fact, thanks to the higher price of Wii U, sales actually increased YOY:

As the platforms from other companies are nearing the end of their product cycles, their sales paces were significantly slower throughout 2012 than in 2011.

Wii, which had always enjoyed a big presence towards the end of the year, did not see much enthusiasm in 2012 as consumer interest was scattered as a result of the Wii U launch. Wii and Wii U combined sold approximately the same number of units as the previous year-end sales season, and since Wii U costs more than Wii per unit, we could say that sales in fact grew, but even then we could never say that they progressed as we had originally anticipated.

Moreover, although other companies invested heavily in various trade marketing activities in stores, such as performing markdowns and bundling additional software, their sales saw a steep year-on-year decline, and we are now at a point where we as an industry need to make new propositions.

As for handhelds, while Nintendo 3DS was still easily the top-selling hardware, it actually saw a decline overall – compare that to Japan, where sales of 3DS grew last year and actual sales quantities are actually higher than the U.S., despite the U.S. being a much, much larger market.

In the U.S. market Nintendo DS still maintains a big presence, and Nintendo 3DS gained some momentum with the launch of Nintendo 3DS XL and “New Super Mario Bros. 2″ in August, but the subsequent growth in sales was not sufficient. While it became the number one selling handheld system, its yearly sales decreased on a year-on-year basis, and in fact we sold fewer units in the U.S. than in Japan despite the fact that the U.S. market is significantly larger than its Japanese counterpart.

The same decline relative to the Japanese market occurred across the board in hardware. I described the 27% decline earlier, but it turns out that even though the U.S. market typically sells about 2.5 times as many game systems as Japan, that margin has narrowed to about 2 times.

The U.S. market is certainly larger than its Japanese equivalent, with approximately 2.5 times more hardware units sold in a typical year, but last calendar year the entire hardware market shrunk by 27 percent on a year-on-year basis, meaning that just two times more hardware units were sold than in Japan.

Nintendo remained as the company that sold the most hardware units that year, but because we lacked decisive hit titles, we sold about 8.50 million hardware units in total, falling below the 10 million mark which we had consistently surpassed for nine consecutive years.

Software sales declines are happening across the board, but it’s a particularly big problem for Nintendo, again thanks to its lack of hit titles for 2012. The Nintendo decline actually accounts for a very large part of the 23% decline in software sales, especially compared to Sony and Microsoft.

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Last year, the entire software market saw a 23 percent decline on a year-on-year basis.

This decline can in part be explained by the general transition to digital distribution, but software sales are on a declining trend on each platform, and the fact that we did not release for Nintendo platforms any titles powerful enough to influence the market is a particularly big reason for this decline.

Source: Nintendo Third Quarter Financial Results Briefing

  • K2L

    Today there have been a huge number of articles about this same idea. =/