Nintendo Announces Switch Lifetime Hardware Sales Pass 110 Million as Revenue & Profit Dip in 1st Quarter 2023

First it was Microsoft. Then it was Sony. Now it’s time for Nintendo to get in on the action, reporting its first quarter fiscal 2023 (already!) financial results out of Japan today.

Like trends seen at other console manufacturers, Nintendo’s numbers were mixed with a sprinkling of positive highlights and major milestones. The Kyoto-based manufacturer and publisher is experiencing normalization back towards pre-pandemic levels, facing the impact of a high comparable last year, hardware supply challenges, inflationary pressure plus a lighter lineup of summer blockbusters.

During the three months ending June, Switch passed a major milestone in terms of its global unit sales. It’s now become only the third home console ever to surpass the 110 million units shipped threshold, sharing such rarefied air with Sony’s PlayStation 2 and PlayStation 4. Even amidst chip shortages going into its sixth year on market, the Switch is persevering.

Even so, Nintendo’s financials proved to be weaker than the same time last year. Both revenue and operating profit experienced declines, the latter in the double-digit range. Gains due to a weaker yen and Switch OLED’s higher contribution couldn’t outweigh pressure from chip shortages and people returning to experiential spending elsewhere. It’s also important to keep in mind how the last two years have been outliers, in many respects.

“Positive factors included the depreciation of the yen and the addition of Nintendo Switch OLED Model with its high unit price to the hardware lineup,” executives shared in the company’s presentation. “But hardware production was impacted by factors such as the global shortage of semiconductor components, resulting in a decrease in hardware shipments and subsequent decline in overall sales.”

This is partially due to lower software unit sales, as Switch saw less than half as many “million-sellers” in this year’s fiscal Q1. New releases centered on casual sports, as both Nintendo Switch Sports and Mario Strikers: Battle League hit during this window, and both became million-sellers. Kirby and the Forgotten Land continues its excellent performance, becoming the best-selling game ever in the mainline Kirby franchise. Like usual, Nintendo’s software results were bolstered by ongoing momentum from the likes of Mario Kart 8, Animal Crossing: New Horizons and the healthy Ring Fit Adventure.

Nintendo, and I, expected this sort of movement from last year’s highs based on things like the general release slate and various macroeconomic factors. Which is why the company reaffirmed annual guidance around sales, profitability, hardware and software units. I’ll write a bit later about my own forecasts given this framework.

There’s not a moment to waste! It’s time to slide right into the numbers. Get ready for two whole galleries of images, the first from Nintendo’s presentation and the second a grouping of my own charts displaying key financial indicators.

During this April to June time frame, Nintendo generated around $2.37 billion in revenue or 5% lower than last year when measured in local currency. Operating profit totaled $784 million, representing a 15% drop on rising expenses mainly associated with Switch marketing and game development.

It’s a classic mean reversion I’ve written about for similar results recently, a dip towards more normalized spending after two years of substantial boosts from the pandemic. While COVID and its variants are still present, there are more people vaccinated which means they are turning to other types of entertainment outside the house. That is, when they can afford it. People’s hard-earned cash isn’t going as far lately as many countries suffer from the worst inflation in decades.

There’s also the more technical element of yen depreciation, which ends up hurting Japanese companies whose primary business is conducted overseas. This leads into Nintendo’s latest regional breakout which saw 44% from The Americas, a number consistent with last year’s split. Then it’s Europe at 26%, up from 24%. It follows that Japan now represents only 20% of Nintendo’s business, down from 22%. This means that only one-fifth of its revenue is gained locally, meaning a weaker yen has a significant effect on its sales.

Now I’ll dig into product categories underlying Nintendo’s quarterly output. Software and related content comprised 56% of Q1 revenue, up from 53%. It follows that Switch hardware made up the remaining 44%, down compared to the 47% a year ago. What this indicates is hardware is losing ground at a more rapid pace than software, as the latter benefits greatly from ongoing events or downloadable content for legacy titles. If it wasn’t for the Switch OLED model, this skew would be even more towards software.

There are two charts in the below gallery showing the trend of quarterly revenue and profit, where we see the declined compared to recent years however still trending above that from fiscal 2019. Then there’s the two charts which smooth out these results by showing trailing 12-month figures, as I add up the latest four quarters. Trailing annual revenue is right near $13 billion for Nintendo, severely hampered by the yen weakness when converted to dollars. Operating income over the last year is $4.43 billion. This helps keep the overall business in context, rather than focusing strictly on shorter-term movement.

Using these recent annual figures, I’d like to compare Nintendo’s results to industry peers in Tencent, Sony and Microsoft. I will preface this by saying the conversion from yen is really taking a toll on Nintendo and Sony right now. Tencent’s $33 billion in annual gaming revenue is untouchable, though it’s the only one of these that hasn’t reported this quarter and I expect it could decline. Sony’s $21 billion from PlayStation is up next, then Microsoft’s Xbox revenue of $16.22 billion comes in third. If Microsoft’s accounted for Activision Blizzard, which it won’t until next year, it would rival Sony’s output. Which means Nintendo’s revenue is on the lower end at $13 billion. However, Nintendo’s $4.43 billion in operating profit over the last 12 months is higher than PlayStation’s $2.44 billion.

Focusing now on Nintendo’s console business, Switch shipped 3.43 million units globally during the quarter. That’s down 23% from the 4.45 million in Q1 of fiscal 2022. It’s the lowest number of Switch hardware shipments since 3.28 million in January to March 2020.

The base model felt the most precipitous drop, moving down 60% to 1.32 million of the quarterly total. Switch Lite posted a 48% dip, shipping 590K. Which means the Switch OLED model was the best-selling in the family during the last three months, moving 1.52 million boxes. That brings the lifetime total of just Switch OLED to 7.32 million since October 2021. This was precisely Nintendo’s intention, to shift buyers towards the fancy, higher-priced OLED.

Overall, Switch lifetime shipments now total 111.08 million. Compare that to lifetime sales of 89 million at this same time in calendar 2021. In an ironic twist, Switch is now the third home console AND the third portable device to pass the 110 million mark. PlayStation 2 and PlayStation 4 reached 155 million and 117 million, respectively. Separately, on the handheld side, Nintendo’s own Nintendo DS achieved 154 million while Game Boy/Game Boy Color settled at almost 119 million. For now, the PlayStation 4 is in the Switch’s sights, especially since Sony stopped reporting its prior generation hardware figures just this quarter.

As referenced in an earlier slide, sell-through to consumers for the quarter ending June declined for the second year in a row. While the company didn’t specify the exact amount, the trend-line is clear at this point in the life cycle. Especially given the tremendous impact from Animal Crossing: New Horizons back in March 2020, when sell-through of Switch consoles peaked.

Even amidst lower global hardware sales, Switch is still holding up among its counterparts in its biggest market. That’s according to the Q2 2022 report from industry tracking firm The NPD Group, an often cited source here at the site. Switch was the best-selling console in the U.S. during April to June when measured by units, and is still the year’s best-seller by this metric as I wrote earlier in the month. This dynamic makes sense given the Switch’s more attractive pricing and consistent availability at retail, plus supply challenges having an outsized effect on new generation consoles.

Switching over to Nintendo’s software sales for the quarter, it’s a bit brighter than its hardware counterpart. In that it didn’t see as big a decline from a unit standpoint.

Total game shipments in the period ending June declined to 41.4 million, down 9% from the prior year’s 45.29 million. Namely because it was a quiet time for those million-sellers: only four games sold this amount in the period alone, and none of them were from third parties. Compare that to 9 this time a year ago, 7 from Nintendo and the remainder from external partners. So, while there are select titles hitting this threshold, there were less of them amidst a sparse release calendar.

Because of this, lifetime software unit sales for Switch reached 863.59 million. That’s up from 892.18 million back in March, and 587.12 million back in June 2021. Might it cross 900 million by September? (Yes.)

Nintendo decided to kick off the summer with two sports titles during the three months ending June, launching both Nintendo Switch Sports and Mario Strikers: Battle League.

Nintendo Switch Sports scored 4.84 million shipments in its debut quarter. It’s tricky to compare this to prior mainline Sports releases, the last major one being Wii Sports Club in 2014, itself a remake of the original 2006 Wii Sports which launched alongside the ever-popular Wii console. There’s also Wii Sports Resort that released in 2009 at 1.61 million. We could also compare to Wii Fit, which started at 3.6 million. Any way you slice it, it’s a strong start to a title Nintendo expects could keep up momentum over time as more content rolls out.

Mario Strikers: Battle League spent less time on sale after its mid-June launch, shipping 1.91 million copies since. It’s the first mainline Mario Strikers title in 15 years, back when Mario Strikers Charged accumulated 1.71 million in its first quarter. That puts this latest game slightly higher than its predecessor’s initial sales.

The last flagship Switch game of the quarter was Fire Emblem Warriors: Three Hopes. This one hit market during the final week of June and is co-published by Koei Tecmo. Nintendo hasn’t publicly shared any results for it just yet.

As for earlier games, Kirby and the Forgotten Land continues its expansion, which is natural for Kirby. It’s scooping up sales left and right, amassing 4.53 million units to date after selling-in another 1.88 million in fiscal Q1. During its first 15 weeks on sale, it’s already sold-through over 4 million copies. That’s the best cumulative sales to consumers ever for the series, already outpacing the lifetime total of 2018’s Kirby Star Allies.

The best-selling first party Switch game list is unchanged at the top. Mario Kart 8, of course, somehow sold another 1.48 million to bring its lifetime total past the 46 million mark, settling at 46.82 million. Animal Crossing: New Horizons is at 39.38 million, while Super Smash Bros. Ultimate fought up to 28.82 million.

Fan favorite Ring Fit Adventure remains in the Top 10 best-selling on the platform, moving 450K units up to 14.54 million. It’s creeping up on a couple Pokémon games, I’d wager it can move into 8th place on the lifetime Switch sellers list by year-end.

Speaking of Pokémon, for 2022 to date in the U.S., Pokémon: Legends Arceus remains on the best-selling premium list, currently catching the third spot as of June. That’s according to The NPD Group, and it doesn’t even include the game’s digital portion. The aforementioned Kirby and the Forgotten Land and Mario Kart 8 are presently 8th and 9th, respectively.

Another growth avenue for Nintendo last quarter was digital sales of software, rising 16% to $679 million. That comes out to roughly 29% of its total revenue. Nintendo also shared that more than half of software sales are now digital, at 53% of the total. This is up from 47% last year, partially due to downloadable content like Animal Crossing: New Horizons Happy Home Paradise and the Nintendo Switch Online + Expansion Pack offering.

Unfortunately, there’s no new data on Nintendo Switch Online subscription count. The most recent update from the company was 32 million in September 2021. Management did state that sales from this online service are “showing growth,” just didn’t indicate by how much.

And as we’ve seen many times before, Nintendo’s engagement stats are lacking. Its “Annual Playing Users” metric is now up to 104 million, compared to 102 million last quarter. To me, this doesn’t mean much other than people that buy a Switch turn it on at least once in the last 12 months. Not the most descriptive of metrics.

It’s a decent start to the new fiscal year for Nintendo, seeing drops where expected on the hardware side and maintaining solid results for both new games and ongoing software spending. It’s too early for the forecast to change, even given the amount of uncertainty that exists on the supply side plus game release dates moving around soon.

“Due to delays in the procurement of components such as semiconductors this year, we have not been able to conduct production as planned.” management said. “However, we expect procurement to gradually improve from late summer towards autumn, giving us a clearer outlook regarding production for the remaining calendar year. In preparation for the holiday season, we will leverage appropriate means of shipment, and work to deliver as many Nintendo Switch systems as possible to
consumers in every region.”

As a quick reminder on its guidance, Nintendo anticipates sales will decline in the single digits this fiscal year to roughly $12.34 billion at the current exchange rate, a figure in dollars that could improve if the yen improves. Operating profit is expected to take a bigger hit, dipping 16% to under $3.9 billion. Which would be the lowest result since the pandemic begin, yet still above levels prior to that point.

It’s on the conservative side, which is where I’m at as well. When there’s this many unknowns, both at a macro level and within the games industry, I tend to be cautious. I think it’s prudent for executives to do the same, especially for a company like Nintendo which isn’t as diversified as other consumer technology peers.

I continue to believe there won’t be any substantial new Switch iterations over the next few quarters. Instead, Nintendo should be working more on a successor than a model change. As for units, I’m reiterating my forecast of 20 million to 21 million which is a bit lower than Nintendo’s 21 million guidance. Right now, I’m slightly more bearish than management.

Another portion that Nintendo left unchanged is the guidance of 210 million software units selling in the year ending March 2023. Nintendo reiterated that stance, which I lean towards being a bit high unless a couple key titles hit market in this time frame.

Short term Xenoblade Chronicles 3 launch a few days back. Kirby’s Dream Buffet is a smaller title slated sometime this summer. Next up, there’s a pair of “third in the series” entries in Splatoon 3 and Bayonetta 3, launching in September and October respectively. Out of these, I’m way upbeat on the latter, the first mainline Bayonetta game since 2014.

I expect Pokémon Scarlet and Pokémon Violet, which are introducing all new pocket monsters, could potentially break records for early sales for the franchise on Switch and overall upon debuting in November. Granted, there’s been a lot of Pokémon lately. That won’t stop the series from selling, especially when there’s a new generation to collect.

The Legend of Zelda is the proverbial, hm.. wild card of the bunch. Will there be a new version of something like Windwaker soon? Might Nintendo put out a Switch version of Twilight Princess? That would be well and good, and certainly attract demand. It really comes down to whether the fabled Breath of the Wild sequel hits by March 2023. At least for now, it remains listed as Spring 2023 in Nintendo’s reporting. If I was to guess, I’m mildly confident it’s out this fiscal year.

Finally, there’s also Advance Wars 1+2: Re-Boot Camp and Metroid Prime 4. Both stayed as to-be-announced in Nintendo’s presentation. If anything, I’d wager the former has a better chance of hitting this fiscal year because it was scheduled to be out already. I don’t see the latter until the back half of calendar 2023, the earliest.

With its latest hardware sales milestone and a lot of good games before its life cycle ends, it’s still an exciting time to be a Switch owner. Especially for fans of JRPGs, sports games and Pokémon. Investors may be wearier, though shouldn’t let declines from all-time highs distract from Nintendo still being in its best financial shape since the Wii era.

Thanks for visiting the site and checking out this analysis. Feel free to drop a comment here or on social media. Enjoy the remainder of earnings season everyone!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported average conversion: US $1 to ¥129.66.

Sources: Company Investor Relations Websites, The NPD Group.

-Dom

Microsoft’s Xbox Sales Reach New Fiscal Year High in 2022 Despite Fourth Quarter Declines in Content & Hardware

It’s here. My first big recap article of this latest earnings season!

In case it wasn’t clear from my recent calendar post, late July signals the start of that season. Let’s kick it off with Microsoft’s fourth quarter fiscal 2022 results, which means I’ll cover both quarterly and annual figures. The more, the better!

This latest 3-month period featured somewhat mixed results that capped off a historic year for the company’s gaming division, where it achieved the best ever fiscal revenue for Xbox as a brand.

As anticipated, gaming revenue declined in the quarter ending June 2022, dipping 7% to roughly $3.45 billion. Like many results lately in the industry, it sounds a lot worse than it was. This number is the second best Q4 in Xbox history, trailing behind only last year’s massive $3.71 billion spike.

It’s one of those “good enough” scenarios, falling perfectly in-line with the company’s, and my, expectations of a mid-to-high single digit decline. Either a big beat or epic miss would have been much more newsworthy.

What’s important is the impact on fiscal year revenue from Xbox, which moved past $16 billion for the first time ever. That’s yet another all-time year for gaming at Microsoft. It’s the sixth straight fiscal year where Xbox has achieved record sales.

Underlying this growth was upward movement in Content and Services, which houses software sales along with the likes of Xbox Game Pass and cloud offerings. A constant here has been claims from management that Xbox Game Pass subscriptions have been steadily increasing, although the team still hasn’t shared an updated sub figure since the 25 million I wrote about back in January.

On the other hand, Xbox hardware sales have stagnated over the latest 12 months which resulted in a double-digit decline during the year. Which is curious, considering comments from Chief Executive Officer (CEO) Satya Nadella indicate the family of devices is selling better than ever.

“We’ve sold more consoles life-to-date than any previous generation of Xbox and have been the market leader in North America for three quarters in a row among next gen consoles,” Nadella said in his prepared remarks on the earnings conference call.

The declining revenue along with high unit sales indicate a major talking point to me: There’s a high proportion of unit sales coming from the lower-priced Xbox Series S. Which fits with mounting evidence and anecdotes that these are much easier to find and plays from a manufacturing cost standpoint because they are less expensive to make. Plainly, Microsoft and its suppliers can’t produce enough high-end Xbox Series X boxes to grow hardware revenue. I expect high input costs to continue, thus this trend will keep up into the new fiscal year.

Now I’ll dig into the underlying numbers and highlight key trends from this report.

Peeking first at the above slides from Microsoft, they show that 7% decline in quarterly gaming revenue which gets us to that $3.45 billion figure. Not bad considering Xbox achieved a best-ever Q4 result this time last year!

The main reasons for lower sales proved to be people spending less time and money on the platform over those 3 months, which impacted purchasing of both first-party and third-party software. The main bright spot was growth in Xbox Game Pass subscriptions. I’ll go more into these segments in a bit.

Expanding to a longer time frame is my chart, which shows 12-month trailing sales figures for the Xbox business unit. This shows a couple major points.

First, if we focus strictly on each fourth quarter, it displays that record high fiscal year from Xbox: $16.22 billion between July 2021 to June 2022 compared to the prior record holder of fiscal 2021 at $15.37 billion.

Subsequently, the full chart illustrates last quarter was the first decline for trailing annual gaming sales since back in Q2 of fiscal 2020. That initial rise back then corresponds to quarters leading into the start of quarantines during the pandemic, and the figure has since leveled off right around $16 billion lately. Still, it’s only a 2% decline from last quarter’s all-time best. Which is something I’ve expected given the strong prior years and macroeconomic forces at play, including inflation.

Note: These dollar totals are based on growth rates over the prior year. Microsoft has yet to publish its 10K filing, I’m confident the math will be very close.

Where does this put Xbox sales right now in comparison to major peers in the games industry?

Since Microsoft is the first to report, I’ll use the latest annual figures for the likes of Tencent, Sony and Nintendo. Tencent is the clear leader of the pack, aggregating to annual sales of $33 billion. Sony is up next, reaching $24.4 billion. That number will refresh later this week when the company reports on Friday. That leads into Microsoft’s $16.22 billion, which will increase when the Activision Blizzard deal closes to somewhere between $23 to $24 billion depending on redundancies and cost-savings. Lastly, Nintendo is close to Microsoft’s current figure, hitting $15 billion in yearly sales.

The main caveat I’ll note when comparing across the industry is how revenue is one of many metrics used to gauge financial strength. I’d prefer profitability when available, however Microsoft does not report this granularity for Xbox alone.

That doesn’t mean we can’t glean anything on Xbox’s profit contribution from this recent report. The broader segment of More Personal Computing (MPC) experienced an operating income decline of 5% as expenses rose 8%. Microsoft called out Windows, Search and news advertising as main drivers of this weakening profit dynamic, which indicates that gaming’s contribution likely remained consistent. Which I’d say is good news, especially for the cost of making consoles.

For the quarter ending June 2022, both of Xbox’s main segments of Xbox Content & Services and Xbox Hardware suffered declines. Although the latter was more precipitous, neither was very concerning to me because of where we are in the broader cycle plus supply conditions being nowhere near normal.

Starting with Content & Services, this segment contributed 6% lower sales than a year ago. Which, like total Xbox revenue, was in-line with the company’s guidance and my own expectations. This equates to $2.77 billion in Q4, implying it contributed around 80% of the total. Another way to consider this is 4 out of every 5 dollars spent on Xbox was on software, downloadable content, subscriptions and non-hardware purchasing.

In fact, the latest annual contribution from Content & Services is a big positive for the Xbox brand. It’s now above $12.5 billion, or 77% of the total, a dollar figure which is actually up 3% compared to the prior year. That means despite weakness in the fourth quarter, Content & Services had its best fiscal year in reported history.

The main factor, of course, is Xbox Game Pass momentum and its proven impact on spending habits for ongoing subscribers. While executives refuse to share anything beyond the 25 million figure, I estimate it’s closer to 30 million by now. I’d wager it hasn’t breached that milestone. Because otherwise Microsoft would have said so!

There’s also the element of offerings like Xbox Cloud Gaming plus recent partnerships with companies like Epic Games and Samsung. Microsoft is benefiting from rounding out its ecosystem play and expanding how and where people play, which has a tangible effect on revenue growth even as individual title sales may slow.

“We’ve partnered with Epic Games to make Fortnite available for free via browser,” noted Nadella in an example of this strategy. “Over 4 million people have streamed the game to date, including over 1 million who were new to our ecosystem.”

Hardware is proving to be the more challenging business line for Xbox, declining 11% in the quarter to under $680 million. That’s the second lowest output in the past seven quarters, no doubt impacted by higher margins and continuously low availability of the premium Xbox Series X version.

Along the lines of its counterpart, the annual numbers are more reassuring. Microsoft generated $3.7 billion from Xbox console sales in fiscal 2022, which is up from $3.2 billion previously. That’s a gain of nearly 16%. This is mainly due to excellent performance during the initial stages of this fiscal year, meaning hardware has trailed off recently.

That’s not to say demand isn’t there. It’s mainly that Xbox is selling its lower-priced SKU, which doesn’t boost the top-line as much. Last quarter, I posited that lifetime unit sales of Xbox Series X|S could be between 14 million and 14.5 million. After this latest period, I’m estimating it at 16 million to 16.5 million.

It’s unfortunate we don’t know for sure, especially since Sony and Nintendo are more transparent.

The last numbers I’ll cover before wrapping up are for Microsoft as a whole. The firm generated $51.9 billion in revenue, up 12%. Operating profit reached $20.5 billion, or an increase of 8%. Quarterly sales from Microsoft Cloud moved past $25 billion for the first time ever, jumping 28% year-on-year.

Focusing on the More Personal Computing (MPC) business unit, it was responsible for $14.4 billion in sales. This means Xbox, at $3.45 billion, made up almost a quarter of the segment’s total.

These results are quite staggering as the company benefited greatly from hybrid working models and enterprise cloud usage. Still, quarterly revenue and earnings both missed analyst consensus estimates.

During the full fiscal year, Microsoft posted $198 billion in revenue and $83 billion in operating profit. It’s hard to even understand these numbers!

Now to look ahead, let’s focus on gaming within the broader company.

According to Chief Financial Officer (CFO) Amy Hood, here’s the rundown of guidance for the first quarter of fiscal year 2023, which runs from this July to September. Note this does not include any impact from the Activision Blizzard deal, which it still expects to close by June 2023.

Gaming revenue is forecasted to decline in the “low to mid single digits” driven by a drop in first party software. Content & Services has that same exact guidance. Though the management team does anticipate Xbox Game Pass subscriptions will grow again and thinks Hardware will rise as well, albeit didn’t provide any more specifics.

Let’s assume “low to mid single digits” means a dip of 3%, that should be a good barometer. This implies total quarterly revenue from Xbox of around $3.48 billion, or the second best Q1 on record. Then, for both Content & Services to decline and Hardware to increase, the former must decline 4% or more. Which would follow that Hardware can increase a percent or two and the math still works out.

Personally, I do expect a slight decline in total Xbox sales during the current quarter. There’s a handful of major 3rd party titles, including a new Madden game in August, and Xbox Game Pass will certainly have a few great additions. It’s just last year’s high was powerful, it remains a tough comparison. I’m not so sure about Hardware gains, that’s where I’m skeptical. I’m expecting flat to slightly negative contribution there unless something changes with the split of Xbox Series S to Xbox Series X.

On a bit longer of a timeline, where’s the growth other than the traditional means? There’s the clear upside of bringing Xbox Cloud Gaming to other television brands outside of Samsung. Then the substantiated plus rumors of the team developing a dongle-like device like a Google Chromecast or Amazon Fire TV Stick. And, of course, people calling for Xbox to make a handheld now that both Nintendo and Valve have active portable gaming devices.

“As announced last year, we’ve been working on a game-streaming device, codename Keystone, that could be connected to any TV or monitor without the need for a console,” a Microsoft spokesperson said to Windows Central, who first reported on the cloud stick’s development.

“We are constantly evaluating our efforts, reviewing our learnings, and ensuring we are bringing value to our customers. We have made the decision to pivot away from the current iteration of the Keystone device. We will take our learnings and refocus our efforts on a new approach that will allow us to deliver Xbox Cloud Gaming to more players around the world in the future.”

So, I’m a believer in the expansion of cloud and whatever this Project Keystone turns out to be. I don’t expect the dongle to hit market this fiscal year, so that will impact future time frames. And I really don’t think an Xbox handheld fits with its direction, for a multitude of reasons that I’ll probably write about at some point! What I do expect is for Xbox Game Studios to ramp up its output in 2023, featuring titles like Starfield and Redfall plus some surprises too.

That concludes Xbox’s results this quarter. I’ll be back soon with articles on other major gaming companies, and updates on social media throughout the coming weeks. Thanks for reading and be safe all!

Note: Comparisons are year-over-year unless otherwise noted.

Sources: Company Investor Relations Websites, Windows Central.

-Dom

Lego Star Wars: The Skywalker Saga Leads U.S. Game Sales & Nintendo Switch Reaches New Milestone in April 2022 NPD Group Report

It feels like I just posted my March recap, and here’s April! Time flies when you’re having fun, or getting old.

Existential dread aside, this morning The NPD Group was back with its latest monthly games sales report documenting consumer trends in the United States. While folks are spending less on the games industry compared to last year, there’s still plenty of successes to highlight.

Total sales across Video Game Content, Hardware and Accessories categories dipped 8% during April, which means spending has lowered year-on-year for six consecutive months. This is also the second straight April month with lower sales after last year’s 2% decline. Hardware was the only category exhibiting growth, while Content and Accessories both experienced double-digit dips.

Within the largest category of Content, mobile saw worse-than-expected negative momentum mainly due to softness in Google Play activity. On the premium side, Lego Star Wars: The Skywalker Saga led the aggregate chart. It’s the first game to dethrone Elden Ring since February, which remained at the second spot just ahead of MLB The Show 22. As opposed to last month’s bevy of new games hitting the charts, April’s overall software list only featured two new entries.

Performance within the Hardware segment was split depending on the metric being used. Nintendo Switch topped April’s console sales when using units, a metric by which it’s also the year’s best-seller so far. Just like back in March. As a result of this consistency, Switch passed PlayStation 4 on the all-time best-selling home console list. It’s now in fourth place behind only PlayStation 2, Xbox 360 and Nintendo’s own Wii.

However when using dollar sales as the measure, PlayStation 5 took home the win in April. Sony was finally able to secure enough inventory to move up the ranks, though Xbox Series X|S is still 2022’s top-selling hardware by dollars right now.

“Despite a nice hardware bump, the market couldn’t get back to growth as content and accessories lagged,” said The NPD Group’s Mat Piscatella. “Perhaps we’ll see some benefit from that hardware lift next month. In any case, [the] market remains well above pre-pandemic baseline.”

Long-time readers know I like to maintain perspective when writing about monthly or even quarterly sales. Seeing a decline since prior year isn’t necessarily substantial news or a sky-is-falling scenario. The consecutive months on this negative trajectory are representative of a few things, then of course there’s those pockets of positivity for individual games and consoles.

First, quarantining bolstered sales substantially the past couple years. Easing restrictions and some semblance of normalcy means a certain level of reversion is expected. Then there’s retail supply, still hampered by a semiconductor shortage and manufacturing woes. Finally there’s the distressing and growing impact from inflation, which is painful for most folks and can hamstring discretionary purchasing decisions.

Keeping this context in mind, I’ll move into my complete analysis and a detailed rundown of April’s results.

United States Games Industry Sales (April 3rd, 2022 – April 30th, 2022)

As displayed in the above gallery, total consumer spending during April fell 8% to $4.34 billion. That means annual spend to date is also down 8%, to $18.26 billion.

I think the most telling graphic here is the line chart showing spending over time for each of the past four years. It gives clear context on pandemic impact and how the current level compares to earlier periods. For instance, until last month, each month of 2022 was trending above the corresponding one during these years except 2021. This past April’s spending is the lowest April has been in three years, but not by much.

The largest category of Content includes software, add-on, mobile and subscriptions. Spending here lowered 10% to $3.84 billion. That means it comprised more than 88% of April’s total.

The key driver within this part is mobile, which has been in a downward trajectory for months. Normally the report says when it exceeds $2 billion, and it didn’t this time. So I assume it’s below that threshold. Even so, select titles are showing strength which implies people are still playing, albeit spending at a lower clip. Candy Crush Saga, Roblox, Coin Master, Evony: The King’s Return and Royal Match were the top earners.

Moving into premium titles, the aforementioned Lego Star Wars: The Skywalker Saga led the rankings overall and every single individual platform chart as well. Including Nintendo Switch, as it was the first third-party title to top that chart since Monster Hunter Rise in March of last year. This performance across platforms led to the adventure title from Warner Bros. achieving the single best launch month dollar sales for any Lego game in tracked history. It’s immediately the second best-selling title of 2022 at present, behind only Elden Ring.

Speaking of Elden Ring, it was number two on the overall chart in April. Into its third month on market and it’s already achieved an astonishing accomplishment: The open-world soulslike has now outsold November 2021’s Call of Duty: Vanguard in the U.S., making Elden Ring the top-selling premium game of the last 12 months. This is virtually unheard of in the States, where Activision Blizzard’s military shooter perennially dominates sales charts. It’s a combination of relative weakness in Call of Duty lately and the stunning quality of FromSoftware’s latest masterpiece, which reached 13.4 million units globally in March according to publisher Bandai Namco. It’s even more by now, the true definition of a sales giant.

After an early access period led MLB The Show 22 to #4 in March, it advanced up to the third spot in April and moved up to 5th on the year’s best-sellers list after debuting outside the Top 10. While this performance isn’t as high as last year’s entry, which led its initial month, it’s still a quality showing. Intriguingly, it didn’t appear in the Top 10 on Xbox yet from an engagement standpoint, Xbox is its leading platform by player count. It’s a clear display of the Xbox Game Pass effect, as this year’s title was again available on the service at launch. It’s also worth noting this report doesn’t include digital sales from Xbox for this particular title, which of course impacts platform ranks.

The last new release on the overall chart was Nintendo Switch Sports, which really had only two days on sale during this time period. It still scored an impressive fifth place on the overall chart. Within the Nintendo list individually, it ranked third behind Lego Star Wars: The Skywalker Saga and Kirby and the Forgotten Land. It’s another title, like all of those published by Nintendo, that doesn’t account for digital downloads. May’s result will give a better indication, as I expect it to be quite successful.

That covers the new releases, and most other movement on the charts featured familiar names from the prior month. Kirby and the Forgotten Land is holding strong, as is Horizon Forbidden West. Then there’s Mario Kart 8 which will never, ever stop selling. Most of the year’s Top 10 is the same save for the entry of Lego Star Wars: The Skywalker Saga. Check below for a full look at April’s ranks plus 2022 so far.

Top-Selling Games of April 2022, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Lego Star Wars: The Skywalker Saga
  2. Elden Ring
  3. MLB The Show 22^
  4. Kirby and the Forgotten Land*
  5. Nintendo Switch Sports*
  6. Call of Duty: Vanguard
  7. Horizon Forbidden West
  8. Mario Kart 8*
  9. Gran Turismo 7
  10. Pokémon Legends: Arceus
  11. Minecraft
  12. FIFA 22
  13. Call of Duty: Black Ops Cold War
  14. Super Smash Bros. Ultimate*
  15. Marvel’s Spider-Man: Miles Morales
  16. Animal Crossing: New Horizons*
  17. WWE 2K22*
  18. Mario Party Superstars*
  19. Madden NFL 22
  20. Tiny Tina’s Wonderlands*

Top-Selling Games of 2022 So Far, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Elden Ring
  2. Lego Star Wars: The Skywalker Saga
  3. Pokémon Legends: Arceus
  4. Horizon Forbidden West
  5. MLB The Show 22^
  6. Gran Turismo 7
  7. Call of Duty: Vanguard*
  8. Kirby and the Forgotten Land
  9. Madden NFL 22
  10. Mario Kart 8*
  11. FIFA 22
  12. Marvel’s Spider-Man: Miles Morales
  13. Minecraft
  14. Dying Light 2: Stay Human*
  15. Monster Hunter Rise
  16. Mario Party Superstars*
  17. Animal Crossing: New Horizons*
  18. Super Smash Bros. Ultimate*
  19. WWE 2K22*
  20. Call of Duty: Black Ops Cold War

Hardware was the main bright spot of April from a growth standpoint, boosting up 16% since last year to $343 million. Even so, it’s still down for the first four months of the year in aggregate. Sales of consoles year-to-date reached $1.54 billion, or 9% lower than the same period in 2021.

This April figure is somewhat reassuring, considering spending on this segment declined 30% this time last year. It indicates better availability, at least for certain platforms as The NPD Group called out PlayStation and Xbox increasing supply. This year has been a wild one for hardware; a different console has led each of the first three months. Demand is thriving, so consumers are buying whenever inventories pop up. Something like the Xbox Series S in particular is proving attractive because of its price point.

Still, it was actually the PlayStation 5 that showed up in April. Sony’s massive new console led last month on dollars generated as more stock hit shelves, a similar story as other regions including Europe based on data from local providers. Other than January, which was the last time PlayStation 5 topped the list, it’s been a somewhat dry year for Sony and its supply chain. As I wrote just this week, the company announced the platform passed 19.3 million units shipped globally and is now lagging its predecessor considerably.

Not to be overlooked, Nintendo Switch was April’s best seller by units. It’s the same for 2022 to date as Nintendo’s hybrid console continues to attract interest going into its sixth year on sale. In the States, lifetime Switch sales have now outpaced PlayStation 4 to become the fourth best-selling home console of all time. PlayStation 2, Xbox 360 and Nintendo Wii, in that order, are the only home platforms with more units sold domestically.

Xbox Series X|S rounds out this category as it secured second place during April by both dollar and unit sales. Similar to March, Microsoft’s family of devices is currently the year’s best seller by dollar sales. Microsoft has been most consistent on the production side, plus of course benefits from higher average revenue per unit for the premium Xbox Series X model.

I know that’s a lot to digest for hardware, since the report includes multiple metrics. Suffice to say there are at least minor indications of greater supply popping up, however it’s not yet a trend until it keeps happening. We still need to closely monitor the semiconductor shortage and input costs to see if it becomes an upward trend in overall supply movement, rather than one-off monthly spikes.

The third and final category of Accessories unfortunately didn’t track alongside hardware in April, instead showing some weakness compared to a year back. Monthly spending here fell 10% to $151 million. It’s currently the only segment in a double-digit decline for the year as a whole, moving down 15% to $743 million.

In a shocking upset, the PlayStation 4 DualShock 4 Wireless controller in black was April’s best-selling accessory. You read that correctly. That’s last generation’s PlayStation game pad leading a month in the second year of this current console cycle. Perhaps there were discounts leading to this upside? Though this report is mostly based on dollar sales, so there has to be some sort of advantageous average selling price for Sony in order for it to win.

I can’t remember the last time a PlayStation 4 game pad led the category.

Expanding a bit, the Xbox Elite Series 2 wireless controller, which has led all months except this past one, is still the best-selling accessory for the year right now. As it has all year, bolstered by its extravagant price tag.

Lately, it’s proving difficult for spending on games to keep pace with the highs of recent years. Especially early last year, which saw months of historic highs. Six months of monthly declines and we’re seeing this movement away from the ballooning amounts of spending during the pandemic due to restrictions of going out plus stimulus money at the time.

Softening is expected right now, even if it’s challenging to report on a downward trend. It’s just a matter of magnitude as spending normalizes, plus buyers face inflation pressure for essential goods which limits additional cash flow. There’s also the allure of spending on different types of entertainment as more people get out of the house in which they’ve been cooped for a while.

“We’ve also seen an extended run of months showing year-on-year declines,” Piscatella wrote. “[The] video game market is facing a return to experiential spending as well as higher prices in other areas of consumer spend. Tough combo. Will require the bigger games to really pull the market.”

On those AAA projects, the latest news cycle revealed how 2022 is shaping up to be another year of delays. Starfield. Redfall. Suicide Squad: Kill the Justice League. The next The Legend of Zelda mainline entry. Stalker 2: Heart of Chernobyl is on hold due to Russia’s invasion of Ukraine. And I’m not sold on God of War: Ragnarok hitting this calendar year, as I’ve said many a time on social media.

Focusing strictly on the potential for May’s monthly report, it’s a very light month for new software that isn’t a remake, re-release or indie launch. I’m expecting another month of spending declines, except perhaps for consoles. Evil Dead: The Game and Sniper Elite 5 are probably the highest profile releases on the calendar. I’m not sure the Top 10 will have any new entries, let alone the Top 5.

Which means it’s a major opportunity for carryover titles to promote new content or have events that keep players buying. This ties in with the subscription play, a staple in Microsoft’s suite of course and Sony’s strategy with its PlayStation Plus reworking starting in June. Games like MLB The Show 22 and Nintendo Switch Sports will have a lot more days on sale than last month. Lego Star Wars: The Skywalker Saga has a good chance at leading again, as does Elden Ring. I’m not the most upbeat on Call of Duty: Vanguard right now, but it will certainly secure a solid position.

My best guess is Elden Ring returns to number one. With the caveat that if Nintendo included digital, I’d probably bet on Nintendo Switch Sports.

As for Hardware, throw a dart at the wall and take a guess. Xbox Series X|S on dollars. Nintendo Switch again on units. Those are my dartboard guesses, at least.

Now that I’ve come to the end of this month’s coverage, I highly recommend perusing Piscatella’s Twitter thread for more details on platform rankings and additional commentary.

It’s been a supremely busy week for the games industry and business nerds. I’m both exhilarated and exhausted. I hope you enjoyed the articles, I plan to have more in the coming weeks. Thanks for reading. Until next time, be well!

*Digital Sales Not Included, ^Xbox Digital Sales Note Included

Comparisons are year-over-year unless otherwise noted.

Sources: Bandai Namco, The NPD Group, Warner Bros Interactive.

-Dom

PlayStation 5 & Pokémon Legends Arceus Headline Third Straight Month of Declines for U.S. Games Industry Sales

In the first monthly sales report for the U.S. games industry in 2022, Sony’s PlayStation 5 and Nintendo’s Pokémon Legends Arceus headlined a month slightly down from the record result of early last year. It was the third straight month of year-on-year declines, after 1% in December and 10% during November before that.

Industry tracking firm The NPD Group shared its January 2022 U.S. games industry spending report, announcing how total consumer spend dipped a modest 2% to $4.68 billion. Compare that to last year’s all-time high of $4.8 billion. While hardware as a category saw double-digit growth even amidst a challenging supply situation, it wasn’t enough to outpace slower content and peripheral spending.

It seems there was a post-holiday hangover within two of those three major categories.

For Video Game Content, weaker mobile spending and fewer new games led to a single-digit monthly decline. Even a major Pokémon launch and PC re-releases of popular franchises like Monster Hunter and God of War couldn’t push the software category over the edge. This also signaled potentially lower ongoing spending on microtransactions (MTX) and additional content.

Video Game Hardware repeated as big gainer from a growth standpoint, boosting more than 20% versus January 2021’s amount. Sony’s PlayStation 5 took center stage, as it often must strictly based on its size, leading January’s console market by both units sold and dollars generated. This is the first time since September 2021 where Nintendo Switch didn’t lead on units sold. In fact, Microsoft’s Xbox Series X|S beat out Switch for second place.

Now, the key is this early in a generation, especially this one because of chip shortages, this is nearly all dictated by supply in the market. Like an animal going into hibernation, Nintendo stocked up during the holidays. It’s clear PlayStation, and to a lesser extend Xbox, recovered in the early part of the new year.

Last month, Hardware actually boasted the single best dollar spending during a January month in over a decade. And there’s a chance it could have been even higher, if only there was enough inventory!

“Hardware availability is still constrained, so we don’t know how high ‘high’ actually is when it comes to the console market,” NPD Group’s Mat Piscatella told GameDaily. “Several factors continue to impact the market that are difficult to predict. Things are still a bit chaotic. But when new titles are released, and when new hardware is available the market is responding positively.”

Note that year-to-date figures currently match the monthly, so January’s report features a smaller data set than usual. Everyone knows I like putting numbers in perspective. There won’t be any annual or trailing 12-month figures until maybe next month.

That said, let’s look into the numbers we do have.

United States Games Industry Sales (January 2nd, 2022 – January 29th, 2022)

In total, consumers spent close to $4.7 billion during the first month of 2022 which is 2% lower than last year. It’s still a quite good result, it just shows a reversion towards more normalized spending after long periods of stay-at-home restrictions. People are certainly still stimulating the games industry economy, mostly by buying new consoles, just not as much as they were during a record time in early 2021.

Within the broadest segment of Video Game Content, which accounts for mobile, software and related sources, sales hit $4.2 billion or 88% of the total. That dollar figure is 4% lower than last year, when it was $4.26 billion. (I’m not sure if that was a record at the time, it’s a possibility.)

The bellwether sub-segment here is mobile, which saw a decline of almost 7% during January. No dollar amount was given. This is expected weakening after the incredible growth of the last two years. It’s showing somewhat of a return to the “before times,” which seem so very far away. Main sales contributors during the month include Candy Crush Saga, Roblox, Coin Master, Genshin Impact plus Garena Free Fire.

Before diving into traditional software, I wanted to point out a relevant statistic. This is via The NPD Group’s Q4 2021 Games Market Dynamics report.

“Downloadable content (DLC), microtransactions and subscriptions accounted for just shy of 60% of non-mobile video game content spending in the U.S. in 2021. In 2016 this figure was well under half.” Piscatella shared on Twitter. What this implies is that 6 out of every 10 dollars spent in the U.S. within the Content category is ongoing purchasing rather than new premium releases. So often we focus on the latest and greatest, it’s actually the old that’s defining Content movement!

It’s still fun to call out new titles, of course. This was a quieter January than usual, bucking the recent trend of publishers kicking off the season with a leading release.

The early year’s flagship game launch was Pokémon Legends Arceus on Nintendo Switch. Even without digital sales, because Nintendo doesn’t report them. Other than its launch month spending not being a record, there’s not much historical context available in the report. So I looked back to see where each Pokémon Switch game ranked during their respective first months. Warning: It’s confusing.

During 2018, Let’s Go Pikachu and Let’s Go Eevee released during a much more hectic schedule in November and took 5th and 6th place, respectively. At the time, Let’s Go Pickachu recorded the second best launch month in series history for a single release behind only 2000’s Pokémon Stadium.

Sword & Shield debuted a year later in November 2019, with the former hitting #3 and latter at #5. Not only that, its double-pack was smack in the middle at fourth place. Combined together, Sword & Shield had the best U.S. launch ever for Pokémon, above 2016’s Sun & Moon.

Then there was Brilliant Diamond & Shining Pearl which launched only two months ago in November 2021 when it started at third place. It also landed just outside the Top 10 in this January, at #11. All this to say that it’s difficult to compare historically, and sounds like Sword & Shield still maintain the crown on Switch.

Back to last month, Activision Blizzard’s Call of Duty: Vanguard fell to number two ahead of its second season. Monster Hunter Rise from Capcom bounced way back to third place after a very lucrative PC launch.

Similarly, God of War (2018) received the PC boost as well with its fifth place finish, up from 146th in December. Yes, it does in fact pay to release games on multiple platforms! Elsewhere in the Sony camp, Marvel’s Spider-Man Miles Morales was up next in sixth place. With this latest finish, it’s now third in lifetime spending within Sony-published titles behind only 2018’s Marvel’s Spider-Man and the aforementioned God of War (2018).

The only new game to chart besides Pokémon Legends Arceus was Ubisoft’s Tom Clancy’s Rainbow Six Extraction, sneaking into the Top 10 at number nine. As a reminder, this first-person tactical co-op shooter also launched into Xbox Game Pass. The NPD Group didn’t provide any historical context for Rainbow Six titles. Tom Clancy’s Rainbow Six Siege started at #7 back in December 2015, competing against the year’s biggest hitters during a holiday season. So it sounds like Extraction didn’t fare as well.

In terms of other storylines, I’d say the absence of Grand Theft Auto The Trilogy – The Definitive Edition is worth noting though not without good reason. Its physical release was mid-December, except for Nintendo Switch which is actually out today. Just like how NBA 2K could be higher plus Grand Theft Auto and Red Dead Redemption no longer appear much on the charts, I attribute this to Take-Two Interactive not sharing any digital data. It’s difficult to infer anything in this context.

Here’s a look at the Top 20 premium software sellers for January 2022.

Top-Selling Games of January 2022, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Pokémon Legends Arceus*
  2. Call of Duty: Vanguard
  3. Monster Hunter Rise
  4. Madden NFL 22
  5. God of War (2018)
  6. Marvel’s Spider-Man Miles Morales
  7. FIFA 22
  8. Mario Kart 8*
  9. Tom Clancy’s Rainbow Six Extraction
  10. Battlefield 2042
  11. Pokémon Brilliant Diamond & Shining Pearl*
  12. Far Cry 6
  13. Minecraft
  14. NBA 2K22*
  15. Mario Party Superstars*
  16. Animal Crossing: New Horizons*
  17. Forza Horizon 5
  18. Halo Infinite
  19. Super Smash Bros. Ultimate*
  20. Call of Duty: Black Ops Cold War

Turning to Video Game Hardware, this segment experienced the only increase during January 2022. And it was a solid increase. Monthly consumer spend on consoles rose 22% to $390 million, compared to under $320 million last year. That’s the best January hardware dollar sales since $447 million earned in January 2009.

Naturally on the growth trajectory, because of where the industry is at from a generational standpoint. Nintendo Switch is still going strong five years later, plus PlayStation 5 and Xbox Series X|S are only in their 15th month on market.

Though I was genuinely surprised by the rankings last month.

Namely how PlayStation 5 took home the top spot by both units and dollar sales. A definite upset! The last time it led was before the holidays, in September. It’s not that I don’t believe in Sony’s latest console, it’s just I underestimated how many they could produce. (I wasn’t the only one.)

In fairness, it’s difficult to gauge where supply shifts from month to month right now. I expected Nintendo Switch to keep inventories going post holiday, and Sony’s recent report of slowing PlayStation 5 global shipments had me nervous.

Another unexpected outcome was Xbox Series X|S being runner-up. Which means Switch is third place. Maybe Nintendo shipped too many in the holiday quarter so Switch could pass Wii lifetime numbers, huh?

It seems there’s a sign of life within next generation console supply. Or perhaps it’s temporary? That’s the big question! Whichever company has its suppliers making more consoles, that’s the one winning here in the domestic report. Demand is certainly here, and consistently.

Our final segment is Video Game Accessories, which saw the most substantial decline during last month’s announcement.

Buyer spending declined 15% on Accessories to $185 million. It was $218 million in January 2021, which was a record January at the time. Not only that, all of its sub-segments established all-time January month highs this time last year. It’s the true definition of a difficult comparable. A decline like this is exacerbated by a strong prior period.

Leading the pack within accessories was Microsoft’s Xbox Elite Series 2 Wireless Controller as the best-seller. No doubt bolstered by that second place hardware finish for the Xbox Series X|S, plus I’d wager demand on the PC side. A hefty price tag doesn’t hurt, since these are based on dollars generated.

That’s the end of a quickie U.S. games industry sales article, focused strictly on the single month of January rather than expanding to 12-month figures. My apologies!

There’s still plenty to learn from an early year report like this. Content spending is ever so slightly down, which I see more as a movement impacted by mobile weakness than anything alarming on the premium side. If anything, a major Nintendo release like Pokémon props it up. Combine that with the large ongoing sales portion with DLC, add-on content and the like, the software category is holding pace.

February 2022 is a much busier time for releases, two months before many fiscal year ends. Dying Light 2 Stay Human already has 3 million players according to Techland. PlayStation exclusive Horizon Forbidden West and FromSoftware’s Elden Ring are launching as two of the most-anticipated games of the year.

I expect significant carry-on sales during the second month of Pokémon Legends Arceus. There’s also a good chance Destiny 2 pops back onto the list after launching its big Witch Queen expansion. I’m leaning towards Pokémon retaining the top spot, yet both Dying Light 2 Stay Human and Horizon Forbidden West have a legitimate chance. These three should make up the Top 3.

Hardware will be supply and supply will be Hardware, a segment at the mercy of chip manufacturers and parts suppliers in this inflationary situation. Piscatella seems to agree.

“We continue to be in a supply constrained environment,” Piscatella said to GameDaily. “The question is when that might change, and predictions are all over the place on that one. Is it later this year? Will it be 2023? Who knows? We’ve got a ways to go before anyone should expect to walk into a store and pick up a console of their choice off the shelf.”

Well, I will try to predict as best I can. I’m leaning towards PlayStation 5 repeating, then Nintendo Switch in second and Xbox Series X|S in third by a slim margin. It’s anyone’s guess!

Please check out Piscatella’s detailed thread here on Twitter and give it a like. See you next time in February, it’s sure to be a wild one.

*Digital Sales Not Included, ^Xbox Digital Sales Not Included

Comparisons are year-over-year unless otherwise noted.

Sources: GameDaily.biz, The NPD Group, Tom’s Guide (Image Credit).

-Dom

Xbox’s Best Holiday Sales Result Pushes Microsoft’s Annual Gaming Revenue to Record $16 Billion

As I reported back in October, Microsoft’s Gaming division at the time saw its healthiest first fiscal quarter ever.

Now, it’s going one step further. On the strength of its first party lineup and growing subscription base, Xbox has just achieved its best holiday on record and blasted past a new milestone for annual sales, establishing a record 12-month figure.

Mere days after announcing the biggest acquisition in industry history in its purchase of Activision Blizzard, Microsoft is showing off why it’s pumping dollars so much into the space. Because it’s seeing great returns. During its 2nd quarter of 2022 financial report, Microsoft said Gaming revenue reached $5.44 billion during the holiday quarter.

That’s the single best October to December ever reported, 8% higher than last year which was the previous record holder of $5 billion. The main contributor to this record output was Xbox Content & Services, especially strong during the holiday season bolstered by flagship titles in the Halo and Forza series.

This performance also means annual Xbox sales for the Washington-based tech giant pushed passed the $16 billion milestone for the first time.

Combining the last four quarters of sales for Xbox reaches upwards of $16.28 billion. That’s 18% higher than December 2020 and 3% more than even last quarter, both of which included the launch of Xbox Series X|S. The fact that the rolling annual figure was this high shows payoffs in first party game development and key investments in partnerships for Xbox Game Pass’s extensive library.

According to Chief Executive Officer (CEO) Satya Nadella on the company’s conference call, the Xbox division saw both record engagement and revenue during the quarter. While he didn’t share specifics on the actual level of engagement or revenue, he did cite certain juicy tidbits I’ll dig into later.

Unfortunately, there was no appearance from newly-minted CEO of Microsoft Gaming Phil Spencer on the call or questions from analysts on anything related to the acquisition of Activision Blizzard. In fact, the only mention of the deal was reiterating what we already knew about its cost and closing during the fiscal year ending June 2023.

No worries. It’s time to move into the underlying numbers and corresponding reaction!

The above slides provided by Microsoft give a rundown of growth rates for Gaming and its sub-segments of Xbox Content and Services plus Xbox Hardware during the quarter ending December 2021. Namely, that 8% growth for Gaming leading to $5.44 billion in quarterly revenue which was in-line with the company’s expectations of high single digits.

Underlying this all-time number was double-digit growth in Xbox Content & Services, the sub-segment that includes software and subscription sales, which rose 10% in the quarter to around $3.86 billion or 71% of the total. Yet another record! Boosted by first-party launches like Halo Infinite and Forza Horizon 5 plus Xbox Game Pass expansion, this figure was especially impressive given its consistency around this time in late 2020.

On the conference call, Chief Financial Officer (CFO) Amy Hood mentioned there was “significant” growth for Xbox Game Pass subscriptions and first party software sales in the holiday quarter.

Why? According to Nadella, Halo Infinite has now attracted 20 million players since its staggered launch beginning back in November. It’s the largest start ever in the series that dates back to the original Xbox. Another thing that, hm, drove sales is how Forza Horizon 5 is now up to 18 million players after hitting the 10 million threshold within a week of launch in early November. These games also attracted subscription growth, the other key revenue contributor, as Xbox Game Pass now has 25 million members up from the last official figure of 18 million (with the latest rumor being around 22 million).

To me, this dispels a false notion that Xbox Game Pass isn’t properly monetizing its user base. Even those buyers that get in at a discount are sticking around, which generates ongoing revenue once the rate resets. The numbers back this up. I’d love to know more on the profit side, of course, but I work with what’s available.

Intriguingly, the 10% Content & Services growth was technically below Microsoft’s guidance of “mid-teens.” That’s because of weakness on the third party side. This signals under-performance of AAA multi-platform releases like Call of Duty: Vanguard and Battlefield 2042. Perhaps even Madden NFL 22 and other annualized sports titles. So while Call of Duty and Battlefield both were among the best-selling premium titles in the U.S. during 2021 as I wrote about here, this missed estimate implies a lower contribution to the bottom line of platform holders.

Taking a look at the above chart I’ve compiled, this is 12-month revenue going back over time for the gaming business. It helps to provide context in a couple of areas, and smooths out short-term fluctuations. The main thing it shows is the overall level of Xbox revenue over time. That’s the record $16.28 billion as of this latest period, compared to $15.86 billion last quarter then going back from there. Clearly the trend-line is on that upward trajectory since bottoming out in Q3 of FY 2020.

There’s also the split between Xbox Content and Services and Xbox Hardware categories. The green portion is for Xbox Content and Services, which most recently contributed $12.58 billion to the annual amount. The red portion is Xbox Hardware which is all physical gaming consoles under the brand. $3.7 billion this time. Both of those are also all-time highs.

Next up is Xbox Hardware. This sub-segment contributed the remaining portion of the record holiday quarter, growing 4% to almost $1.59 billion in revenue on the back of steady demand. It’s actually one of the few things in this report that wasn’t a record. That happened back in fiscal 2018’s second quarter, when hardware accounted for $1.78 billion. This year’s was still second best, so I’d say it’s doing alright.

To put it another way, the second holiday quarter for Xbox Series X|S generated almost $70 million more in dollar sales than its launch quarter did.

On the call, Hood shared how Microsoft is seeing continued buyer interest for both console models. Additionally she saw “better than expected” supply, which is a good sign considering the doom and gloom of the modern semiconductor situation.

This commentary and performance is mostly consistent with Spencer’s recent comments around Xbox Series X|S being the fastest-selling ever for the brand. Xbox Hardware is performing well during this early part of the generational cycle even in the fact of shortages, with Xbox Series S as the highlight because of higher availability. While we don’t have exact figures from Microsoft on hardware shipments globally, we do have an estimate from my friend Daniel Ahmad, Senior Analyst at Niko Partners, that it’s above the 12 million of Xbox One’s first year.

Here’s a telling experiment: What would Microsoft’s gaming revenue look like if Activision Blizzard earnings were considered? The latter hasn’t reported its last quarter yet, so I’ll use historical figures for a baseline in this thought experiment.

The most recent October to December revenue for Activision Blizzard was $2.41 billion. That means the holiday quarter for the combined entity would have been over $7.58 billion! For the full 12-month period, Activision Blizzard’s latest is $9 billion.

Which means, in aggregate, Xbox and Activision Blizzard annual revenue right now would be $25.33 billion. How does that compare to its major competitors? Well, it’s pretty impressive and much closer to the top-end than ever before, naturally.

I usually pull in figures for Sony and Nintendo as the three main console manufacturers. There’s also Tencent, the largest gaming company in the world, which is an absolute behemoth notably in mobile and the Asia Pacific region. So let’s see them all!

This is using annual and the caveat is Microsoft is the only one that’s reported this season so far. It’s still helpful to illustrate. Tencent’s latest strictly from its games business was $27.3 billion. Sony’s Game & Network Services segment hit $25.5 billion while Nintendo’s total sums to $14.7 billion, both using the exchange rates at their last reports. Which means Microsoft alone sits closer to Nintendo, while combined with Activision Blizzard it nearly surpasses Sony’s total and might even some day approach the untouchable realm of Tencent.

And that’s part of why Microsoft is willing to pay almost $70 billion for it.

As is tradition, I’ll quickly run down Microsoft’s overall results for the three months ending December before closing up.

Total revenue for the company rose 20% to $51.7 billion. It’s the first time quarterly sales topped $50 billion, pushed by an all-time high $18.3 billion revenue from its Intelligent Cloud segment. Operating profit moved up 24% to $22.2 billion.

Its results beat analyst consensus on both top-line revenue and earnings-per-share. Microsoft Cloud product revenue was a major highlight, increasing 32% to over $22 billion for only the second time ever.

We can learn a bit on gaming profitability from the More Personal Computing business unit margin movement and operating dynamics. This experienced 15% revenue growth to $17.5 billion. At $5.44 billion, gaming makes up around 31% of More Personal Computing. Operating income rose 22% to $6.36 billion, while expenses rose at a lower 17% rate partially as a result of gaming. It’s not perfect, but this can indicate sales contribution is outpacing costs.

It’s hard to overstate just how much the record revenue stats keep piling up for the Xbox business, reflective of Microsoft’s general strategy of user engagement and ecosystem establishment. This time it was first party software moving the needle, with major internal studios like 343 Industries and Playground Games leading the charge by pushing quality within key brands. The result is Xbox Game Pass literally paying off, thus generating opportunities for more future investment both organic and external.

Moving into the new calendar year, Xbox’s early 2022 exclusive slate is light during a quiet quarter for first parties. CrossfireX is a third party console exclusive from Smilegate and Remedy Entertainment launching in February, plus there’s indie partnerships hitting the platform throughout the coming months.

It is, however, quite the busy period for third party games with select titles like Rainbow Six Extraction available simultaneously on Xbox Game Pass. Dying Light 2, Elden Ring and Destiny 2’s The Witch Queen expansion all debut in February. There’s always the long tails from late year launches of Call of Duty, Madden, NBA 2K, Battlefield then other major ongoing games with seasonal updates like Fortnite and Apex Legends.

On the hardware side, Xbox Series X|S availability will continue to set the narrative. I don’t expect the higher end Xbox Series X to pick up stock any time soon, though I’m turning optimistic on Xbox Series S inventories based on recent trends and anecdotal evidence. Microsoft executives themselves said that hardware will continue to be impacted by supply limitations and didn’t provide guidance on growth expectations.

For the quarter ending March 2022, Microsoft expects gaming sales growth in “mid single digits” range. Assuming it’s exactly 5%, that’s $3.7 billion. For Xbox Content & Services, strong engagement and continued momentum will lead to increases in the “mid to high single digits.” Putting it around 7% then, this would generate $3.1 billion.

Guess what? Both would be fiscal third quarter records. The latter would even be the first time it’s passed $3 billion in a Q3.

“The other area obviously we’re seeing strength is in gaming,” Nadella highlighted during the analyst question portion of Microsoft’s earnings call. “We see the intensity of usage and the business model diversity around games, that increasingly the economics of gaming franchises is also radically becoming much more software-like.”

That certainly is the case, considering the multi-faceted approach where now, because of ongoing financial support in both areas, main contributors are actual first party software and Xbox Game Pass as a catalog of titles plus cloud experience.

Thus ends this quarter’s deep dive into Microsoft’s financials. I look forward to recapping other companies very soon! Be safe all, and stay healthy.

Note: Comparisons are year-over-year unless otherwise noted.

Sources: Daniel Ahmad, Microsoft, The NPD Group.

-Dom

Seven Major Games Industry Predictions for 2022

New year, new excuse to think we can predict the future!

In an annual series of articles I began last year, here is where I’ll document my biggest, sometimes boldest, games industry predictions for the 12 months ahead. It’s fun to guess, and honestly it’s even more fun to look back when all is said and done to see how wrong some of them were!

Speaking of looking back, out of my seven predictions for 2021, I’d say I got maybe half of them “right” when combining different elements. I said Switch would be the best-selling console in the U.S. during 2021, and that’s the trend based on reports from The NPD Group. I also thought Nintendo would debut a Pro model, when instead the company released its OLED step-up. Partial points?

I dubbed 2021 “Year of the Delay,” which was true in games and various industries due to both impact from coronavirus and chip shortages. My most substantial win was Sony and Tencent scoring major acquisitions, as both companies expanded reach globally with a number of investments. I saw the global games market value growing double-digits to upwards of $190 billion or more. Because of the aforementioned worsening supply and delays, Newzoo said the global value hit $180 billion on only 1% growth. It did say digital contributed 93%, right near my estimate of “above 90%.”

Otherwise, I guessed Rockstar Games would reveal its next title and how it wouldn’t be Grand Theft Auto VI. Technically it had the Grand Theft Auto: The Trilogy – The Definitive Edition, and there’s rumblings of a new Bully project, so I’ll take half credit? I spoke of the expansion of cloud gaming and projected that Amazon’s Luna service could be the standout. Cloud has grown in popularity and spending though I don’t think there’s necessarily a standout service right now, so I’ll say that’s a push. And lastly, Capcom still hasn’t announced a new fighting game which means I take the big L on that last one.

It’s now time to look ahead. I see a future where plenty of trends which started in recent times will accelerate such as services, cloud, mobile, consolidation, outing toxic work cultures, defining The Metaverse and even the dreaded blockchain and NFT barrage. Here are seven of my biggest industry predictions that, of course, will most certainly happen soon.

Workplace Culture, CEOs & Unionization

Starting with a downer, this is a sad prediction that hurts to write. I expect more disheartening stories of workplace toxicity and ongoing harassment at publishers of all sizes in 2022, following in the footsteps of Activision Blizzard, Ubisoft, Riot Games and others. It will always be difficult to hear victims speak out about stories of abuse and “boys club” cultures, however I do believe it’s a key step towards a better industry. The year will bring to light various stories and hopefully remove bad actors from powerful positions.

The downside is I anticipate both Activision Blizzard CEO Bobby Kotick and Ubisoft Chairman/CEO Yves Guillemot to remain in their respective offices. They and their leadership teams will claim things have changed. Even if that’s not much the case. (We’ll see.)

On the brighter side, I expect employees within at least one major publisher to work towards broad unionization plus a concerted shift towards hiring more women and people of color in executive roles. The industry is at a boiling point. A group of brave employees can, and I think will, unify under a common goal to bargain with leadership. It could serve as a beacon for others to bring demands to management, and potentially symbolize a shift in power dynamics. While I don’t know which company it will be, I do expect this can be the year where a unionization effort manifests.

Sony PlayStation Subscription Service Rebranding

This one is a slam dunk. (I’ll take what I can get!) With the success of Microsoft’s Xbox Game Pass service and rumors swirling of Sony’s response, I believe we’ll hear very soon about PlayStation’s rebranding of PlayStation Plus and PlayStation Now into a service allegedly code-named Spartacus. To firm up the prediction, I’ll list out specifics of how I think it could go.

At present, PS Plus and PS Now cost $10 per month individually. It’s messy. Spartacus will combine these, and I buy the rumored three tier setup with varying levels of service and price points. The first I expect to be priced at the current $10 since it’s essentially PS Plus. The second tier should have a catalog of prior and current gen software attached, so I’ll say $15. Then I can see a premier $20 per month service with the same online benefits and catalog plus a ton of older titles and cloud streaming available. Note: Xbox Game Pass base is $10 monthly while the upgraded Ultimate package is $15.

Going one step further, I think PlayStation will partner with either Electronic Arts or Ubisoft to bring EA Play or Ubisoft+ services simultaneously at launch of the rebranding in that highest priced tier. One or more pricing options will also have a console form of Discord bundled, as a result of the recent partnership between the two companies.

Then, here’s the biggie: I say at least one new first-party game will in fact launch into Spartacus during 2022. It might not be Horizon Forbidden West or God of War: Ragnarok. It could however be along the lines of a Destruction All-Stars which started on PlayStation Plus at launch in February 2021. Perhaps MLB The Show 2022. Or even Gran Turismo 7?

Nintendo’s Breathtaking Lineup & No New Switch

After surprising most talking heads by not releasing a new Switch “Pro” model in 2021, Nintendo opted for a slightly upgraded OLED iteration. The company also announced how its flagship sequel to The Legend of Zelda: Breath of the Wild is slated for release in 2022.

You know what? I believe them on Breath of the Wild’s follow-up. It will be out this year. (And absolutely should have weapon degradation because that’s a staple of what made the original so brilliant.) Consistent with my earlier call, I don’t believe it will launch alongside a new Switch model. Honestly Nintendo won’t say much of anything about new hardware during 2022, other than alluding to how its internal teams are always working towards the future. At most, I can see another accessory experience like Ring Fit Adventure or Nintendo Labo.

That’s because I think Nintendo’s hybrid handheld will have its second best year ever from a global unit sales standpoint. I’m targeting 25 million Switches shipped in the 12 months ending March 2022, slightly above Nintendo’s latest estimate of 24 million. That would be the best result since launch other than last year’s 28.83 million.

Elsewhere on the software side, I don’t think we’ll hear anything formal about the next full-fledged Mario Kart in 2022. While it’s clearly in development, I still say it will be tied to a Switch successor in 2023 or beyond. That said, I am calling for a major, dormant IP to make a return in 2022 for Nintendo with a mainline release. Let’s say it’s, at long last, EarthBound. Nobody is actually scoring these, right?

Finally there’s Metroid Prime for Switch, which I can see announced by E3 and released during the last quarter of 2022 to bolster Nintendo’s holiday period. Unfortunately, it’s probably not the full trilogy. It’s a remake of the first game. That way Nintendo can sell it for full price and still have two more similar releases in the future. It’s a business, after all.

Severe Impact of NFTs, Blockchain & Play to Earn Schemes

I dislike talking about this as much as the next level-headed pundit. In 2022, there will be plenty of chatter around blockchain games, non-fungible token (NFT) integration and so-called “Play to Earn” setups. Especially at the triple-A level. It’s driving investors wild. Anything that can make money, even if it’s temporary, will attract the attention of big budget publishers.

Diving into specifics, there’s flat out going to be tons of pitches around games built on the blockchain hand-in-hand with those that offer players NFTs for in-game items or cosmetics. Shoot, there already are. It’s only getting worse in 2022. Then there’s the corresponding rejection by core gamers against these things. That constant push-and-pull will partially define the industry this year.

I say *at least* three major global publishers will release their own full-blown NFT game, marketplace in an existing title or software specifically marketed as Play to Earn. One of them probably won’t even make it until the year-end. We’ll hear at least two or three stories similar to how S.T.A.L.K.E.R. 2 Heart of Chernobyl developer GSC Game World walked back plans for NFT usage after major backlash from its community. What about a game that smartly integrates these? I wonder if that’s even possible based on game development experts, so I can’t make that sort of prediction in good faith.

What I do know is this theme is going to be a nuisance all year. Could 2022 be the peak of blockchain and NFTs in gaming? That’s hard to say. It certainly does seem to be leaning towards short-term gains, however Bitcoin and cryptocurrencies aren’t going anywhere so I’d say buckle up.

Global Games Market Value Will Grow Low Single-Digits

How big will the global games market be when 2022 is said and done? Well, I think a little larger than it is right now. Similar to performance in 2021, I’m expecting a marginal increase. Under a 5% gain. Based on ending 2021 at roughly $180 billion, my target puts it between $182 billion to $185 billion on the upper end. I anticipate mobile will again be a driving force, gaining a similar single-digit percentage while console and PC will be slightly down or effectively even. Plus, digital split will remain above 90%.

Looking at hardware, Sony’s PlayStation 5 truly has an opportunity to surpass Nintendo Switch as the best-selling console in the U.S. specifically. However, I don’t think it will happen because of supply constraints expected to last until 2023. I’m leaning towards Switch repeating as the year’s top hardware. PlayStation 5 and Xbox Series X|S will have healthy years even given production challenges. I anticipate Sony will meet its annual console targets while just recently, Xbox leader Phil Spencer said this current generation is Xbox’s fastest-selling ever. With the availability of Series S in particular rising lately, I can see this continuing. (Just wish they would share actual numbers!)

On the consolidation side, we’ve already just witnessed the largest deal in gaming history with Take-Two Interactive overpaying for Zynga at $12.7 billion mere days ago. Over the next twelve months, I think there will be another “blockbuster” deal worth upwards of $5 billion to $7 billion. It could involve a Western publisher and Asian game studio. Maybe the other way around?

Yes, I’m being cautious on naming names because I want to sneak in some credit for this prediction this time next year! What I’m driving at is I expect a lot of investment in global expansion during 2022 for the top-end gaming publishers.

It’s Impossible to Escape The Metaverse

As much as many companies want to claim they are each creating one, we’re already living in a world filled with Metaverses. We have virtual identities established over years of existing online, our precious personal information aggregating into databases everywhere as we socially chat and make purchases from our devices. Lately it’s become the hot buzzword used by companies both within and outside of gaming trying to capitalize, and I expect The Metaverse to consume technology as a sector and especially the games industry during 2022.

I continue to believe that no one will agree on how to define The Metaverse, so it will remain a more nebulous concept for executives to use for pitch materials. Hardware manufacturers, social media giants and virtual realty players will all look for a slice of that metaphorical pie and try to capture users in their tailored version.

To coalesce this into an actual prediction, I’m thinking something like a half dozen games from publishers large and small will launch with The Metaverse as a “selling point” in the advertising deck. Meta, formerly Facebook, will certainly be one of them on their Quest family of devices. Epic Games will continue bringing as many brands as possible into Fortnite. At least a publisher or two will try to integrate virtual workspaces with online play, billing their experience as a “fun place to work.”

I do think there will be a game that comes out of nowhere in 2022 that captures the spirit of The Metaverse without actually advertising it as such, and for that reason it will become hugely popular. Like, Pokémon Go level of popular. Ironic considering how well that game integrates augmented reality elements. I don’t know who will make it, or who will publish it. Just that it will exist. You heard it here first!

New BioShock Will Be Revealed, Releasing in 2023

Time to have a little fun!

In what would be a monumental moment for my personal gaming tastes, I think 2022 is the year when we finally hear from 2K Games and its Cloud Chamber development studio on the next installment in the beloved BioShock franchise.

The fourth mainline game was announced back in 2019 when the team, which includes a number of folks who previously contributed to the older games, said it was several years away from release. The first-person, historical horror shooter is certainly well into development by now. Enough so that rumors are trickling about an Antarctic setting in the 1960s and a more open area design structure. Apparently it’s been dubbed code-name “Parkside,” and there’s even a rumored title of BioShock: Isolation floating about like the buildings in BioShock Infinite’s fictional Columbia.

In the past, I’d consider this more pie-in-the-sky than an actual prediction. With this fresh trickling of information alongside 2K parent company Take-Two Interactive sharing updated unit sales statistics (38 million to date for the series) on recent earnings reports, I’m feeling more confident than ever it will reveal the new BioShock this year. And schedule launch for sometime in 2023.

It has to happen sooner or later, right? Why not sooner!

That’s a wrap on my biggest predictions for the games industry in 2022. How many of these line up with yours? Are you willing to go on record with your boldest of predictions? Will this be the year of a spankin’ new Capcom (and maybe Marvel) fighting game announcement? Can I finally have my wish of hearing about BioShock?

Whatever happens, we have a lot to look forward to in gaming over the next several months. First quarter is a busy one for releases and the landscape will fill up over time. Here’s to another year!

Sources: Artturi Jalli (Image Credit), Bloomberg, Getty Images (Photo Credit), MarioWorld.com (Image Credit), New York Times, Newzoo.

-Dom

U.S. Games Industry Sales Set October Record as Seven New Titles Enter Top 10 List

It seems October was a scary good month for video game sales in the States.

That’s according to the latest monthly report from industry tracking firm The NPD Group, which released its October 2021 stats for the U.S. games market today.

The data shows it was a record-breaking October for consumer spending, where it approached nearly $4.4 billion in sales or an increase of 16%. All three categories experienced some sort of growth, both during the month and across 2021. Video Game Content and Video Game Hardware rose double-digits in these time frames, while Video Games Accessories saw more modest single-digit gains.

Within the biggest contributor of Content, new releases occupied a staggering seven of the Top 10 spots on the overall software chart. Ubisoft’s open world action shooter Far Cry 6 landed the top rank, just above a surprising runner-up in Warner Bros’ co-op zombie tag-along Back 4 Blood. Nintendo then boasted the opposite of a dreadful start for the latest entry in its classic Metroid franchise, as Metroid Dread set its own super series launch record. And, as it often does, mobile continues a steady pace with October spending again exceeding $2 billion. A feat which mobile has achieved for eight straight months now.

Hardware remains the category with the most growth upside as both Nintendo and Sony showed consistency, even amidst a supply-limited situation impeding them and competitors from making as many consoles as they’d like in ideal conditions.

Nintendo Switch regained the top spot during October, as measured by both units sold and dollar sales. Primarily bolstered by the October 8th launch of its Switch OLED model which contributed over 40% of Switch unit sales for the month. The device family is also the best-selling of 2021 to date when using units as a gauge.

PlayStation 5 is still the year’s best-seller from a dollar standpoint, no doubt influenced by steady demand and a higher asking price. Curious to see if this keeps up through the holidays, given recent reports of Sony potentially reducing production targets given part scarcity in the global supply chain.

Here domestically, October represented a consistent trend lately of spending gains, record output for certain data points, hardware growth trajectory, mobile momentum and successful software starts. Demand was certainly still solid for consoles in particular, leading me to surmise the record October could have been even more stacked if it wasn’t held back.

“Strong hardware, subscription and mobile, this month [was] aided by the flow of new releases,” said NPD Group’s Mat Piscatella on Twitter. “Still don’t know how high the ceiling is for console hardware, [it’s] still (and will be for a long while) in a supply constrained environment.”

There’s a lot to cover, let’s start with the overall figures then move into category results.

United States Games Industry Sales (October 3rd, 2021 – October 30th, 2021):

Consumer spending in the U.S. games market moved up that aforementioned 16% to a best ever October amount of $4.4 billion. This means it’s upwards of $46.67 billion on the year as a whole. That’s 12% higher than the comparable period in 2020.

Seeing both of these totals rise double-digits given the more strict quarantine restrictions last year proves the market’s resiliency, maintaining buyers within ecosystems like mobile and subscriptions like Xbox Game Pass, plus the ongoing popularity of live service games with long tails. Combine that with hardware demand and there’s a recipe for growth even against high comparables.

Content i.e. software, subscription and mobile sales increased 11% in October, settling at $3.76 billion. That’s 86% of total spend for the month. We know that mobile passed $2 billion, comprising at least 46% of this Content category. Monthly mobile revenue growth reached 12%. This makes sense, rising from the single-digit gains around this time last year, because people are spending more time and money on their phones.

On the traditional software side, the big story is new releases. These accounted for four out of the Top 5, seven of the Top 10. Even enough to push mainstays like NBA 2K and Call of Duty down the list further than accustomed.

Leading the pack was Far Cry 6, which is already a part of the 2021 to date best-seller list as well at #8. The title also earned the top spot on PlayStation and Xbox individual charts. I didn’t see much from NPD Group in the way of direct comparison to prior entries. Which doesn’t mean I can’t do just that. Its predecessor Far Cry 5 also led its first month in March 2018. Ubisoft claims this year’s title has 25% more engagement than its predecessor, albeit didn’t share anything on copies or dollar results. For more context, Far Cry 4 debuted all the way down in 6th place back in November 2014.

Back 4 Blood charted at the second spot during October, securing that same rank on both PlayStation and Xbox sales lists. Developed by Turtle Rock Studios featuring veterans of the Left 4 Dead team, the multi-platform title no doubt benefited from a simultaneous launch into Xbox Game Pass. In a trend now seen consistently for years, starting in the subscription service actually compliments sales rather than cannibalizes them. The word-of-mouth effect works especially well for a game like Back 4 Blood focused on the social element of slaying the undead alongside friends.

On to more records. Nintendo’s Metroid Dread speed boosted towards a historic launch, rounding out the Top 3 for October even without its digital portion. It might have been ever better taking downloads into account. Even so, the Switch exclusive set a new series record for launch month dollar sales. Looking at strictly retail, Metroid Dread’s first month earned more than double that of prior best Metroid Prime in 2002. According to an interview with Nintendo of America President Doug Bowser, it sold 854K units in the U.S. alone during October marking the best start of all time for a Metroid release. (I assume his figure includes retail AND digital, whereas NPD ranks do not for Nintendo-published games.)

Moving past Madden NFL 22 at #4 we get to the somewhat shocking entry of Demon Slayer: Kimetsu No Yaiba: The Hinokami Chronicles ranked fifth overall and the same spot on the PlayStation list. The anime arena fighter published by Sega is the latest in certain Japanese titles launching simultaneously in the West, much to its benefit.

Other notable new launches include Marvel’s Guardians of the Galaxy from Square Enix at the seventh spot. Consistent with what I predicted earlier, keep in mind this happened with only a handful of days on record after a late October start. I wouldn’t jump to conclusions yet on calling it disappointing, especially given the Marvel brand backing. Right after this were Nintendo mini-game collection Mario Party Superstars then hockey simulator NHL 22 from Electronic Arts at 8th and 9th, respectively.

Beyond that, the rest were games launched in prior periods. One slight item of note is the second game from Ubisoft released in October Riders Republic was nowhere to be found. Not yet at least.

Up next are the rankings themselves. Then it’s more deets on Hardware and Accessories.

Top-Selling Games of October 2021, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Far Cry 6
  2. Back 4 Blood
  3. Metroid Dread*
  4. Madden NFL 22
  5. Demon Slayer: Kimetsu No Yaiba: The Hinokami Chronicles
  6. FIFA 22
  7. Marvel’s Guardians of the Galaxy
  8. Mario Party Superstars*
  9. NHL 22
  10. NBA 2K22*
  11. Mario Kart 8*
  12. Call of Duty: Black Ops Cold War
  13. Ghost of Tsushima
  14. Super Smash Bros. Ultimate*
  15. Animal Crossing: New Horizons*
  16. Minecraft
  17. Marvel’s Spider-Man: Miles Morales
  18. Diablo II: Resurrected
  19. Mortal Kombat 11
  20. The Legend of Zelda: Breath of the Wild*

Top-Selling Games, 2021 To Date, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Call of Duty: Black Ops Cold War
  2. Madden NFL 22
  3. MLB: The Show 21^
  4. Resident Evil Village
  5. Super Mario 3D World + Bowser’s Fury*
  6. Marvel’s Spider-Man Miles Morales
  7. Mario Kart 8*
  8. Far Cry 6
  9. Minecraft
  10. Assassin’s Creed Valhalla

Flip flopping over to the Hardware category, spending totaled $472 million in October. That’s up 82% from $260 million. Expanding to 2021 numbers, Hardware is above $3.88 billion which is 53% more than where it was a year back.

Pretty substantial growth that I’ll call wholly expected, given the lower comparison during a late generation cycle last year as it’s now been 11 months of data for new consoles from Sony and Microsoft.

After PlayStation 5 topped September, Nintendo Switch reemerged as the pack leader during October. Driven by a fancy new OLED iteration, it snatched back the top spot on both unit sales and dollars generated.

Bowser shared how Switch sold 711K consoles in the States overall last month. 314K, or 44%, were Switch OLED model. This figure tells a story on its own. The latest version featuring a more dazzling, larger screen plus other enhancements isn’t just attracting new buyers. It’s enticing existing owners to upgrade or replace. Whether they own the original 2017 model or have a Lite they are passing along to a family member or child, there’s plenty of demand among those that already bought some sort of Switch before. Plenty of potential on the demand curve.

“We see this as a strong start for the Nintendo Switch OLED model and a very strong indicator of the performance we can expect as we go into the holiday season,” said Bowser.

Considering this kick off for the OLED and consistency of sales, Nintendo Switch is currently the top-selling gaming device for 2021 by units sold. I believe it’s held that position all year given its recent track record.

Now, while PlayStation 5 gave up the lead on the monthly chart, Sony’s most recent console still retains the 2021 to date best as measured by dollar sales. Again its revenue potential is bigger than Switch, even with OLED being a slightly higher priced model within its particular family.

You might be wondering if there’s anything on Microsoft’s Xbox performance. Well, unfortunately I didn’t see any within The NPD Group’s reporting. I’ll assume the trend that Xbox is selling out, it’s just not producing as many boxes as its peers. Just wish the report confirmed this narrative.

Within the smallest and usually most uneventful category of Accessories, spending gained 5% in October to $158 million. Marginally above the $151 million last year. Considering the first 10 months of the year as a whole, it’s showing more growth at 9%. That’s upwards of $1.92 billion in sales for this segment.

Microsoft did lead in at least one aspect during October: Its Xbox Elite Series 2 Wireless Controller generated the most sales within Accessories.

Briefly digging into the category, game pads are the top seller for the year so far. Spending on game pads is 7% higher now than it was thru October 2020.

And looking at 2021 so far, PlayStation 5’s DualSense White controller continues as top dog. Because of its pricing and the popularity of its corresponding console, I believe it’s been the broad leader all year.

Hardware supply, hardware supply, hardware supply. And spankin’ new games. These are the highlights of October’s record report, a stellar period for overall spending, Nintendo’s Switch OLED model and standout entries in series like Far Cry and Metroid.

Echoing a hesitant sentiment on the console side, there’s been (unconfirmed) reports in the industry that Sony has slightly lowered its global target for PlayStation 5 production for the year ending in March 2022. Similarly, as I wrote last week, Nintendo formally reduced its worldwide annual Switch shipment guidance from 25.5 million to 24 million.

The word being thrown around is uncertainty, which is the bane of any analyst or predictor’s existence. We just don’t know when chip availability will improve. Still, it’s the pre-holiday rush season including the coveted Black Friday time frame, so expect a lot of competition for that top spot. My personal choice is Nintendo Switch leading November by units, then PlayStation 5 squeezing out a slight victory on dollars.

Bowser mentioned the general environment and Nintendo’s related effort during his interview.

“These challenges have been facing many industries, and they’ve been going on for quite some time,” he said. “But we’re working to meet demand for our holiday products, including Nintendo Switch OLED model. I will say things are constantly changing, but we’ve been working across the supply chain – from production to overseas transport to local distribution channels – to make sure we have a steady flow of hardware and games through the holiday cycle.”

Speaking of a steady flow of games, November will continue the fourth quarter spree of triple-A blockbuster launches in particular. It’s the season of heavy hitters.

Activision Blizzard, whose executives still haven’t fully addressed any clear steps being taken to improve workplace conditions and should be held accountable for their inaction in recent years, published its latest military shooter entry Call of Duty: Vanguard last week. I fully expect it to the November’s biggest seller, and enter the 2021 to date chart near the top.

Then there’s the glorious success story of Forza Horizon 5, which I expect to be in the Top 2 or 3 of the overall chart and easily top the Xbox platform list in November. The open world driving game from Playground Games already surpassed 6 million players according to Xbox’s Aaron Greenberg, overtaking my ambitious initial week estimate of 5 million! Not only is it a first-party Microsoft title going directly into Xbox Game Pass, the early access version attracted at least a million buyers based on in-game statistics. It should be the largest Forza Horizon launch of all time in the U.S.

There’s also the likes of Electronic Arts’ Battlefield 2042 (which I expect to round out the Top 3 on the total charts), Switch exclusive Pokémon Brilliant Diamond & Shining Pearl plus Rockstar Games presenting Grand Theft Auto: The Trilogy – The Definitive Edition. I expect a fun, eventful November especially given how October shaped up!

As usual, check out Mat at NPD Group’s thread for more details and further insights direct from the company itself.

Definitely look forward to digging into it then and chatting here or on social media. Until then, be safe, get those booster shots and thanks everyone for taking the time to hang out.

*Digital Sales Not Included, ^Xbox Digital Sales Not Included

Comparisons are year-over-year unless otherwise noted.

Sources: Aaron Greenberg, Bloomberg, GamesRadar (Image Credit), The NPD Group, Ubisoft, The Verge.

-Dom

Now That We Know Specs, How Much Will PlayStation 5 & Xbox Series X Cost?

The short answer: We still don’t know. Yet that won’t stop us from speculating!

Even though we’re now a bit closer to seeing the full picture, there are still plenty of variables at play. Right now, no one on the outside actually knows.

That said, it’s time to guess.

After Sony’s “Road to PlayStation 5” video reveal of the technical specifications for its upcoming PlayStation 5 hardware, we know a lot more about components and power expectations for it alongside its main competitor in Microsoft’s Xbox Series X. So it’s easier to approximate where they might be at launch, currently scheduled for late this year. Which is great. Because while power is important, I’d argue price drives consumer sentiment more than anything.

For those looking for in-depth breakdowns of specs and numbers for Sony and Microsoft’s hardware, check out Digital Foundry’s work at this link for the PlayStation 5 and this one for the Xbox Series X. The team also compiled a comparison piece across the two consoles, at least based on the information so far.

Then there’s the latest collaboration with Digital Foundry, Austin Evans and Xbox Wire with even more detail into Microsoft’s project, plus Sony’s own PlayStation Blog post summarizing various items on its box. Plenty of places to soak up the technical jargon. It’s impressive coverage, to the point where even someone that follows the business and critical side of games can almost understand.

Here, we’re going to cover mostly the general points and see just what they mean for potential launch pricing. Price drives consumer decisions just as much as power, arguably even more so since it’s an easy comparison point between different products. Don’t worry if some of the tech side goes over your head. You’re not alone.

Based on the reports as you see above, the conclusion is the raw components and feature sets are mostly comparable with some important distinctions. In terms of capabilities, there are common ones. They support high frame rates and 8K resolutions. They’ve got Raytracing (get used to this buzzword for a fancy lighting technique). 3D audio. Custom AMD processors. Solid state drives. Some form of backwards compatibility for legacy software.

It’s looking at the divergences that spark discussion of course. Without getting too much into the weeds, I’ve heard it framed as such: The Xbox Series X is more powerful while the PlayStation 5 is notably speedier. The former has the more capable processing power, while the latter has a tailored solution for delivering the highest speed possible.

Which makes sense when we step back. Microsoft’s general philosophy is now about how it has the most powerful console this generation in the Xbox One X, and the focus remains on the upper end targeting tech enthusiasts this time as well. The upcoming Xbox Series X is twice as powerful as the improved version of its predecessor, the Xbox One X. Microsoft’s goal is to have games looking great and running smoothly plus is going to offer the ability to suspend and resume multiple games at once. Which fits with its ecosystem, software compatibility and catalog approach.

The downside to the raw power of the Xbox Series X is that it requires proprietary expandable storage options, which will add to the cost of keeping the console over time when hard drive space inevitably fills up. This certainly lowers its price tag, yet adds to the overall investment across the full generation. There’s also the question of first party software support, which is a primary concern though less relevant in this context.

Flipping over to Sony’s PlayStation 5, its specs are still impressive. While in raw terms its numbers are notably lower than Xbox, its implementation is slightly different in using what’s termed “variable frequency,” more plainly a type of “boost” to allocate its power budget. Sounds to me like a focus more on optimization rather than sheer strength.

This also fits with its design mantra of placing a major focus on speed. Limiting loading times for players, offering studios the tools to minimize downtime and providing better options on the consumer storage side. This is achieved by leveraging a custom system alongside its 825 GB solid state hard drive plus expandable storage that doesn’t require proprietary equipment. Simply, the real treat is its storage speed and flexibility.

Mark Cerny, Sony’s lead system architect and hypnotic public speaker, described the solid state drive as the single most requested component by software developers. Capabilities for the people that make games are just as important as delivering performance output to those that play them. Which is why the PlayStation 5 seems tuned for speed.

One disappointment of Sony’s messaging so far is its stance on backwards compatibility. The aforementioned PlayStation Blog post alludes to many of the most popular PlayStation 4 games being playable at launch on the new console generation, then comments that there are roughly 4,000 PS4 games on which they will be working on this feature. Does that mean only select games will be available? Or that those will benefit from the PS5 power? We need more clarification of this increasingly more important feature.

Capabilities for the people that make games are just as important as delivering performance output to those that play them. Which is why the PlayStation 5 seems tuned for speed.

This summary of the broader strategies across the two competing hardware makers brings us to the real debate:

How much will people have to pay to move to next gen later this year?

We’ll start with the PlayStation 5, mainly because we already have some insight into its supply chain and pricing decisions from a Bloomberg piece last month.

For context, PlayStation 4 released at $399 back in 2014 while 2016’s more powerful mid-step PlayStation 4 Pro hit that same price later in the cycle, after discounts applied for the original box.

Rumors suggest that the manufacturing cost for the upcoming PlayStation 5 is currently at $450 per console, which is well above the estimated $381 for the base model of its predecessor. And this is strictly speaking about component cost. It doesn’t include the additional marketing and distribution associated with launching a flagship product.

During a conference call with investors earlier this year, Sony’s Chief Financial Officer Hiroki Totoki said “We must keep PlayStation 5’s bill of materials under our control and we need to make the correct number of units in the initial production.”

That certainly sounds like component cost might be approaching levels that Sony didn’t anticipate. Knowing these factors, could we see the same $399 introductory price for the PlayStation 5 this holiday?

I think there’s an argument to be made that we will, and it’s where I predicted it to be when discussing the topic in late 2019. That was without knowledge of the power capabilities and higher-than-expected component cost. Console manufacturers traditionally have slim margins early in a console life cycle, though $399 would be clearly selling at a loss. Companies aren’t in the business of losing money.

I’m leaning towards upping my forecast to $449, with Sony eating those additional expenses in hopes of making it up in volume and software sales. This puts it roughly at what it costs to make, and it’s only 50 bucks more than where it launched PlayStation 4 nearly seven years ago.

Gaming has been largely free from the reality of inflation so far, what with big budget software costs remaining consistent through the years. Even if publishers are finding ways to generate additional revenue via downloadable content and customization options. With rising costs to build hardware, it’s looking like a higher baseline for console launch cost is approaching.

There’s also a chance that Sony’s console starts at $499, especially if supply chain constraints limit the availability of parts. I don’t think it will be this high due to both sticker shock and competitor decisions, yet we can’t rule out the possibility based on what we know of its specs now. Especially if Sony only has the one model at launch, its usual strategy.

Microsoft’s situation is somewhat different. It’s already revealed plenty about the beefy Xbox Series X. While there aren’t yet rumblings of how much it costs to build, we can deduce that it’s likely going to be more than the PlayStation 4.

Thing is, there’s still the unknown of Microsoft potentially offering a more affordable option simultaneously at launch. Allegedly the team is working in parallel on the Xbox Series X and what’s dubbed Project Lockhart, a slimmed down version with less power and a friendlier price. Similar to what phone manufacturers do. Two products, one targeting the enthusiast and the other suited more for a broader, casual audience.

Even this generation, Microsoft has dabbled with offering a variety of console options. Xbox One hit market in late 2013 at $499, a much higher price point than its competition. Problem was, it wasn’t actually more powerful. It was that way because of bundling Kinect.

We then saw the Xbox One S version in 2016, beginning lower at $299. The most powerful family member in the Xbox One X launched a year later, coming in at $499 to appeal to dedicated players that wanted more than the earlier models could produce.

Shoot, Microsoft has been even more experimental later this generation. The Xbox One S All-Digital Edition hit last year for $249, making it the most cost effective in the family. Even if it had little fanfare and we don’t actually know how well the market reacted.

Phil Spencer, Head of Xbox, hearkened back to the early days last gen in an interview with Eurogamer by saying “If you remember at the launch of Xbox One, we were $100 more expensive and less powerful. So, I won’t be in that position. There’s no doubt about that. As an industry that’s growing so fast, we do think about price. We do think about performance as well. I’m not going to sacrifice performance for the sake of price.”

Combining this sentiment with now seeing the power potential of Xbox Series X, I’m at a minimum of $499 for launch cost. I just don’t see a way Microsoft can price it lower and not take a serious bath on each unit. $549 is probably a smarter prediction, even $599 contingent upon the existence of the lower-priced Lockhart version of course. I don’t think Microsoft can enter next gen with only one console priced at $599. That’s beyond risky. I think the smart people on the team know that.

There’s ways to make it more enticing even at a higher price than the PlayStation 5. I’ve said bundling Xbox Live and/or Xbox Game Pass would go a long way to incentivizing the undecided audience towards the Xbox ecosystem. Even spreading out the cost with a payment plan, similar to its Xbox All Access program.

Gaming has been largely free from the reality of inflation so far, what with big budget software costs remaining consistent through the years.. With rising costs to build hardware, it’s looking like a higher baseline for console launch cost is approaching.

What makes predicting this generation even more difficult is the increased uncertainty surrounding global economies and the impact of coronavirus. How will it impact component availability and supply chain? Could it even delay the launch to 2021? I’m not calling for that just yet. We have to acknowledge it could happen.

The last question for now is: When will these companies reveal pricing? The Bloomberg piece suggests that Sony is somehow waiting for Microsoft to make the first move. Sony hasn’t even shown the form factor of PlayStation 5 yet. While Microsoft has even let certain media members see Xbox Series X in person and been extremely vocal about sharing details, it’s still quiet on the potential of another model. With the delay of various gaming events globally and the move to a digital format for many presentations, I expect a longer wait than usual for price announcements. Think closer to the summer.

I’m on record with my predictions of $399 for the PlayStation 5 and $499 for the Xbox Series X, while leaving the door open to moving up slightly if component scarcity hits or some other disruption. It’s too early to lock in officially. (Yes, I’m leaving myself an out. Wouldn’t you?)

Anyone confident enough to place bets even when we don’t have all the information and there’s plenty up in the air with current socioeconomic elements? What are your price expectations right now?

Pretty soon, we’ll all have to go on record.

I look forward to hearing here or on Twitter. Thanks for reading!

Note: All pricing discussed above is in US Dollars.

Sources: Bloomberg, Eurogamer, Digital Foundry, Microsoft, PlayStation Blog, Sony, Xbox Wire.

-Dom