Call of Duty: Modern Warfare 2 Leads Software in Stable October 2022 NPD Group U.S. Games Sales Report

Time is marching on through the latter parts of 2022, and with it comes the first monthly sales report of the fourth quarter from games industry tracking firm The NPD Group.

Ironically, considering it was the spooky season, October proved to be much less scary than most of the year as it broke a long-running downward streak. It’s the first month in exactly one year during which spending on games didn’t show a year-on-year decline, boosted by a new Call of Duty, improving hardware inventories and easing of inflationary concerns.

Overall consumer spending across the three categories of Video Game Content, Hardware and Accessories was flat year-on-year, as the largest category of Content moved up slightly. The Hardware segment dipped double-digits, primarily due to a decline in non-PlayStation or Xbox platforms, i.e. Nintendo Switch.

Not bad in general, considering this time last year was the best October on record!

It helps to feature what will likely be the year’s biggest-selling game in Call of Duty: Modern Warfare 2, which (expectedly) topped the overall software chart. That makes 15 consecutive years where a Call of Duty title won its debut month. Which is a staggering result for the annualized military shooter especially since many so-called experts have consistently, and incorrectly, called for its demise.

Not only that, as happens this later in the year, the premium software chart was sprinkled with a variety of additional new releases. October saw five new games rank within the Top 10, and three more between #11 and #20. In addition to the aforementioned Call of Duty, the likes of Gotham Knights, NHL 23, Mario + Rabbids: Sparks of Hope and Bayonetta 3 all generated enough revenue to start in the Top 10, driving Content spend upward despite softness in mobile.

Within Hardware, the PlayStation 5 continued its dominance in October, winning out by both dollar sales and units sold. As it has for three months now. What’s reassuring is how Sony’s family of PlayStation 5 devices along with Microsoft’s Xbox Series X|S family both generated double-digit gains. For four months running. Sensing a burgeoning trend now that supply is getting better? It just took a bit for this generation to get going, seeing as it began during a global pandemic and all.

“October growth in digital sales and subscriptions for console and PC video game content, driven in large part by the release of Call of Duty: Modern Warfare 2, was offset by declines in mobile content and hardware,” wrote The NPD Group’s Mat Piscatella on Twitter.

Signals in October and recent months point to a trend towards increased buying on premium software as the calendar became busier, demand meeting or exceeding console supply and spending bumping up because of it. Prices indicators overall are plateauing right now in the States, so spending power is better than it was earlier in the year. Even as folks are spending less on mobile, other areas are boosting the results.

Read more below as I dig into the domestic sales trends and list out the latest software rankings.

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

Looking at the above slides provided by The NPD Group, total monthly sales across the U.S. games industry stayed constant since last year at $4.27 billion. The green trend-line, which shows percentage change against prior year, has been moving mostly upwards since mid-year. I’d say this is the single most important takeaway from recent reports. Essentially, the rate at which spending declined in the back half of the year is improving.

Expanding to the first ten months of 2022 now, spending is still down 7% at $42.7 billion. This is mainly due to headwinds within Content as Hardware is showing a modest decline. There’s worse-than-expected output from mobile and a lighter premium software release slate until just recently in the fourth quarter.

Content as a segment, which includes software sales in addition to subscriptions and mobile, has returned to year-on-year growth, edging up 2% in October to $3.7 billion. Its contribution to overall sales was nearly 87%, compared to 85.5% this time last year. As for annual figures so far, Content has contracted 8% to $37.19 billion. That’s an improvement since last month, when it was trending down 9%, due to the October growth boosted by big budget new launches.

Mobile is traditionally the largest contributor within the Content segment. Unfortunately, last month’s report doesn’t shed much light into this other than to state spending was lower year-over-year. One tidbit from a GamesBeat article highlights how mobile spending could decline in 2022 for the first time in tracked history, an intriguing dynamic given how people are on the go more lately.

Within premium, October’s winner of Call of Duty: Modern Warfare 2 is also already the second best-selling game of the year, behind only Elden Ring. One element here is how Activision Blizzard employed a more staggered launch schedule for this year’s title, which seemingly attracted people earlier. Its story campaign dropped on October 21st while the full game hit market on October 28th.

This domestic debut fits the broader narrative of Modern Warfare as the premier sub-brand within the series. This year’s game, which shares a title with the 2009 classic, generated $800 million during its opening weekend and reached $1 billion in sales within ten days on market, becoming the fastest-selling Call of Duty in history and second fastest-selling game ever behind Grand Theft Auto V. (No wonder Microsoft is willing to pay so much for the publisher.)

Moving down the list, Gotham Knights snagged second place in what I’d call the biggest surprise of the month. Despite middling critical reception, the Warner Bros-published game clearly benefited from brand awareness as part of the DC Comics universe. Even without the Bat himself being playable. As a quick comparison point, Batman: Arkham Knight started atop the June 2015 software chart.

Then it’s the sports games, All from American publisher Electronic Arts. Both FIFA 23 and Madden NFL 23 dropped a couple spots respectively to 3rd and 4th. The next highest-ranked new title on October’s list was NHL 23, which scored 5th. This is a notable improvement compared to its predecessor, which dropped at 9th in October 2021.

Coming up next at #6 was Nintendo Switch exclusive Mario + Rabbids: Sparks of Hope. The collaboration between Ubisoft and Nintendo is a sequel to Mario + Rabbids: Kingdom Battle, a title that launched one spot higher in September 2017. (When, I might add, my beloved Destiny 2 was the month’s top earner.)

The final new game among the Top 10 last month was another Nintendo Switch exclusive in Bayonetta 3. Platinum Games’ latest in the long-running franchise is the first to launch on Switch, landing in 9th. It’s tricky to compare to prior games because they started on the failed Nintendo Wii U, which had quite the limited install base. One caveat is digital is not included for Nintendo-published games such as this one.

In terms of other new releases securing spots among the Top 20, there’s Star Ocean: The Divine Force at #14 and Dragon Ball: The Breakers at #16, while PGA Tour 2K23 teed off one spot lower at #17. And while it’s not a brand new title, Persona 5 experienced a massive jump up to seventh place due to its release on a variety of new platforms, including Xbox and Nintendo Switch.

Expanding to the current annual ranks, Elden Rings has held off Call of Duty: Modern Warfare 2 for the time being. Bandai Namco announced recently that FromSoftware’s latest reached an impressive 17.5 million copies sold globally. I expect this dynamic in the U.S. will swap come next month, when Call of Duty: Modern Warfare 2 will become the year’s best earner. Otherwise, FIFA 23 bounces into the Top 10, settling at #8, while Gotham Knights continues its impressive start being already the 14th top-selling game of 2022.

Here’s the full list of best-sellers for last month and the year through October.

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

  1. Call of Duty: Modern Warfare 2
  2. Gotham Knights
  3. FIFA 23
  4. Madden NFL 23
  5. NHL 23
  6. Mario + Rabbids: Sparks of Hope
  7. Persona 5
  8. NBA 2K23*
  9. Bayonetta 3*
  10. Elden Ring
  11. Mario Kart 8*
  12. Splatoon 3*
  13. Minecraft
  14. Star Ocean: The Divine Force
  15. Grounded
  16. Dragon Ball: The Breakers
  17. PGA Tour 2K23*
  18. Nintendo Switch Sports*
  19. NieR: Automata
  20. Super Smash Bros. Ultimate*

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

  1. Elden Ring
  2. Call of Duty: Modern Warfare 2
  3. LEGO Star Wars: The Skywalker Saga
  4. Madden NFL 23
  5. Pokémon Legends: Arceus*
  6. Horizon Forbidden West
  7. MLB: The Show 22^
  8. FIFA 23
  9. Call of Duty: Vanguard
  10. Gran Turismo 7
  11. Mario Kart 8*
  12. Kirby and the Forgotten Land*
  13. Minecraft
  14. Gotham Knights
  15. Nintendo Switch Sports*
  16. Saints Row
  17. Madden NFL 22
  18. Super Smash Bros. Ultimate
  19. FIFA 22
  20. Marvel’s Spider-Man Miles Morales

Console sales, which rose almost 20% in September, returned to a decline last month. Consumer spending on Hardware as a category declined 10% in October to $424 million. This happened despite solid double-digit growth for PlayStation 5 and Xbox Series X|S, implying that Nintendo Switch made up the difference on the downside.

Intriguingly this didn’t have a substantial impact on the trend for 2022 to date, as Hardware spend is currently $3.78 billion or 2% lower than last year’s $3.87 billion thru the same time frame. That’s only down modestly from a 1% decline as of September. This tells me that availability is still better than it’s been in a long while, even if Nintendo Switch is aging into the back part of its life cycle.

As I predicted would happen last month, I mentioned earlier that PlayStation 5 won October on both dollar sales and units. Sony has been able to shore up its pipeline and suppliers are outputting more boxes to meet demand, and those folks that want a PlayStation 5 are certainly buying when they find one. In my article on Sony’s recent rules, I noted that PlayStation 5 lifetime unit sales reached 25 million. While it’s currently selling at a slower pace than PlayStation 4, the company is way upbeat on the remainder of this fiscal year through March 2023.

One additional note from The NPD Group is Xbox Series X|S landed in second place during October, reaffirming my inference that Nintendo Switch is starting to saturate its potential audience.

On the year so far, PlayStation 5 continues its lead on dollar sales followed by Xbox Series X|S and Nintendo Switch, in that order. When measured by units, Nintendo Switch is still in the lead driven by its lower price point. PlayStation 5 is next, while Xbox Series X|S is in third by that metric.

This checks out, as the higher-priced current generation is making more money per unit sold than Nintendo’s older hardware. Not to mention, there’s more demand for the shiny new boxes. Though Nintendo does benefit from families and households buying multiple devices, a situation that will benefit it during this upcoming holiday period. The Switch recently passed 114 million units globally, still the third best-selling home and handheld console of all time.

In what I’d call the most disappointing result, mainly because it missed my more upbeat expectation after a solid September, Accessories experience 8% lower sales in October to $148 million. Apparently, a new game pad from Microsoft in the Xbox Elite Controller Series 2 Core wasn’t as attractive, maybe due to its pricing that’s above the likes of entry level controllers. Perhaps there were declines elsewhere that dragged the segment down.

Annual spending on Accessories for 2022 is currently down 12% from last year’s $1.95 billion, totaling $1.72 billion through the first ten months of this year.

During October, Sony’s PlayStation 5 Dual Sense Midnight Black was the month’s top-selling peripheral, a flip from September when it was the base level black Xbox Wireless Controller. Microsoft’s Xbox Elite Series 2 Wireless Controller is still tops for the year, as I confirmed directly with The NPD Group.

As far as monthly results go for commercial output of the domestic games industry, October was the steadiest in recent history. Prior to last month, we had seen 11 consecutive months of spending declines.

This sort of rebound is especially noteworthy since it’s compared against a record-breaking October last year. The Call of Duty effect is of course a big plus, alongside a great showing from Gotham Knights plus those annualized sports titles signaling a ramp up to the holiday shopping season.

Checking ahead to November, which includes the bellwether Black Friday period, I’m anticipating growth in overall domestic spending. Likely in the mid-to-high single digits. Mainly because of the better console inventories, massive PlayStation and Nintendo software launches and a chance for accessories to benefit from deals.

Even considering Call of Duty: Vanguard launching last November, I’m guessing the Content category will be flat or maybe a slight decline. I expect Call of Duty: Modern Warfare 2 will repeat as the top-seller, with both Sony’s God of War: Ragnarök and The Pokémon Company’s Pokémon Scarlet & Pokémon Violet close on its heels. Because the former includes digital, and it’s going to have a potential record-setting debut for a PlayStation exclusive, I firmly believe it can secure second place.

For Hardware, PlayStation 5 should take November on revenue as it will still retain its pricing. I’m much less certain on units sold. I think Nintendo Switch can win by this metric, given the incredible popularity of Pokémon as a franchise.

There we have the latest U.S. sales recap, and predictions as the year begins its end. I highly recommend checking out Piscatella’s thread here, a bittersweet one since apparently it will be the second-to-last NPD report on Twitter. The company is changing formats to a more formal press release style. You know I’ll still cover it here and on social media, regardless of how it’s announced!

Thanks everyone for taking the time to visit the site. Here’s wishing everyone a great November, and a Happy Thanksgiving to everyone that celebrates. Take care and be well!

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

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

Sources: Activision Blizzard, Bandai Namco, GamesBeat, Newsweek (Image Credit), The NPD Group, Sony Corp.

-Dom

Nintendo Switch Lifetime Sales Pass 114 Million In Upbeat Fiscal 2023 Q2 Despite Annual Hardware Target Reduction

It’s time for some Nintendo!

The latest of the big three console manufacturers to report this quarter, behind Microsoft and Sony, shared its fiscal 2023 second quarter results out of Japan earlier today.

I’d call it mostly upbeat, as both sales and operating profit experienced gains, yet it’s also dashed with cautionary signals and statistics. There’s upside, partially due to the yen’s continued weakness, while headwinds on the supply side and an aging life cycle show signs of a console business slowdown.

Headlines include how Switch passed yet another sales milestone this quarter while Splatoon 3 made quite the splash for consumers after its release in September. Especially in its local Japanese market.

On the hardware side, Nintendo Switch lifetime sales reached 114.33 million after the company shipped 3.22 in the three months ending September. It’s only the third home console to pass the 114 million mark. Still, Nintendo is somewhat uneasy about this portion of its business going forward, reducing in its annual unit sales forecast.

Splatoon 3 was the headliner for new software, shipping a whopping 7.9 million units in less than a month on market. That’s a record-setting launch for the franchise by a wide margin, plus the second fastest start of any Switch game this calendar year behind only January’s Pokémon Legends: Arceus.

Looking briefly at financial performance during the first six months of the current fiscal year, Nintendo’s net sales and operating profit rose 5% and under half a percent, respectively. While hardware unit sales are down 19% for the year so far, software sales are up almost 2% which shows the resilience of Switch buyers and reflects the ongoing appeal of Nintendo’s quality titles. Even amidst economic slowdowns and inflationary pressure.

Thus, executives decided to increase their forward-looking forecast for both net sales and profit metrics other than operating income, the latter of which kept constant. As the Switch pushes into the late part of its life cycle, Nintendo remains upbeat on consumers buying content for it, especially given the upcoming calendar including a sizeable impact from Pokémon launches this holiday season.

“Although software sales accounted for a larger percentage of overall sales for our dedicated video game platform business, and first-party software accounted for a larger percentage of overall software sales, the gross profit margin remained at the same level as the same period last fiscal year.” the company wrote in its slides. “This was due to the addition of Nintendo Switch OLED Model to the hardware lineup with its lower profit margin compared to other models, and the increase in component costs due to factors such as the semiconductor shortage.”

Check below the folder for a full dive into Nintendo’s business during Q2, including company guidance and my personal predictions for the annual period ending March 2023.

Starting with Nintendo’s overall performance, net sales for the six months bumped up 5% to roughly $4.91 billion. Focusing strictly on the quarter ending September, this was up 16% to $2.61 billion.

As has been the case recently for Japanese companies, there’s currently an outsized impact from currency fluctuations which hits those that operate globally even more than the average. Currently, around 72% of Nintendo’s business is outside of Japan. Because of this, the company said the impact of exchange rate changes on first half net sales was upwards of around $480 million. Backing that out, revenue for this time might even be down 5%.

Personally, I tend to stick with the gross number because currency impact is something that’s faced by all global companies. It’s still good to understand how much it’s affecting a company’s business when a given local currency is dropping as precipitously as the yen.

Alright, enough of this currency exchange rate lesson. Shifting now towards operating profit, this particular metric rose slightly in the first half to around $1.65 billion. Strictly for the second quarter alone, it amounted to $887 million which grew more than 18%.

Essentially this shows how both net sales and operating profit increased by double-digits during Nintendo’s second fiscal quarter.

What kind of product category mix was underlying this movement? Well, for Q2, software amounted to almost 60% of total sales compared to 55% this time last year. It follows that hardware sales dipped to 40%, down from 45%. This reflects the shift away from Switch console contribution as the cycle matures, plus the challenges of production the manufacturer and its suppliers have faced lately.

“While hardware unit sales declined by volume year-on-year due in part to the semiconductor shortage, overall hardware sales increased mainly due to the depreciation of the yen.” the company’s slides noted. “Looking at our mobile and IP related business, royalty income remained stable, but income from smart-device content declined.”

To better understand the quarterly movement in sales and profitability within a broader context, you’ll see the first two charts below illustrating this movement over time and the next two are annual figures. It was the second best quarterly output in the last decade plus. Twelve-month trailing numbers are moving back in a positive direction. Nintendo’s business is proving to be resilient, notably due to high quality game releases plus the aforementioned currency movement, plus hardware is still selling when it’s hitting retail. Not to mention, people that bought Switches during the pandemic still seem to be spending on games.

How do Nintendo’s latest numbers stack up to the biggest industry peers and their gaming businesses? While Tencent doesn’t report until later in the month, its latest annual revenue was $24 billion. Sony’s gaming business generated $20 billion, while Microsoft’s Xbox division topped $16 billion. Nintendo is up next, with its current annual sales figure at almost $13 billion. However, Nintendo’s profitability is vastly superior to PlayStation; the former has generated more than twice as much operating profit in the last 12 months, $4.43 billion compared to under $2 billion. PlayStation’s investment in the new PlayStation 5 line of consoles, the Bungie acquisition and ramping developments in software and virtual reality are chomping a serious chunk of its bottom line.

Nintendo’s hardware business is clearly slowing in terms of share and shipments, however there are a number of bright spots showing that Switch’s life cycle is far from complete. In fact, it’s going to hit major milestones in the near future.

During the first six months of fiscal 2023, Nintendo shipped 6.68 million Switch units. This is 19% lower than the same period last year, when it was 8.28 million. The drop can be attributed to the base model, which produced 2.23 million units against last year’s 6.4 million. Obviously the OLED model saw tremendous growth considering it launched in October 2021. As it replaces the base version, it now makes up over half of Switch’s total unit sales.

The lifetime unit sales of 114.33 million is up 21.46 million since September of last year, when it totaled 92.87 million. Switch has maintained its respective spot as the third best-selling home and portable console of all time. The popular hybrid is closing in on Sony’s PlayStation 4, the second best-selling home console in history, which ended production recently at just over 117 million. Even further, the 118.69 million of Game Boy and Game Boy Color is also in sight.

By the end of Nintendo’s financial year in March 2023, if not the holiday quarter, the Switch will occupy the second spot on the all-time list for both home and handheld hardware. What a run! And it’s not nearly done.

All of these are based on the number of units shipped to retailers by Nintendo. Additionally, the company shared some insight into how it’s selling-thru to consumers. Compared to the July to September time frame last year, Switch is selling-thru at the same rate. From what I can see on Nintendo’s slides, sell-through last year was roughly 3.4 million units of Switch in the quarter and just slightly less this time around. Even though shipments declined by roughly 15% this Q2.

This was attributed to demand being stable, and the introduction of Splatoon 3 alongside its more ongoing titles that still attract interest. That second part especially is the driver of Nintendo’s ongoing attractiveness to buyers, and investors, plus its financial performance. Consistent demand for its hardware products bolstered by key exclusives, especially as the technology gap with modern consoles continues to widen.

Speaking of games, Nintendo Switch software unit sales rose a bit in the six month period, moving up 1.6% to 95.41 million. For the quarter ending September alone, it was exactly 54 million. Compare that to 48.6 million in the same 3 months last year and this reiterates what makes the company so consistent.

On the fiscal year so far, Switch has seen 15 titles ship a million copies or more. Eleven of these so-called “million-sellers” are published by Nintendo itself while the remainder are via external partners. While this is down from 18 in the same period last year, it’s still a healthy amount of games hitting this coveted milestone.

Unit sales for Switch games lifetime have now crossed the massive 900 million milestone. To be exact, 917.59 million games have shipped for the console. That figure was at 681 million this time last year, meaning over 236 million games have sold in the past year. It’s hard to put these numbers in perspective, other than to say that’s a heck of a lot. While it won’t quite hit 1 billion this fiscal year, it will certainly eclipse that the following year.

In the new release realm, Splatoon 3 blasted its way onto the market in September with that 7.9 million copies sold number. That includes 5 million from Japan alone! To help put this in perspective, here’s how its predecessors started during their first respective quarters: Splatoon 2 sold-in 3.61 million in 2017 while 2015’s original Splatoon debuted at 1.62 million.

First month sales of Splatoon 3 are already more than halfway to the 13.3 million lifetime figure of Splatoon 2! It’s already among the Top 20 best-selling titles published by Nintendo on Switch to date, coming in at #18. It’s truly become one of Nintendo’s flagship entries, and the biggest commercial success of its new IP this generation.

The other new title showcased in Nintendo’s earnings was Xenoblade Chronicles 3. Since its launch in late July, it’s accumulated 1.72 million in units sales. While that might not sound like a lot in the context of other Switch games, this is an exceptional result for the Xeno universe. Back in 2017, its predecessor Xenoblade Chronicles 2 started with 1.31 million and was the top-selling title ever for developer Monolith Soft at the time. Now, Xenoblade Chronicles 3 has captured that crown.

In other record-breaking news, Kirby and the Forgotten Land sold-in an additional 2.61 million units during Q2, making its lifetime total 5.27 million. This is substantial because it’s now the best-selling mainline Kirby game of all time, outpacing the 3.98 million of 2021’s Kirby Star Allies. Keep in mind, this is a 30-year old franchise in collaboration between Nintendo and HAL Laboratory. What a fantastic success story!

Elsewhere, Nintendo Switch Sports is now the 20th best-selling Nintendo-published title on Switch, reaching 6.15 million units. Mario Strikers: Battle League passed the 2-million mark, settling at 2.17 million. Then there’s more impressive milestones from Mario Kart 8 and Animal Crossing: New Horizons, which seem to stand out every time I write an article on Nintendo. Mario Kart 8 zipped past the 48 million mark, somehow selling 1.59 million in the quarter to reach 48.41 million lifetime. Animal Crossing: New Horizons is the latest in the 40 million club, achieving 40.17 million to date.

This is where I like to provide updates on subscription numbers for Nintendo Switch Online or any sort of engagement statistics from the company. And now I can! Nintendo’s corporate briefing, updated a day after its earnings report, said that Nintendo Switch Online now has 36 million members. Compare that to 32 million in September 2021. Also, the company noted that the (frankly made up) metric of “Annual Playing Users” rose to 106 million. It was 104 million last quarter.

Considering the macro environment right now and pressure on consumers from areas like inflation and the appeal of other entertainment verticals, Nintendo’s Q2 performance was mostly promising. Especially when looking at the quarter on its own, rather than the six months, which revealed double-digit gains for important financial metrics. As Switch approaches its sixth birthday in the midst of various economic challenges, the console and its games still hold mass market appeal.

Alongside, Nintendo provided updated guidance for the remaining six months of its fiscal year.

The company now expects to generated 3% more, or upwards of $12.3 billion, in annual net sales. This would be a modest 3% decline compared to the prior year. It also maintained its operating profit target of $3.73 billion, indicating a 16% decline.

“While there is a gradual improvement in semiconductor and other component supplies and a recovery trend in hardware manufacturing for Nintendo Switch, taking into consideration production and sales performances thus far, we have modified the Nintendo Switch hardware sales units forecast for the fiscal year,” said the company’s slides. “By continually working to front-load production and selecting appropriate transportation methods in preparation for the holiday season, we will work to deliver as many Nintendo Switch systems as possible to consumers around the world.”

Thus, Nintendo now expects to ship 19 million Switch hardware units in the year ending March 2023. That’s down from 21 million it expected last quarter. For reference, it shipped 23 million in the prior fiscal year. Based on the 6.68 million already on market in the six months ending September, that leaves 12.32 million during the back half. Most of that will have to come during the holiday period.

My forecast last quarter saw 20 million on the lower end. Based on where supply has been and Nintendo’s conservative tilt, I’m formally pulling down to a range of 19.5 million to 20 million.

And no, I don’t expect its price to increase.

The company’s estimate for annual software unit sales remained the same at 210 million, which would be down from 235 million in fiscal 2022. As I wrote last quarter, I’m a bit skeptical it can reach this mark. Especially now that The Legend of Zelda: Tears of the Kingdom has a May release.

Mario + Rabbids: Sparks of Hope and Bayonetta 3 launched a couple weeks back, though both remain more niche than many of their counterparts or mainline entries. The real drivers will be, of course, Pokémon Scarlet and Pokémon Violet. The franchise seems immune to over-saturation and sells big on a consistent basis. I’m expecting a grand entrance for these, with a potentially record-setting start. Otherwise, Nintendo’s slate in the coming months is light. Even the Super Mario Bros. Movie isn’t out until April!

The last item I’d like to mention is Nintendo’s announcement of entering into a joint venture with long-time partner DeNA Co. Ltd. Both companies have collaborated on the technical side of Nintendo’s account system along with mobile offerings since 2015, and this latest venture will even be a Nintendo subsidiary due to its size and capital structure.

“Based on the expertise accumulated over the seven plus years and the experience of co-developing
multiple services based on Nintendo Account, Nintendo and DeNA will advance their partnership and
establish a joint venture company.” said the company’s announcement. “With the objective to strengthen the digitalization of Nintendo’s business, the joint venture company will research and develop, as well as create value-added services to further reinforce Nintendo’s relationship with consumers.”

I welcome this sort of team-up, and really anything that can bring Nintendo’s digital capabilities and online services closer to its competitors.

With that, this concludes my third big recap of the last couple weeks. What stood out to you with Nintendo’s latest announcement? Do you think it can meet or exceed its latest targets? Are you planning to buy a Switch or any games in the coming months? Drop a line her or on Twitter, I’m always down for a discussion!

Feel free to hop back over to my earnings calendar to stay current, as there’s plenty of action still to come this season. Thanks y’all for visiting and I hope everyone is doing well!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported average conversion: US$1 to ¥133.93.

Sources: Company Investor Relations Websites.

-Dom

PlayStation 5 Sales Reach 25 Million as Sony’s Gaming Unit Posts Record Revenue & Declining Profit in Mixed Q2 2022 Report

As the calendar turns to November, the ongoing earnings season across gaming, tech and media keeps on rolling. Those who follow my latest calendar post will know it’s only picking up steam!

Yesterday, Sony announced fiscal 2022 second quarter results. It’s the definition of a mixed bag, akin to receiving both an apple and candy bar while trick-or-treating! (I miss the spooky season already.)

Overall the Japanese consumer tech company saw improved sales and profitability. Within the PlayStation business, revenue rose in the double-digits to its best fiscal Q2 on record. However, operating profit saw a precipitous drop of nearly 50% in what was one of its toughest outcomes in recent memory.

Underlying this dynamic of good top-line growth yet decreasing profitability was favorable impact from exchange rate movement, as the Japanese yen is near its weakest point in decades. It’s also attributed to lower software output from external publishers. Then, for profit, better margins for PlayStation 5 hardware couldn’t offset high expenses from ongoing development and acquisition activity, namely the purchase of Bungie.

Speaking of hardware, PlayStation 5 lifetime unit sales reached 25 million after Sony shipped 3.3 million units in the quarter ending September. That’s the same exact quarterly shipment amount as last year. While it now outpaces Nintendo GameCube’s 21.74 million and the original Xbox at 24 million, it’s still hitting market at a much slower pace than its predecessor. Sony is upbeat on the remainder of this fiscal year at least, reiterating its 18 million shipped target. Which means it must reach 12.3 million in the back half. Read my predictions later in the piece to see if I agree.

As for engagement stats given the rebranding of PlayStation Plus during this quarter, it’s better than it first appears. From a subscriber and active user standpoint, things are looking down as both PlayStation Plus and Monthly Active Users (MAUs) across the network declined. However, Network Services dollar revenue is up double-digits. Which means the rebranding is attracting buyers that are spending more, and shedding those that aren’t interested in paying within the ecosystem. It’s actually been a win for PlayStation, despite a lower subscriber count.

“Production itself has been quite well,” said Sony Chief Financial Officer Hiroki Totoki. “We have the decline of MAUs and the other indices. The second quarter, more people are now going outdoors. And we have yet to get out of the negative cycles. PlayStation 4’s and third-party software sales have been rather sluggish. Catalog and historical titles have been declining. Against that, PlayStation 5 engagement is quite high.”

That said, here’s a deep dive into Sony’s latest numbers.

Sony’s consolidated results for the latest quarter are shown on the first slide above, and the remainder reveal insight into its Game & Network Services (G&NS) business.

Overall sales moved up 16% to $19.91 billion, while operating profit rose 8% to almost $2.5 billion. Both of these figures are best-ever second quarter results, as reported in Japanese yen. Even amidst a global scenario that’s experiencing economic slowdowns and rising inflation, Sony is proving to be resilient so far.

Now onto the PlayStation business. This unit improved quarterly revenue by 12% to a Q2 record $5.2 billion, contributing 26% of the company’s total. Operating income on the other hand was hit hard in the three months ending September, dropping 49% to $305 million.

On the top-line, these gaming results benefited from currency fluctuations even as sales of software not published by PlayStation softened. Profitability was drastically eroded by the aforementioned content sales drop and higher expenses amidst rising costs in general. There was a bit of good news sprinkled, as Sony indicated it’s losing less money on hardware in recent months.

Moving into the product sales split chart will help illustrate these talking points, showcasing what’s driving PlayStation right now. All categories were either flat or up, many of them in the double-digits. Intriguingly, Physical Software saw the biggest gain at 32%. Next up was Network Services, clearly benefiting from PlayStation Plus’ new tiered system (as cumbersome as it might be). Digital Software rose 14% while Hardware moved up 12% on better inventories. Add-On Content was the only source not to grow; though it also didn’t lose any ground, coming in flat for the quarter.

To help provide even more perspective, there are two additional charts showing the last 12 months of sales and profit for PlayStation. Summing up the last four quarters, Sony’s annual gaming revenue is currently nearly $20.3 billion. That’s the second best trailing 12-month revenue in PlayStation history, nearly identical to last year’s figure. On the flip side, the last year of operating income being under $2 billion is the worst in over two-and-a-half years. This clearly shows the challenge for Sony when it comes to gaming, maintaining profitability in a cooling economic situation as it pushes forward with big budget projects.

As I did in my recent article on Microsoft’s latest results, here’s a quick rundown of where PlayStation’s annual sales fit in the industry right now. I’ll mention the same caveat: when converted to United States dollars, the Japanese companies look a bit lighter than usual because of yen weakness. That said, Tencent’s $24 billion from gaming is tops. Sony maintains the second slot with its nearly $20 billion, while Xbox continues in third with $16 billion. Nintendo, which reports next week, was at $13 billion though that will likely move up.

Moving on from the financial side, here’s a closer look at Sony’s supplemental information highlighting even more recent stats for the G&NS division.

Full game software sales across PlayStation platforms totaled 62.5 million in Q2, which is down 18% or almost 14 million units since the same three months in fiscal 2021. This is partly driven by release slate, where last year saw titles like Ratchet & Clank: Rift Apart just before the quarter started then launches for both Ghost of Tsushima Director’s Cut and Deathloop. This year’s flagship was solely The Last of Us Part 1.

First party titles sold nearly a million less units in Q2 this year, at 6.7 million compared to 7.6 million. Even considering third party titles, mainly in the sports genre, content sales proved to be lighter. Digital split within full game software remained relatively constant, at 63% in Q2 versus 62% last year.

“When we compare software sales for this quarter with the same period of the previous fiscal year, we see sales of past library titles declined sharply, while sales of major new titles remained strong,” management said. “Users appear to be playing a smaller number of titles out of a desire to spend less money.”

Then there’s the element of subscription services and player engagement. PlayStation Plus ended September with 45.4 million subscribers, down 1.8 million since last year and 1.9 million compared with last quarter. This was mainly due to user engagement on PlayStation 4 performing worse than the company anticipated.

MAUs across the PlayStation network moved down to 102 million, seeing similar contractions against last year’s 104 million and Q1’s 103 million. Sony pointed out that total gameplay time rose “slightly” compared to the prior quarter, it declined 10%. Why? People have more opportunities to “go outside” now that COVID 19 infections are trending down. Basically, gamers are apparently touching more grass.

The last tidbit provided by executives during their prepared remarks is that PlayStation Plus subscriber ratio among PlayStation 5 general is “significantly above” that of PlayStation 4. Which makes sense, it’s a much more digital world now that’s open to paying for subscriptions like this and Xbox Game Pass. Sony’s latest rebranding and alignment of services shows its focus on attracting people to its ecosystem, so they can spend within it.

Thus concludes what I’d classify as one of PlayStation’s most divergent quarters in recent memory, presenting a clear divide between record sales and diminishing profits.

Sales growth is great to see, especially for Hardware and Network Services. I’d still argue that reigning in costs is much more important given today’s recessionary environment. PlayStation 5 availability is better than it’s been since launch and demand is certainly there on the consumer side. Its Sony’s expenditures on big budget projects, including PlayStation VR2 as a new peripheral, and buying of studios like Bungie that impacts the bottom line.

Management’s forward-looking guidance for the second half of fiscal 2022 reflects this same situation. First, it raised total company guidance for both sales and operating profit by 1% and 5% respectively. Then, it expects slightly higher sales from PlayStation however is forecasting 12% lower operating profit. This is much more in-line with my expectations.

As I mentioned above, PlayStation 5’s full year target is still 18 million units. Management claims that both material supply and logistical challenges have eased, thus it actually produced 6.5 million in Q2 and shipped around half of those to retail. I remain skeptical, keeping my previous annual estimate of between 15 and 16 million.

If it happens to meet the 12.3 million PlayStation 5 units required in the back half of fiscal 2022 to get there, lifetime sales would be 37.3 million by March 2023. Still below the 40 million of PlayStation 4 during the same time frame. It sounds like Sony’s target for fiscal year 2023 is 23 million, trying to make up ground on its predecessor. I think it will need more than that.

While Sony doesn’t provide formal guidance on software, I’m quite bullish on the next quarter and into the first calendar portion of 2023. Mainly because of two major new releases, one first-party and the other multi-platform. God of War Ragnarok hits market next week, and will rival or outpace the year’s biggest PlayStation 5 exclusives. As part of this report, Sony shared updated unit sales for God of War (2018): It’s now reached 23 million units, up from just under 20 million a year ago.

Then of course we have Call of Duty: Modern Warfare 2, what I expect to be 2022’s best-selling premium title. Yes, even considering the beast that is Elden Ring. Activision Blizzard’s Call of Duty franchise is on another level, especially its Modern Warfare sub-brand, seeing as this year’s title earned a record opening weekend of $800 million in sales to consumers. Considering PlayStation has a marketing deal in place, it benefits more than any other platform when the military shooter does well. Between that and PlayStation Plus continuing to fill out its offering, I’m upbeat on both software and add-on content sales in the coming quarters.

“We are actively pursuing various measures to further increase user engagement and re-accelerate the growth of our game business from both the hardware and software perspectives,” said Sony’s executives in prepared remarks. “We expect to see the results of these efforts contribute to sales and
profit in earnest from the second half of this fiscal year and next fiscal year.”

Finally, there’s Sony’s announcement today on the timing and cost of PlayStation VR2. The follow-up to its original virtual reality headset back in 2016 will launch on February 22nd at the lofty price of US $549.99 for its base model. This reflects the same sort of revenue and profit considerations as before: It’s a major barrier to entry considering users also need to own a PlayStation 5, which will push up sales, however margins will likely be small considering how much it costs to make each unit. I’m cautious on its commercial prospects initially, and think it will appeal more over time once more people own its corresponding console.

That’s a wrap on Sony’s latest results. What were your reactions? Any surprises? Do you think Sony can hit its financial and hardware targets by March? Drop a note here or social media and check back soon for even more coverage of gaming, tech and media. Be well, and thanks for stopping by!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported average conversion: US $1 to ¥138.2.

Sources: Activision Blizzard, Company Investor Relations Websites, Forbes (Image Credit), Michael Ng (Image Credit), PlayStation Blog.

-Dom

Microsoft’s Xbox Division Starts Fiscal 2023 With Record Q1 on Strength of Hardware & Game Pass Subscriptions

Yesterday, Microsoft was the first of the “big three” gaming console manufacturers this season to report its financial results. (Didn’t know it was happening? Hop over to my latest earnings calendar post!)

It’s the first quarter of the brand new 2023 fiscal year for the American cloud and software giant, during which it pointed towards a better-than-expected quarter for the Xbox brand.

As I wrote a few months back, Xbox recently reported its best financial year sales ever. Now, quite resiliently, it’s achieved a new record: the best Q1 sales since reporting began.

Xbox generated $3.61 billion in quarterly sales during the period between July and September, which is up “slightly” since last year, or around half a percentage point of growth. This led to a mostly positive report overall for Microsoft’s gaming division since it either met or exceeded expectations, notably on the hardware side.

Microsoft attributed the gaming revenue gain to growth in Xbox Game Pass subscriptions and a double-digit boost from console sales. Even despite a modest decline in Xbox Content & Services, the business unit was able to grow.

The approach of services like Game Pass and cloud gaming continues to attract first-time or lapsed players, and is seemingly keeping existing buyers around, plus indicators for inventories on the hardware side are slowly improving. In particular, the more affordable Xbox Series S model is spurring growth.

“We’re adding new gamers to our ecosystem, as we execute on our ambition to reach players wherever and whenever they want, on any device,” said Microsoft Chief Executive Officer (CEO) Satya Nadella on its conference call. “We saw usage growth across all platforms, driven by strength off-console.”

How does a record first quarter for revenue look in the context of the broader company? See below for a complete rundown, full analysis and even more perspective on these numbers.

Digging into the above slides from Microsoft’s presentation, the biggest data point is that slight increase in gaming revenue to the record Q1 of $3.61 billion.

This happened in spite of downward pressure from both first and third-party software and lower engagement, mainly on the backs of subscription and hardware proving to be growth catalysts. To me, this indicates there are enough new buyers entering the ecosystem, some of which are buying consoles and others are subscribing to Game Pass on whatever devices they own. It’s enough to outpace a lighter release calendar and existing gamers spending less time playing, accordingly.

Moving to how this latest quarter fits in a broader context, the current annual sales for Xbox total $16.25 billion. My chart shows the trend over time, and the breakout of Xbox Context & Services versus Xbox Hardware contribution.

That dollar amount is actually the third best trailing 12-month result in the history of Xbox, behind only a couple recent quarters. Taking the full year into account shows the sort of revenue durability that better hardware availability and a steady subscription base can produce. Even when first party output is low, like it has been for most of this calendar year.

Now let’s talk these recent figures for Microsoft and Xbox in the scope of the overall industry. I often compare it to three peers: Tencent, Sony and Nintendo. Keep in mind a couple qualifiers. First, currency fluctuations, especially lately with the weakness of Japan’s yen, can drastically impact these kinds of comparisons for global companies. Also, revenue is just one measure of a company’s wellbeing. Microsoft doesn’t share profitability for its Xbox division, unfortunately. I still think this is a worthwhile endeavor, even given these caveats.

In terms of recent annual sales, Tencent remains the largest global gaming company at roughly $24 billion combined from its domestic and international games businesses. Next, Sony’s PlayStation amounted to $21 billion at last count. Which means Microsoft slots in here, at just over $16 billion. Finally, Nintendo’s latest annual result was $13 billion. These ranks have been about the same in recent years, although Nintendo has higher margins than its peers so it makes more in profit.

Speaking of profit, we can at least glean some insight by looking at Microsoft’s More Personal Computing (MPC) segment that houses the Xbox brand. Gross margin dollars declined almost 10%, with a shifting business mix to lower margin sources. Along this, expenses rose 2% which led to MPC’s operating profit moving down 15% to $4.22 billion. Gaming is usually one of the lower margin sub-segments, so I wouldn’t be surprised if Xbox saw weaker profitability in Q1.

Now digging into the category mix for Xbox, made up of Xbox Content & Services and Xbox Hardware.

The larger contributor is Xbox Content & Services, which includes software, subscriptions and related sources. It generated $2.81 billion in sales, a year-on-year drop of 3%. This comprised 78% of overall Xbox sales most recently compared to 80% in Q1 last year. That dynamic makes total sense since its Xbox Hardware counterpart is gaining recently.

During the last 12 month period, Xbox Content & Services reached $12.45 billion in revenue. That’s roughly 77% of the aggregate and the lowest annual figure in around a year, mostly due to a lighter palette of newer software titles.

The most unfortunate part of the whole report is yet another lack of update on Xbox Game Pass subscription numbers. The last official figure from the company is 25 million, and that’s a year old. Executives claim memberships are growing, one of the positive elements of that Xbox Content & Services result, however refuse to share by how much. The only stat focused on PC Game Pass, which saw 159% increase in subscriptions. Because many of these were discounted and promotional, the top-line contribution is lighter than its console offering.

Separate of the earnings report, Microsoft’s Head of Gaming Phil Spencer did offer a slight morsel around revenue contribution and profit dynamics during a Wall Street Journal Live interview. According to The Verge’s Tom Warren, Spencer claims 15% of Xbox Content & Services revenue is currently generated via Xbox Game Pass subscriptions. He expects it to remain between 10% to 15%. If the top end is true, that’s upwards of $420 million for the latest quarter and $1.88 billion over the last year. Additionally, he claimed the service is profitable for Microsoft, though didn’t offer anything in the way of detail or proof.

Back to the report, Microsoft did share an updated engagement figure for its Xbox Cloud Gaming effort, stating 20 million people have now tried game streaming via this service. That’s twice as many as back in March when it was 10 million, thus indicating there’s continued appetite for cloud as a supplement to traditional gaming and a way to attract folks that might not own a console.

How did that more traditional source fare during Q1? Well, Xbox Hardware accounted for $800 million in revenue, up 13% from last year’s quarterly output of $710 million. Add this double-digit increase to the growing list of indicators that the supply chain situation for consumer electronics is stabilizing, as is part availability, which leads to better retail inventories.

During the latest four quarters, Xbox Hardware revenue reached $3.8 billion. That’s an all-time record amount, slightly above the $3.79 billion from two quarters ago. The entry level Xbox Series S in particular has been a boon, as Nadella claimed almost half of Xbox Series S buyers are brand new to the Xbox ecosystem.

The big question, of course, is how many Xbox Series X|S units have sold to date? Starting last generation, Microsoft doesn’t share unit sales for its hardware anymore. So it’s difficult to say for sure. Last quarter, I estimated upwards of 16 million to 16.5 million. Based on better stock and a constant demand curve, I could see 17.5 million or upwards of 18 million lifetime right now for the family of devices. As a quick comparison, Sony’s PlayStation 5 is currently at 21.7 million and will be even higher when the company reports next week.

Here’s a quick look at Microsoft’s overall results. The company achieved over $50 billion in quarterly revenue, moving up 11% year-on-year. Operating profit totaled $21.5 billion, an increase of 6%. Microsoft Cloud revenue rose 24% to $25.7 billion. Results for revenue and earnings-per-share beat out analyst estimates.

I mentioned More Personal Computing (MPC) earlier, which generated the same amount of revenue as it did a year ago: $13.3 billion. Operating profit dipped 15% to $4.22 billion on higher costs.

Shifting back to Xbox, it was a great quarter for gaming given the broader environment and challenges it’s seen on the hardware side. Achieving best-ever first quarter sales is an accomplishment, even if profitability likely took a hit due to heavy investing in Xbox Game Studios development and securing third-party deals for Xbox Game Pass. That’s, quite literally, the price of doing business.

Management provided its general outlook for Microsoft and touched on guidance for the Xbox division. Note that forward-looking guidance does not account for the pending Activision Blizzard deal, which the company still expects to close by June 2023.

“As we look towards the holidays, we offer the best value in gaming, with Game Pass and Xbox Series S,” Nadella said, pushing a bit of marketing speak. Even so, I tend to agree when it comes to both of these entry points into a robust suite of software offerings. It’s quite attractive across the landscape of the industry, especially after many publishers are embracing higher pricing for premium releases.

For the period between October and December, the coveted holiday quarter, Microsoft anticipates gaming revenue will decline in the low-to-mid teens mainly because of just how well it did last year on the strength of big first party launches. Translating that into dollars, assuming a 12% decline would get the holiday quarter to $4.79 billion in sales for Xbox. Essentially, it may regress back to a pre-pandemic level.

The company expects Xbox Content & Services to move downward at the same pace as overall gaming revenue, in the low-to-mid teens. There is upside in the guidance, as management thinks Xbox Game Pass subscriptions will increase yet again. By how much? It’s not clear. Finally, Microsoft didn’t provide guidance for Xbox Hardware. Calculating it based on the prior two, the implication is a potential double-digit decline as well.

Personally, I’m slightly more bullish on Xbox’s holiday prospects, in particular I think hardware can make up for dips in first and third party content. There’s no real flagship Xbox Game Studios output in the coming months to end 2022; no Forza or Halo like last year. The largest software launches are all third party titles, though there’s no doubt deals will be made to feature some major external publisher content on Xbox Game Pass.

Elsewhere, Phil Spencer blatantly teased the rumored Project Keystone cloud streaming device in a social media post. All reporting points to the dedicated streaming device being early in development, so it’s still a ways out. What it does show is Microsoft’s commitment to streaming as a new business avenue.

More immediately, there’s been activity on the Activision Blizzard buyout side as regulators worldwide continue to review the proposed $68.7 billion deal. By now, government agencies of Saudi Arabia and Brazil have issued their approvals. The major holdout is the United Kingdom’s Competition and Markets Authority (CMA) which has moved into a second phase of its inquiry into potential antitrust concerns. the CMA claims there will be impact on competition in various industry verticals, while Microsoft responded saying the concerns are “misplaced.” Most recently, the CMA is requesting feedback from the public. That ought to go well!

I remain a firm believer that the deal will eventually be approved, it’s just a matter of how long it takes as governments notoriously move at a snails pace. American and European regulators will be the key, and we’ve yet to hear from them specifically.

Well, then. That’s the first big results recap of the season. What’s your reaction to Xbox’s big Q1? Do you agree with its forecast for the holiday quarter? Feel free to drop a line here or on social media, I’m happy to chat!

Additionally, I’ll have more reactions to earnings in the coming weeks. Thanks everyone for hanging out. Be safe and spooky!

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

Sources: Company Investor Relations Websites, ShackNews (Image Credit), Tom Warren.

-Dom

FIFA 23 & PS5 Score During 11th Straight Month of Declines for U.S. Games Industry in September 2022 NPD Report

The third quarter has come to an end, and with it brings the latest monthly report from The NPD Group on how spending on the U.S. games industry is faring.

Fittingly for a September, there’s all sorts of football happening this Fall. American or otherwise.

The latest FIFA title launched in this time frame, during which overall consumer spending across Video Game Content, Hardware and Accessories declined for the 11th straight month. Good news is last year was a record high for the industry and this September was only 4% lower, a better result than certain double-digit dips during the past several months.

As shown in a chart later, even if these spending declines are happening in succession, the trend-line is turning positive. Plus, 2021 is proving to be more an outlier during which pandemic-fueled spending peaked amidst low inflation and fewer general economic pressures.

Content spending, that on software and related sources like mobile and subscriptions, was the only category to decline last month. Mobile weakness had a lot to do with that, as did its outsized impact on the overall number because it’s the largest segment by a wide margin.

“Content performance was driven by a double-digit percentage gain in non-mobile video game subscription spending,” said The NPD Group’s Mat Piscatella on Twitter. “Which was offset by declines across other content segments.”

A bevy of new premium titles dotted the month’s best-sellers list. There were six new releases within the Top 8, to be exact. Many of them were sports titles, sequels or reissues. Among these, Electronic Arts’ FIFA 23 scored the software win in September, knocking its football counterpart of Madden NFL 23 down to second place.

Buying in the Hardware category continued to be a boon as this segment experienced double-digit growth now for three consecutive months. Catapulting this was PlayStation 5 as the top-selling device in September by both units and dollars. As I wrote during July and August, individual data points don’t constitute a reassuring trend. This latest month is starting to make me a believer that supply conditions are getting to where they need to be.

Now, general spending numbers from the first three quarters is still trending down overall as all three categories are currently showing declines. During 2022 to date, people have spent less on gaming than the year prior. This reflects both the historic run a year ago, people seeking entertainment in other areas in addition to macro effects such as inflation and the labor market.

Despite the gloomy headline, fitting for the impending spooky season, September’s report showed multiple reasons for optimism. See below for a full rundown of the numbers then a preview of next month’s action.

United States Games Industry Sales (August 27th, 2022 – October 1st, 2022)

In total, people in the U.S. spent just over $4 billion on gaming last month. That’s down a modest 4% compared to an all-time September high last year. Check the second chart above, in particular the green line showing year-on-year percentage changes, and it’s mostly looking up.

During the first three quarters of 2022, spending declined 8% to $38.4 billion. This movement was driven mainly by contractions in Content and Accessories categories against high comparables last year.

Content spending moved down 7% last month, the only category that wasn’t flat or higher. Its dollar amount reached $3.41 billion or roughly 84% of September’s total. This was mainly attributed to weakness in sources other than non-mobile subscription spending.

Mobile, the sub-category that dictates Content performance, continued to under-perform in September as spending dipped 5% according to Sensor Tower’s portion of the report. Underlying this movement was a worse-than-expected drop in “hypercasual” game installs, declining 40% year-on-year. Overall new installs were 3% lower than last September, marking the worst monthly output since February 2019.

There proved to be more positivity around premium software, as the launch calendar picked up during September due to annualized series. Unfortunately, there wasn’t much in the way of dollar comparisons so I’ll rely on historical rankings for at least some context.

As I mentioned earlier, FIFA 23 finished in first place during its debut month. The last soccer game from Electronic Arts to feature the FIFA branding before it switches to EA Sports FC landed one spot above its predecessor, which started at #2 in September 2021. Both titles had only a few days on sale, making the win for FIFA 23 even more impressive. Recently the publisher said this year’s title was the franchise’s largest global launch ever.

Just below August’s winner and September’s runner-up Madden NFL 23 was NBA 2K23 rounding out the Top 3, even without counting digital contribution because publisher Take-Two Interactive no longer shares it. This is the same position as NBA 2K22, which lost to the same two aforementioned sports series. Take-Two Interactive will certainly share more insight into this year’s launch during its earnings presentation in November, where I expect a potential record start.

Nintendo Switch exclusive Splatoon 3 showed up next, splashing its way to the 4th spot. It’s another title that doesn’t include digital, which means upside could be even higher. The last game launched back in July 2017, when it debuted atop the software list. Albeit during a less competitive window. If the latest game’s absolutely massive Japanese launch sales are any indication, I’m anticipating a record global launch for the franchise and one of the fastest-selling Switch games in its near six years on market.

Completing the slate of new entries on the software chart were The Last of Us Part 1, Teenage Mutant Ninja Turtles: The Cowabunga Collection and JoJo’s Bizarre Adventure: All Star Battle at 5th, 6th and 8th, respectively. While I expected a solid start for Sony’s “remake” of the legendary The Last of Us, the other two proved to be pleasant surprises. Especially JoJo’s Bizarre Adventure, a series mostly localized to Eastern markets.

Looking at the list of best-sellers during the first nine months of 2022, it’s mostly unchanged since August’s result. Madden NFL 23 boosts into the Top 3 from its Top 5 debut. FIFA 23 enters the year’s best-sellers list at #11 while, further down, Saints Row 2022 jumps a few spots into the Top 15.

Check the full lists below for September and 2022 so far.

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

  1. FIFA 23
  2. Madden NFL 23
  3. NBA 2K23*
  4. Splatoon 3*
  5. The Last of Us: Part 1
  6. Teenage Mutant Ninja Turtles: The Cowabunga Collection
  7. Saints Row 2022
  8. JoJo’s Bizarre Adventure: All Star Battle
  9. Elden Ring
  10. Mario Kart 8*
  11. Minecraft
  12. Marvel’s Spider-Man
  13. Lego Star Wars: The Skywalker Saga
  14. Super Smash Bros. Ultimate*
  15. Call of Duty: Black Ops Cold War
  16. Horizon Forbidden West
  17. Call of Duty: Vanguard
  18. Assassin’s Creed Valhalla
  19. MLB: The Show 22^
  20. Dragon Ball Z: Kakarot

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. Madden NFL 23
  4. Pokémon Legends: Arceus*
  5. Horizon Forbidden West
  6. MLB: The Show 22^
  7. Call of Duty: Vanguard
  8. Gran Turismo 7
  9. Kirby and The Forgotten Land*
  10. Mario Kart 8*
  11. FIFA 23
  12. Minecraft
  13. Nintendo Switch Sports*
  14. Madden NFL 22
  15. Saints Row 2022
  16. FIFA 22
  17. Super Smash Bros. Ultimate*
  18. Marvel’s Spider-Man: Miles Morales
  19. Animal Crossing: New Horizons*
  20. Monster Hunter Rise

Here’s the shining bright spot in September’s announcement: Hardware purchasing, which rose a fantastic 19% to $490 million. Clearly heading in the right direction after July’s 12% move and August’s 14% jump, now boasting a steady three months straight of double-digit gains. Both PlayStation 5 and Xbox Series X|S families experienced similar double-digit growth.

Because of this recent spurt, Hardware was nearly flat during the first three quarters of 2022. Spending eclipsed $3.36 billion, just under the $3.41 billion in the same period last year.

This recent move is a great signal for supply easing. There are more consoles being produced, which is leading to better inventories at retail. Demand is holding up its end as well, which should continue throughout the fourth quarter holiday season and into next year.

PlayStation 5 led the pack in September by both units sold and revenue generated, same as it did in August, proving that Sony’s family is consistently improving in output leading into the back stretch of 2022. Nintendo Switch came in second place by units, while Xbox Series X|S generated the second highest dollar sales.

What’s important about this upward momentum in Hardware is how it’s happening in light of various headwinds for consumers. While inflation is somewhat easing in light of a hawkish Federal Reserve increasing interest rates, it’s still quite high. Indicators had shown discretionary spending shifting towards non-gaming activities, though console acquisition is bucking that trend. My read is that’s mainly due to pent up demand for new generation boxes.

Plus, easing inflation will have a positive impact on both sides of the equation; Better buying power and lower input costs. I expect the impending earnings season will reveal similar improvements for console manufacturers. (Check back soon for my full calendar!)

Another encouraging sign from last month’s announcement was spending on Accessories, coming in flat year-on-year at $174 million. This smaller segment is showing signs of life! Or at least stabilization, given how it’s the best monthly performance in almost a year.

“This is the first month since October 2021 in which Accessories spending did not experience a year-on-year decline,” Piscatella noted.

The NPD Group dug a bit into the fundamentals here, stating that Game Pad buying was up in September, which rose enough to offset slower Headsets/Headphones output. Backing this up, the base model Xbox Wireless Controller in carbon black was the month’s top-earning peripheral.

Still, year-to-date spend on Accessories was still down in the double-digit range because of how poorly it performed in earlier months. First nine month spend dipped 13% to $1.55 billion. While the report didn’t state it outright, I assume the year’s best-seller remained Microsoft’s Xbox Elite Series 2 Wireless Controller.

Taking this past month as a whole, there’s a lot more to like than not with the domestic sales report. Even given the headline of 11 straight months of declines. Since the trend is improving, especially for Hardware and new premium launches, the bright spots are mounting. Supply has been the story, and that narrative is slowly getting better.

How did my predictions from August go? I thought Madden NFL 23 and Splatoon 3 would fare better, mainly underestimating the upside of FIFA 23. I also got PlayStation 5 winning on dollar sales correct, although I thought Nintendo Switch could lead on units. We’ll call that a half-win!

October is the start of the fourth quarter push, and always a great time to be a sales analyst.

Of course, Call of Duty: Modern Warfare 2 is the bellwether as it launches this week. It will be the month’s best-seller, even with just a couple days on market. In a clear marketing stunt to drive early buying, pre-orders now have early access to its campaign mode.

October will also be highlighted by a couple new Switch exclusives in Mario + Rabbids: Sparks of Hope and Bayonetta 3. Both of these will benefit from the Switch effect, likely landing in the Top 7. Overwatch 2 had a massive start after shifting to its free-to-play early access model, attracting a whopping 25 million players within ten days, so I’m curious to see how this translates on the charts. A Top 3 finish isn’t out of the question, depending on purchasing of its Watchpoint Pack.

PGA Tour 2K23 can be a quiet success, though without digital I’m cautious on a Top 10 start. Gotham Knights will be shaky at best, its commercial lack of success paralleling its tepid critical reception. A Plague Tale: Requiem launched into Xbox Game Pass, so I’m not sure of its upside on the premium charts. I remain upbeat on the sports titles from recent months, especially Madden NFL 23 as the football season progresses.

If PlayStation 5 supply continues, and I expect it to happen, I’m betting it leads on units and revenue again. Partially due to Sony’s marketing deal with Activision Blizzard for Call of Duty.

And how about a rare prediction for Accessories! Microsoft continues to pump out Xbox controllers, highlighted by its more cost-friendly Xbox Elite Controller Series 2 Core starting in September. Then there’s Meta Platforms launching its high-end Meta Quest Pro headset in October. I’m quite upbeat on the category, and think it could show mid single-digit growth.

“Things are definitely moving in the right direction,” Piscatella said. “Looking forward to 2023, I’m optimistic.”

I tend to agree! We’ll see everyone back soon for my earnings calendar extravaganza and more articles focused on the industry. In the meantime, I recommend Piscatella’s detailed thread here.

Thanks for visiting! Be well, all.

*Digital Sales Not Included, ^Xbox & Nintendo Switch Digital Sales Not Included

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

Sources: Electronic Arts, Gizmodo (Image Credit), Nintendo, The NPD Group, Meta Platforms.

-Dom

10th Straight Month of Declines for U.S. Games Industry in August 2022 NPD Report Features Wins for Madden NFL & PlayStation 5

Apparently, because we can’t stop time, Summer’s close to its end here in the Northern Hemisphere. I hope you’ll take a brief moment to embrace the cool air that hits this time of year while watching your favorite football squad and reading through this latest blog of sales updates!

As it does every month, The NPD Group shared its report on consumer spending across the games industry earlier in the week. This time, it’s for August, which proved to be another down month fitting with a recent trend. Still, compared to the all-time record high of last year and considering various headwinds, it’s actually a really good result.

Spending across the three major categories of Video Game Content, Video Game Hardware and Video Game Accessories declined for the tenth consecutive month in a row, albeit a modest 5% dip to $4.1 billion. Compare that to over $4.3 billion in August 2021, and I believe this was the second best August result in tracked history. Not bad, right? Essentially, domestic sales are still in the midst of reversion towards pre-pandemic levels, and last month was slightly above this same time in 2020.

The Content segment’s contribution was down, which had an outsized impact because software and the like make up such a large portion of the domestic total. Even a hard-hitter like Madden NFL 23, which was predictably August’s best-selling premium title, and a Saints Row reboot couldn’t offset losses elsewhere, most notably in mobile.

Hardware was the standout in August, proving to be the brightest spot and yet another indication that availability is slowly improving. Especially for the latest generation of consoles. PlayStation 5 was August’s best-seller by both dollars and units. Importantly, both PlayStation 5 and the Xbox Series X|S family experienced double-digit gains compared to prior year, just as they did during July.

Now, one data point doesn’t make a trend. Neither does two. It’s still quite reassuring to see retail inventories going up for both Sony and Microsoft when all we’ve been hearing the past couple years is about supply issues.

Making sure to keep everything in perspective, gaming sales for 2022 are down 9%, with two of its categories in Content and Accessories showing double-digit drops. Again, we’re comparing against strong numbers this time last year. Plus, the industry is still facing pressure from inflation and spending on other entertainment verticals. This sort of stagnation was generally expected this year, and there’s still huge commercial success stories like Elden Ring even during a downturn.

“This is a huge positive shift in the previous market trend,” said The NPD Group’s Mat Piscatella to GameDaily. “Of course, this has been helped by the improved supply of new console hardware. And that’s really the key question going into the holiday.”

Now I’ll take a closer look at August’s numbers, starting first with the overall figures then diving into each category. Also see below for a complete list of the month’s best-selling games.

United States Games Industry Sales (July 31st, 2022 – August 26th, 2022)

During the month of August, consumers spent upwards of $4.1 billion across the games industry, down 5% versus the same time last year. This was mainly attributed to a slowing in software, mobile and related sales, since hardware was the sole area of gains.

Spanning 2022 to date, total sales are currently $34.6 billion. This is tracking 9% lower than the same eight months in 2021, when it was over $38 billion.

Content represented the largest portion, earning $3.59 billion in August or 87.5% of overall spending. This number was down 6% year-on-year and occurred despite a major release in the Madden NFL franchise, a perennial top-seller here in the States.

That’s because mobile continued as the biggest factor, facing its second consecutive month of double-digit declines. Mobile sales dipped 10% in August, highlighting how people aren’t spending as much time or money on mobile platforms right now. This spending dip was felt by both major stores as Google Play sales dropped 22% while Apple’s App Store experienced a more modest 1% decline. The NPD Group didn’t share the top-earning mobile titles.

The big story for premium games was yet another great start for football. And no, I’m not talking about the New York Football Giants being undefeated early in the season. It’s how Madden NFL 23 debuted as August’s number one. That marks a staggering 23 straight years that Electronic Arts’ pigskin series has kicked off its debut month with a win. Talk about a long run! This hot start makes it immediately the 5th best-selling game of 2022 so far.

Below that was an under-the-radar Saints Row reboot, ranking second in August. Intriguingly, this open world crime series from Volition is used to being the bridesmaid: August 2013’s Saints Row IV began in second during its first month, also behind that year’s Madden NFL title. Before that, Saints Row: The Third achieved 8th place in November 2011. This year’s game wasn’t well-received from a critical standpoint and had a lot of technical issues, though clearly benefited from its release window for a solid start.

2018’s Marvel’s Spider-Man jumped up the chart as the month’s biggest mover, leaping to third place from its prior rank of #84. Why? Well, because Sony is finally, slowly, opening its exclusive portfolio to PC players. The game’s remastered version hit PC storefronts last month. It was the top-selling game on Steam among those tracked by The NPD Group. Even Horizon Zero Dawn went from 28th up to #12, proving that the more platforms, the better for buyers.

In terms of new releases for August, the remaining best-seller was Soul Hackers 2 slotting in at #15. Which is a solid position for Atlus’ stylish role-playing game, appealing to a broader audience in the West. When a port for its predecessor hit Nintendo 3DS back in 2013, it understandably didn’t chart.

Taking a look at the 2022 rankings thus far, the only updates were caused by Madden NFL 23 kicking certain titles down the list. The Top 4 remain untouched: Elden Ring, Lego Star Wars: The Skywalker Saga, Pokémon Legends: Arceus and Horizon Forbidden West. At present, there are two franchises both with two titles among the Top 20: Call of Duty and Madden NFL. Familiar faces, indeed.

Check below for the full lists then further down for console performance and peripheral sales in August.

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

  1. Madden NFL 23
  2. Saints Row 2022
  3. Marvel’s Spider-Man
  4. Elden Ring
  5. MultiVersus #
  6. Mario Kart 8*
  7. Minecraft
  8. LEGO Star Wars: The Skywalker Saga
  9. MLB The Show 22^
  10. Xenoblade Chronicles 3*
  11. Digimon Survive
  12. Horizon Forbidden West
  13. Call of Duty: Vanguard
  14. Far Cry 6
  15. Soul Hackers 2
  16. Super Smash Bros. Ultimate*
  17. Gran Turismo 7
  18. Kirby and the Forgotten Land*
  19. The Elder Scrolls V: Skyrim
  20. Pokémon Legends: Arceus*

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. Madden NFL 23
  6. MLB The Show 22^
  7. Call of Duty: Vanguard
  8. Gran Turismo 7
  9. Kirby and the Forgotten Land*
  10. Mario Kart 8*
  11. Minecraft
  12. Madden NFL 22
  13. Nintendo Switch Sports*
  14. FIFA 22
  15. Marvel’s Spider-Man: Miles Morales
  16. Super Smash Bros. Ultimate*
  17. Monster Hunter Rise
  18. Animal Crossing: New Horizons*
  19. Call of Duty: Black Ops Cold War
  20. Mario Party Superstars*

I’m happy to report prospects for Hardware are looking up. Which is especially hopeful for those in the market for a shiny new console trying to beat the holiday rush.

Hardware was the only main category that grew during August, generating $375 million in sales or 14% higher than a year ago. Which tends to happen when people can actually buy consoles. Signs point to better inventories and the demand being there to meet it.

“Supply for PlayStation 5 and Xbox Series consoles has been improving in recent weeks,” said Piscatella. “However, we still aren’t seeing full distribution, so there is still some latent demand to be met. It’s very difficult for me to say whether or not we’re seeing the end of supply constraints or a temporary respite before we move into the holiday period and seasonal demand starts to play a role.”

That’s the question, right. Are these temporary upticks that will fade once higher input costs impact manufacturers? Have suppliers shored up the supply chain enough to keep retail stock consistent? Will we see enough PlayStations and Xboxes for Americans to buy in the fourth quarter?

For now, we use the data available and try to project. PlayStation 5 took home the top spot in August by both dollar sales and units. As a reminder, while PlayStation 5 topped July by revenue, Nintendo Switch led by units. This indicates that the latest monthly win for Sony wasn’t just a result of higher average selling price; it’s a byproduct of better general availability.

Going further, that stat of how both PlayStation 5 and Xbox Series X|S displayed double-digit year-on-year growth in August is key. It’s happened now for the second month in a row. When it’s occurring not just for one manufacturer, and not just for one month, we can maybe start to project out an improved supply scenario.

Between this, rumors of Sony potentially updating the PlayStation 5 hardware soon, Valve continuing to produce its Steam Deck handheld at a more rapid pace than expected and Microsoft’s CEO Satya Nadella talking about how Xbox Series X|S is outpacing every prior Xbox generation, there’s evidence mounting that manufacturers and their suppliers are finally ramping up output.

However, it’s nowhere near the end of supply-side concerns. Hardware as a category is still down in spending for 2022 right now, off 4% to $2.87 billion as of August. PlayStation 5 keeps its lead as the year’s top-selling platform by dollars, while Nintendo Switch is still on top when measured by units. There’s plenty to look forward to here, while also acknowledging the risks still in the market, especially when it comes to inflationary pressure and semiconductor shortages.

Rounding out the big segments is Accessories, which experienced the largest spending drop of the bunch in August. Purchasing on peripherals and related products declined 18% last month, to $138 million.

The NPD Group report attributed these losses to slowdowns for both game pad and headset sales. Sony’s PlayStation 5 DualSense Controller in Midnight Black was the top-selling accessory, same as July.

In aggregate for 2022, spending on Accessories is down 14% to $1.38 billion. Microsoft’s Xbox Elite Series 2 Wireless Controller tops the year’s list to date, which the premium game pad has done for quite some time now.

Really, it’s been somewhat of a lull for new product launches within this segment. That will change here in the near future, as both Sony and Microsoft announced upcoming controllers. Sony debuted its PlayStation DualSense Edge around a month ago as a premium offering to go along with its base DualSense model. No word yet on release date.

Then, in early September, Microsoft revealed a couple new products in its Elite series: The “Core” model in white, which is a lower-priced entry in the premium space. Not only that, Microsoft shared that it will open up its Design Lab controller customization options to its Elite series of premium game pads starting later this year.

Both of these product lines should provide a noticeable boon for Accessories in the coming months, and I’m extremely upbeat on the DualSense Edge in particular.

Even with the multiple months of declines lately for U.S. games industry spend, there’s a lot to like about The NPD Group’s most recent report. August 2021 was a historic time for the domestic industry, recording an all-time sales high. This time around, it was only the second best August ever.

Content, notably mobile, is still stacked up against high comparables. I was more upbeat on mobile than I probably should have been, and recent results prove that it’s not immune to slowdowns. Especially as people see other places to spend on entertainment.

What’s most reassuring is the continued evidence of an upturn in console supply. Plus, there are still plenty of folks who haven’t upgraded to the newest generation, either because they couldn’t find one or didn’t want to do so. The fact that there’s better availability is a promising sign going into the back stretch of 2022.

Speaking of, why not close out with some September predictions?

Within premium software, there’s a good amount of potential best-sellers from the list of new launches: The Last of Us Part 1, Splatoon 3, NBA 2K23 and FIFA 23 chief among them.

If Take-Two Interactive was still sharing digital split, I’d bet the house on NBA 2K23 scoring September’s win. Nintendo also doesn’t share downloads, so I’m shaky on Splatoon 3 even considering its tremendous start in Japan of 3.45 million units in three days.

Then there’s FIFA 23, representing the secondary form of football around these parts. Last year, FIFA 22 outranked NBA 2K22 during their first month on sale. Could there be a repeat?

Well, I’m actually thinking Madden NFL 23 goes back-to-back and scores September’s top slot. Then, Splatoon 3 will be right behind it followed by a combination of FIFA 23 and NBA 2K23. PlayStation’s The Last of Us Part 1 will be in the Top 7, I’m just hesitant on its upside.

What this all really means is September will be a fun one for software sales nerds!

Within consoles, I’m guessing PlayStation 5 earns top marks on revenue and Nintendo Switch sells the most units. Primarily because Splatoon 3 is the closest thing the Switch has had to a “system seller” in years.

That brings an end to August’s recap and September’s predictions. I’d point you to Piscatella’s Twitter thread for more information about the report.

I’ll be on vacation soon, though happy to reply to any questions or comments here or on social media in the meantime. Thanks all for hanging out, and be well!

*Digital Sales Not Included, ^Xbox & Nintendo Switch Digital Sales Not Included, #Founder’s Pack Edition Sales Only

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

Sources: GameDaily, Nikkei Asia (Image Credit), Nintendo, The NPD Group.

-Dom

MultiVersus Fights to Victory During 9th Straight Month of Sales Declines for U.S. Games Industry in July 2022 NPD Report

Summer is trending towards its end here in the States, and spending on video games is showing similar signs of laziness.

As I’ve written about recently, publishers and developers are generally seeing declines from highs of the last couple years when they benefited from more restrictive quarantine measures. This is reflected in today’s monthly sales report from The NPD Group, which showed another period of lower spending by consumers across all of gaming.

With an almost double-digit decline in total spend during July, the games industry experienced its ninth consecutive month of contraction. It’s worth keeping in mind that last year was an all-time high for July spending, so it’s nowhere near a doomsday scenario.

This is attributed to a variety of factors, namely a normalization towards pre-pandemic levels and leaning towards other entertainment options. Purchasing on subscriptions like Xbox Game Pass and PlayStation Plus, continues to be the lone bright spot. Losses elsewhere, notably mobile experiencing its worst decline of 2022 to date, prove to be weighing down the results.

Out of Video Game Content, Hardware and Accessories segments, only Hardware was able to generate any sort of monthly growth.

In what I’d call the surprise upset of the year, character fighter MultiVersus emerged victorious for overall software sales. This free-to-play game from Warner Bros managed to snag the top spot away from 2022 heavyweights like Elden Ring and Lego Star Wars: The Skywalker Saga solely due to people purchasing its founder pack.

Positive signs on the console front continued for Sony’s PlayStation 5 as it led hardware ranks last month when measured by dollar sales, bolstered by improved stock at retail. Which is reassuring, even if temporary, given global chip cost is still increasing and supply chain disruptions are still rearing their ugly head.

The NPD Group’s Mat Piscatella shouted out a couple items of note on Twitter, namely the aforementioned improving supply for hardware and an “impressive” start for Xenoblade Chronicles 3 on Nintendo Switch which debuted in fourth place on the software list.

Look below the fold, so to speak, for a full recap of July’s monthly sales report.

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

When compared to the record $4.57 billion in monthly earnings this time last year, total consumer spending on gaming dipped 9% in July to $4.18 billion. The gallery above displays a handful of handy images digging into the specifics. I’d point attention to the trend chart showing the past few years, clearly displaying this latest amount is nearly identical to that of July 2020.

Expanding to an annual figure for more context, aggregated 2022 sales are currently down 10% to $30.46 billion. This was upwards of $33.86 billion in the seven months ending July 2021.

The biggest contributor was Video Game Content, which counts software and related purchasing, hitting $3.67 billion during July. That’s roughly 88% of overall spending for the month. It’s also off 10% from last year’s $4.1 billion.

Mobile is traditionally the main factor within Content. Unfortunately, mobile just experienced its worst monthly decline of the year to date. This was vast under-performance, considering historical seasonality indicates this is when mobile spend should actually be doing well. While the report didn’t share an exact dollar or percentage movement, I’d call it a yellow flag that’s worth monitoring as we move more into the back half of 2022. Top mobile performers, in order, were Candy Crush Saga, Roblox, Coin Master, Pokémon Go and Evony: The King’s Return.

Also a part of Content, premium games boasted three newer releases within the top eight of July’s best-sellers.

The shocker here again being July’s leader in MultiVersus, which hit open beta with only days left in the tracking period plus was the best-selling title on the Xbox platform list. It’s reminiscent of 2017’s Fortnite Battle Royale, which started its reign in beta form and remained that way for a while. The reason a free-to-play game like MultiVersus was even on the list, let alone led, was the strength of its Founder’s Pack offering things like characters and in-game currency. Combine a low barrier to entry with solid gameplay and optional monetization for an estimated 12 million players right now and that’s a recipe for solid earnings.

This also means Warner Bros published two of the Top 3 titles within the premium ranks, seeing as Lego Star Wars: The Skywalker Saga moved down one spot to third place. The sheer consistency of this 3D action adventure is notable, maintaining a strong position since starting out back in April.

Sandwiched between those as July’s runner-up was, of course, Elden Ring. Which has been, and will be, a constant force on the U.S. charts. Just yesterday, publisher Bandai Namco shared how From Software’s latest surpassed yet another sales milestone, reaching 16.6 million units sold globally as of June. That’s up 3.2 million since March’s 13.4 million total. I expect it to achieve 20 million next quarter as it will compete with Call of Duty: Modern Warfare 2 for this year’s domestic chart-topper.

The second new release to chart in July was Xenoblade Chronicles 3, making it to #4 even without its digital sales counted. That’s the best start for any title in the series from a ranking standpoint. Its predecessor Xenoblade Chronicles 2 ranked #16 back during a heavy holiday month of December 2017, plus the original didn’t make the Top 10 back in April 2012 when it launched in North America. This year’s entry was also Switch’s best-seller during July.

Digimon Survive was the only other new entry on the overall chart, achieving eighth place to start. This is quite the accomplishment for the visual novel slash tactical RPG also published by Bandai Namco, considering it went on sale with only a couple days left in the July tracking period.

As for other movers, Electronic Arts’ F1 22 stood out as passing other titles into the Top 10 during its first full month of sales. Overwatch and Nintendo Switch Sports dropped outside the Top 10 while two older Call of Duty titles in Black Ops Cold War and 2015’s Black Ops 3 shuffled into the Top 20, showing a clear consumer appetite ahead of mid-September’s showcase for this year’s military shooter.

With respect to 2022 so far, the Top 10 list was unchanged as Elden Ring, Lego Star Wars: The Skywalker Saga and Pokémon Legends: Arceus remain as best-sellers. I expect that to change in August. Without a doubt.

Here’s a full rundown of the best-selling software during July and 2022 right now.

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

  1. MultiVersus
  2. Elden Ring
  3. Lego Star Wars: The Skywalker Saga
  4. Xenoblade Chronicles 3*
  5. Call of Duty: Vanguard
  6. MLB: The Show 22^
  7. Mario Kart 8*
  8. Digimon Survive
  9. Minecraft
  10. F1 22
  11. Kirby and the Forgotten Land*
  12. Super Smash Bros. Ultimate*
  13. Animal Crossing: New Horizons*
  14. Overwatch
  15. Pokémon Legends: Arceus*
  16. Nintendo Switch Sports*
  17. Call of Duty: Black Ops Cold War
  18. Far Cry 6
  19. Call of Duty: Black Ops 3
  20. Monster Hunter Rise

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. Call of Duty: Vanguard
  7. Gran Turismo 7
  8. Kirby and the Forgotten Land*
  9. Mario Kart 8*
  10. Madden NFL 22
  11. Minecraft
  12. Nintendo Switch Sports*
  13. FIFA 22
  14. Marvel’s Spider-Man Miles Morales
  15. Monster Hunter Rise
  16. Super Smash Bros. Ultimate*
  17. Animal Crossing: New Horizons*
  18. Call of Duty: Black Ops Cold War
  19. Mario Party Superstars*
  20. Dying Light 2: Stay Human*

The only large segment to gain in July was Video Game Hardware, moving up a solid 12% to $362 million in consumer spend. I believe this is the best result since way back in July 2008, when it reached almost $450 million during the height of Nintendo Wii fever.

Funny what can happen when people can find boxes at retail!

Consoles sales are still currently down year-to-date, albeit Hardware is the only category to remain in single-digit decline territory. During the first seven months of 2022, spending totaled $2.5 billion or 7% lower than the $2.67 billion at this point last year.

Just as it did back in June, PlayStation 5 generated the highest amount of dollar sales compared to all other competitors. Xbox Series X|S came in second place, as I confirmed with The NPD Group directly. Both families generated double-digit gains in revenue compared to July 2021, which is reassuring at this stage in the cycle given where supply has been the past two years.

This is great sign for these manufacturers individually and the general potential of the domestic industry here in 2022, implying better inventories and ongoing demand. The economic equation has been out of whack for too long, leading some to believe that scarcity was leading to increased levels of buyer interest. Personally, I maintained the demand side has been consistently high since late 2020. It’s just time for supply to catch up, hopefully over a longer time frame rather than a temporary boost.

If measured by unit sales, Nintendo Switch topped the category again during July. Similarly, PlayStation 5 was the runner-up by this metric. Same as June, in both regards.

The major takeaway for those that track these things closely is supply constraints might very well be easing. Slowly. Or the refrain could be temporary. With the semiconductor situation globally where experts are still projecting 10 to 15% price increases, I’m hesitant to be too optimistic in this area. What’s great is the supply chain seems to be firming up. That’s on display with PlayStation’s results here plus something like Valve increasing production of its Steam Deck handheld. Consumer electronics are hitting the market.

Along these lines, Sony is quite upbeat on the remainder of this year into early next year for PlayStation 5, which recently hit nearly 22 million in lifetime shipments. It recently reiterated what I think is an ambitious 18 million units sales target for the fiscal year ending in March 2023. Right now, the current generation of hardware is lagging its predecessor, though executives are signaling strength to the market. I hope that turns out to be true, even if my forecast is in the 15 to 16 million range. As a reference, Sony shipped 2.4 million units during April to June which is up slightly from 2.3 million a year back.

Nintendo is more conservative on its aging Switch hybrid as compared to prior years, setting an achievable target of 21 million for its fiscal year ending at the same time. Granted it’s at over 110 million units lifetime, with only a couple years left before its successor in my opinion as I don’t expect another mid-generation refresh or any sort of “Switch Pro XL HD” version.

The remaining category of Video Game Accessories moved down the most during the month, dipping 22% to just under $150 million. Now, everything in perspective. This is against another record-high for a July month last year when it reached $190 million. Thus, while it’s more than a 20% decline, the comparable period last year was the strongest ever.

When accounting for the year to date, Accessories spend is now just above $1.2 billion. That’s also showing the most precipitous decline of the three categories at 15% lower than last year’s $1.41 billion.

Running in parallel to the Hardware segment during July, a PlayStation product led the charge. The PlayStation 5 DualSense Midnight Black edition was the top-selling accessory, retaining its monthly lead from June. Sony’s controllers, both current generation DualSense and DualShock 4, have been consistently winning the past few months.

Still, the Xbox Elite Series 2 controller maintains its stranglehold on the annual period so far based on generating more revenue per unit because of its premium price tag. It’s been leading year-to-date for a while now.

Accessories isn’t the most glamorous of topics, I’m wondering when we’ll get a virtual reality headset check-in from NPD Group any time soon. In particular, the Meta Quest price increase kicked in earlier this month. Which, even with a dip in demand, might cause dollar sales to rise. I’d still expect a game pad to lead, mainly because of negative reaction from consumers to any sort of price bump in an inflationary environment.

For those of us tracking the U.S. games industry closely, the themes of 2022 were well intact during July: normalization, inflation, supply challenges and lighter spending compared to strong comparables. The release calendar was still quite light, even with a surprise like MultiVersus and a solid start for more niche titles in the West like Xenoblade Chronicles and a Digimon visual novel.

Now, August is when things will really pick up on the premium software side. It’s the perennial start of the games industry’s commercial swell before pushing into the pre-holiday competition.

As it does every year, a new Madden game will kick off the late summer sales rush. Madden NFL 23 fully launches today from Electronic Arts, featuring the late great John Madden on its cover. Regardless of its reviews and reception, this franchise will always be a commercial juggernaut leading into the football season. I’m expecting it to lead August’s ranks, and easily at that.

The other brand new AAA launch for August is Saints Row incoming next week on a multitude of platforms. Volition’s latest in the long-running open world franchise is a reboot this time, so it’s somewhat of a wild card when it comes to sales. I think it’s releasing at the perfect time, with no Ubisoft or Rockstar open world debuting alongside, which will provide a noticeable commercial benefit. Published by Deep Silver, I see Saints Row starting in the Top 5 on August’s overall software list.

Otherwise, Nintendo’s slate is light as a feather without any major games of note. Soul Hackers 2 from Atlus will be out soon, and I could see an appearance in the Top 15. PlayStation also launched its Marvel’s Spider-Man Remastered on PC, which could very well fling back onto the charts.

Considering how stock might go, I’m forecasting another PlayStation 5 dollar sales lead in August. July’s numbers and anecdotal evidence all show a continually improving supply situation for Sony and its peers. Plus, a major multi-platform sports title like Madden hitting market means there’s going to be more casual folks yearning for the hottest new generation console. That said, I’ll wager Nintendo Switch keeps its unit sales win streak alive even without any first party bangers.

That’s a wrap on this past month’s analysis. I highly recommend checking out Piscatella’s thread on social media here because he highlights more on the platform side and various details. As always, thanks for visiting. Be safe and healthy out there!

*Digital Sales Not Included, ^Xbox & Nintendo Switch Digital Sales Not Included

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

Sources: Bandai Namco, Sony Corp, The NPD Group.

-Dom

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

Elden Ring Retains Top Spot for Software as Total Spending Declines Again in June 2022 U.S. Games Industry Sales Report

The first half of 2022 is in the books, and the year’s best-selling premium game Elden Ring has repeated as the top software amidst another downward slide in consumer spending.

Based on today’s monthly sales report from tracking firm The NPD Group, FromSoftware’s masterpiece has led the premium ranks every month since launch in February except for one.

This sort of early success, even for the premium soulslike developer, is truly remarkable. Plus, it’s mostly unpredictable even for the most bullish of analysts. Including me!

Speaking generally on the industry, while June wasn’t as quiet as May, it’s still been a chill start to the summer. Overall spend dipped double-digits again in June, marking eight consecutive months of declines. Subscription growth couldn’t outpace headwinds from most other categories. The first half of 2022 was no different for total market spending, coming in 10% lower than last year.

Two of the major segments, Content and Accessories, also declined double-digits. Hardware performed the best from a percentage standpoint, even if still down. Better PlayStation 5 inventories and the lower cost Switch helped stabilize a bit. Perhaps even the Steam Deck?

As I’ve said in recent articles, these reversions to more normalized spending are expected this year as we exit quarantine highs and suffer from the worst inflation in decades. It’s eroding buying power, which hurts when combined with limited supply on the hardware front and fewer premium launches.

Within the broadest category of Content, mobile spending fell albeit at a slower pace than May. Earlier titles Elden Ring and Lego Star Wars: The Skywalker Saga led the premium charts, while Mario Strikers Battle League debuted in the Top 3. There were five new entries among the Top 20 best-selling games.

There was a flip in Hardware that’s actually quite noteworthy. PlayStation 5 took the reigns in June as the best-selling console by dollar sales. Not only that, it also led first half of 2022 by this metric, stealing it away from the Xbox Series X|S family which was in the lead until now. This indicates Sony secured enough production to satiate more demand, not to mention its premium price point boosting that monthly revenue figure.

Speaking of the first half, the biggest factors right now for domestic spending on games are mean reversion from earlier parts of the pandemic, rampant inflation, availability of hardware at retail plus minimal premium games. Subscriptions and ongoing content aren’t enough to push spending towards growth. It’s a cooling off period compared to recent history for this variety of reasons, as the broader economy signals a looming recession. In fact, we might already be there.

What about the numbers behind these trends? It’s time to look deeper into June’s report.

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

Overall sales in June across all gaming categories settled at $4.34 billion, or 11% behind the same month in 2021. This figure is off 10% when expanding to the first six months of 2022, aggregating to $26.27 billion against last year’s $29.29 billion.

Underlying the decrease was lower spending in all segments during both time frames, as displayed in the gallery above. Silver lining is June’s lack of growth wasn’t as bad as March or May, when it shrunk 15% and 19% respectively.

Spending on Content (i.e. software, subscriptions, mobile and related areas) in June saw a similar 11% reduction, to $3.79 billion. During the first six months of 2022, Content spend declined 10% to $23 billion. Which means it comprised 87% of the monthly total and 88% of 2022 to date.

The bright spot here of subscription growth was bolstered by Sony’s PlayStation Plus rebranding attracting users to sign-up or upgrade existing plans. It displays the importance of subscriptions like this and Xbox Game Pass in propping up lulls in mobile and other content offerings.

Last month, mobile decreased nearly 11% which actually improved from the 13% dip in May. Google Play is driving this sub-segment downward, while App Store spending actually rose slightly for the first time since back in February. Very slightly, at 0.16%. Hey, it’s still growth!

This contraction in mobile is backed up by a recent report from Sensor Tower, a tracking firm that collaborates with The NPD Group for these monthly data drops, that global spending on mobile is trending down 7% so far.

Premium title activity picked up in June with some new arrivals. Still, the highest positions were occupied by familiar faces.

Namely Elden Ring, which continues its phenomenal first few months. It topped June’s overall software list, meaning it’s led every month since release except for April. The Bandai Namco-published game continues as best-seller for both 2022 and the latest 12-month period. The legs on this game are ridiculous. It’s maiden them a lot of money!

After Lego Star Wars: The Skywalker Saga in second, we see the Switch in full effect. Mario Strikers Battle League kicked off its placing in 3rd during its initial month on sale, and led the Switch platform list. In fact, Nintendo published 4 of the Top 8 best-sellers on June’s combined list as recent titles like Nintendo Switch Sports and Kirby and the Forgotten Land stuck around. And might have been higher if Nintendo included digital sales.

A number of June releases settled outside the Top 10. F1 22, Fire Emblem Warriors: Three Hopes, Sonic Origins and The Quarry all started in this range.

Then there’s a couple legacy titles re-entering the Top 10 as Overwatch captured the 5th slot and Final Fantasy 7 Remake grabbed #9, impacted by sequel news for both franchises. These worked to push Call of Duty: Vanguard out of the Top 10, a rare sight for the series published by Activision Blizzard whose top executives fostered an environment of misconduct and harassment for years yet still haven’t been punished for it. (They probably never will.)

“In my opinion, it’s the lack of compelling new content that is holding back premium sales right now,” said The NPD Group’s Mat Piscatella on Twitter. “New games that reach market are doing very well, there are just fewer of them. We also had the PlayStation Plus relaunch in June, which gave a nice kick to overall subscription spend in the month.”

As for the 2022 overall chart, there was no movement within the Top 10. Elden Ring, Lego Star Wars: The Skywalker Saga and Pokémon Legends: Arceus continue as the year’s biggest commercial successes.

See below for a full rundown of June and 2022 software rankings.

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

  1. Elden Ring
  2. Lego Star Wars: The Skywalker Saga
  3. Mario Strikers Battle League*
  4. MLB The Show 22^
  5. Overwatch
  6. Mario Kart 8*
  7. Nintendo Switch Sports*
  8. Kirby and the Forgotten Land*
  9. Final Fantasy 7: Remake
  10. Minecraft
  11. Call of Duty: Vanguard
  12. F1 22
  13. Monster Hunter Rise
  14. Demon Slayer: Kimetsu no Yaiba: The Hinokami Chronicles
  15. Super Smash Bros. Ultimate*
  16. Fire Emblem Warriors: Three Hopes*
  17. Sonic Origins
  18. Pokémon Legends: Arceus*
  19. The Quarry*
  20. Marvel’s Spider-Man: Miles Morales

Top-Selling Games of 1st Half of 2022, 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. Call of Duty: Vanguard
  7. Gran Turismo 7
  8. Kirby and the Forgotten Land*
  9. Mario Kart 8*
  10. Madden NFL 22
  11. Nintendo Switch Sports*
  12. Minecraft
  13. FIFA 22
  14. Marvel’s Spider-Man: Miles Morales
  15. Monster Hunter Rise
  16. Animal Crossing: New Horizons*
  17. Super Smash Bros. Ultimate*
  18. Mario Party Superstars*
  19. Call of Duty: Black Ops Cold War
  20. Dying Light 2: Stay Human*

As for the category with the best year-on-year performance in June, or should I say the least severe decline, Hardware moved down 8% to $371 million. That means first half of 2022 spending on consoles totaled $2.13 billion, or 9% lower than last year’s result of $2.36 billion.

We’ve talked supply to death, and that’s certainly the driver here in addition to some other points I mentioned earlier. There is some good news, in particular for Sony, in that inventories are popping up here and there on both manufacturer storefronts and retailer shops alike. Nintendo Switch availability looks consistent as well.

Sony’s increased production led to PlayStation 5 taking the lead on dollar sales in June as it benefited from a double-digit spending increase. While a month doesn’t make a trend, this sort of data point is positive in this environment. And we’ll certainly take what we can get these days. For the month, Nintendo Switch came in second place by revenue.

Increased availability bumped Sony’s current generation box to win the first half of 2022 by dollar sales. Microsoft’s Xbox Series X|S family, which was leading up until last month, is currently the runner-up.

When using unit sales as the benchmark, Nintendo Switch won June followed by PlayStation 5. Switch also leads units for the year to date, with Xbox Series X|S next up.

Got all that? Hah. I know it’s a lot to sort out when looking at hardware from these multiple angles. I wrote last month that the data points to PlayStation 5 and Xbox Series X|S being very close when using revenue as the indicator, which is supported by Sony taking home June and moving into pole position for 2022. I’d imagine the gap is quite minimal in the scheme of things, and can turn based on whose supplies are producing more because both of these have premium price points.

Switch is consistently competing on units, though generating less revenue than its counterparts which is the logical outcome. It, like PlayStation really, also relies on major first-party titles more because they aren’t available anywhere else. Much less so than Xbox Series X|S which continues Microsoft’s mission of subscriptions and services.

Pushing into Accessories, this felt the worst hit of lower discretionary income and normalizing of buying on the consumer side as it experienced the worst declines of the three major categories.

Spending here on game pads, headphones and similar peripherals lowered 15% in June to $176 million. It saw a 14% decline during the year’s first half, totaling just over $1 billion compared to $1.22 billion during 2021 H1.

After Sony’s DualShock 4 led at least a couple months, the current generation PlayStation 5 DualSense is back as the month’s top-seller. This time, it’s the Midnight Black iteration of the DualSense that took home first place.

Expanding further, Microsoft’s Xbox Elite Series 2 Wireless Controller continued as the best-selling accessory of 2022 currently. Which has been the case most of the year because of the higher relative cost per unit.

The domestic games industry bounced back a bit in June after a two-year spending low in May, showing occasional bright spots in areas like subscriptions, newer premium titles and a current hardware cycle that’s fighting the best it can against supply push-back.

Subscription spending is showing strength. Elden Ring can’t be stopped and five new games on the overall chart are propping up Content amidst softening areas like mobile. Even if the new games aren’t the biggest of commercial hits.

It does feel like the market is yearning for massive new AAA titles in this year of so many game delays, a sentiment echoed by Piscatella’s earlier comments. Game development is difficult in any environment, and teams are still adjusting to the new normal of hybrid working. Not to mention there are still coronavirus variants impacting many countries, plus people are contracting the virus for the second time. It’s a precarious situation, and I give developers credit for hanging in there right now.

Considering this, the calendar is now shaping up for the back half of 2022.

PlayStation seemingly locked in The Last of Us Part 1 remake for September plus God of War Ragnarök for its early November slot. Ubisoft’s collabo with Nintendo in Mario + Rabbids: Sparks of Hope is October, while the French publisher’s Skull and Bones is slated for November as well. Nintendo has Splatoon 3, Bayonetta 3 and Pokémon re-imaginings all before the holiday season. Gotham Knights, Saints Row reboot and, of course, the second Call of Duty: Modern Warfare 2 have been positioned later in the year for a while now.

Before then, July is going to continue as a mostly dry summer month on the premium side. F1 22 will have a full month of sales on record. Stray is an intriguing indie title from Annapurrrrrna Interactive (had to do it), also hitting PlayStation Plus simultaneously next week. As Dusk Falls is a narrative adventure and Xbox console exclusive. Baldur’s Gate: Dark Alliance 2 is out soon on all major platforms, while Live a Live finally reaches the States via Switch. The month’s biggest drop is probably Xenoblade Chronicles 3 also on Switch, though it will only have two days in the period.

With this light of a schedule, I’ll stand behind Elden Ring as July’s top earner again. I can see Xenoblade establishing a Top 5 finish.

Within the Hardware segment, I’m upbeat on PlayStation 5 after its June performance and seeing more stock via anecdotes and retailers online. I think it takes the first month of 2022’s back half on revenue, while Switch stays atop the console charts on units.

July also brings the start of my favorite time of the quarter: earnings season! Before we reconvene for the next monthly NPD sales report, I’ll have articles covering the earnings calendar and major company results.

In the meantime, shout out to Piscatella’s thread on Twitter covering today’s report. I hope everyone has a great rest of the month, feel free to send a comment here or on social media. Be safe and well!

*Digital Sales Not Included, ^Xbox & Nintendo Switch Digital Sales Not Included

Comparisons are year-over-year unless otherwise noted.

Sources: GameDaily.Biz, The NPD Group, Venson Chou (Image Credit).

-Dom