Aug 2010 NPD wrapup

If you recall last month I was a little late on my wrapup of the July data. It's been a busy September (now October) but I finally have a little time to get to it. One thing to note now, NPD will no longer be publicly releasing unit sales of the top 10 or even top 5 titles. That's kind of a bummer because it lets us do some interesting quantitative analysis. NPD will also no longer be publicly reporting monthly hardware sales. That's an even bigger bummer. That said, here is what they reported for Aug 2010 with some data that was released:

Top 20 titles ( with ~ units data that was revealed):

1. Madden NFL 11 Xbox 360 ~ 900k

2. Madden NFL 11 PS3 ~ 900k

3. Super Mario Galaxy 2 Wii ~ 124k

4. Mafia II Xbox 360

5. New Super Mario Bros. DS

6. New Super Mario Bros. Wii Wii

7. Mafia II PS3

8. Call of Duty: Modern Warfare 2 Xbox 360

9. NCAA Football 11 Xbox 360

10. Wii Fit Plus Wii

11. Just Dance Wii

12. Red Dead Redemption Xbox 360

13. Pokemon SoulSilver Version DS

14. Madden NFL 11 PS2

15. NCAA Football 11 PS3

16. Wipeout: The Game Wii

17. Mario Kart Wii w/Wheel Wii

18. Dragon Quest IX DS

19. Call of Duty: Modern Warfare 2 PS3

20. Mario Kart DS DS

Industry Gamers had a nice quote from NPD analyst Anita Frazier:

"Last August, we didn't see as big of a sales gap between the first and second best-selling games," added Frazier. After Madden NFL '10 last year, we had both Wii Sports Resort, and Batman Arkham Asylum, which both sold over 500K units in August 2009. This year the top 10 games sold 3.3 million units as opposed to 4.1 million for the top 10 last year."

I guess that's true, but my assumption is she means the top 10 cross platform titles. Anyway, based on the May 2010 released Super Mario Galaxy 2 selling 124k units, I'm a little bummed Mafia II sold less than that on both the 360 and PS3 (based on the order of the list above). This basically means that for Mafia II in the US, it will likely sell less than 1.5 or 1.6 million units total across both platforms for its full life cycle. That's a little scary, as worldwide that means it might sell 2.7 million units when all is said and done? (More on that below.) It might even sell less. Let's assume 2.5 million units worldwide. Further, assume the weighted average wholesale cost is around $40 after taking into account eventual price drops discounting. Subtract out roughly $12 / unit in 1st party royalties. That leaves about $28 to Take 2. $28 x 2.5 million = $70 million.

On paper, $70 million in nominal net revenues after royalties over life of products sounds pretty good for a relatively small title. So how much did Mafia II cost to develop? It was first announced in Aug 2007 at Leipzeig GC and was developed by Illusion Softworks that became 2K Czech. So that puts the dev cycle at at least 3 years, but most titles aren't announced until they are at least 6 to 12 months into development. In that case, assume it took 3.5 years to develop the game, or 42 months of dev time.

So what was their burn rate per month? We'd need a lot of info on that, but we can guess at the average number of staff working on it over those 42 months and the average cost of each of those staff. So by that "gorilla math" I'm going to guess the burn rate on development was $500,000 when factoring in all the payroll, overhead, indirect labor and other associated costs. At 42 months that's $21 million in development costs. If the average burn rate is higher (yes, even accounting for ramp up and ramp down) and the length of development was actually more than 42 months, then this cost could easy go above $25 or $30 million. Or maybe it was lower.

But point is, the game still needs to sell through roughly 2.5 million worldwide units through its life to gross $70 million at retail. Can it really get there? While the revealed data above does not tell us Mafia II's exact month 1 unit sales, we can infer at most on the Xbox 360 that it was 124k units. Let's assume on the 360 it sold 120k units and on the PS3 it sold 110k. units. That's 230k unit in month 1 in the US. For a lot of core genres, including Action and Action/Driving-Hybrid, the US is typically 50% to 65% of the worldwide market for 360 and PS3 games. Let's assume it's only 50%. That would imply the worldwide month 1 sales of Mafia II were about 460k units (230k US + 230k International).

In the long run, must console games sell about 25% of their units in the first month. If this ends up holding true for Mafia II, then it's projected LTD sales would be 1.84 million units. Hmm...that's a lot less than 2.5 million. At 1.84 million the $70 million gross at retail becomes $51.5 million. Assume the game cost $25 million to make. That leaves $25 million for worldwide marketing and GS&A and all other publisher overhead. Doesn't leave much of a margin.

Of course all of the above is gorilla math, but you can see that indeed the rising cost of development one of the major issues of our industry. Even if my numbers for Mafia II are all way off and in actuality it was much cheaper to develop the game than my estimate indicates, there are still plenty of games where that kind of cost is not unrealistic that will the same mediocre sales. That's a major problem, as it essentially implies that the only viable game content in the industry now are the mega hits like Halo, GTA, Call of Duty and the likes one one end and cheap products on iPhone, Facebook and value games on video game consoles.

Doesn't that make you smile? :-)