From the February 1997 issue of VideoGame Advisor.

Nintendo 64 Ships 4 Million Units, Grabs Top Spot for December

By David English

REDMOND, WA—Nintendo caught up with Sony with an avalanche of hardware sales in December. According to preliminary data from The NPD Group, the Nintendo 64 grabbed first place with 40% of sales, the PlayStation took second place with a close 36% of sales, and the Saturn took a competitive third place with 23% of sales in the final month of the year. NPD's Ryan Brock says Nintendo's strong performance brought it virtually neck-and-neck with Sony in sales for the entire year. In all, Nintendo claims to have shipped more than 4 million Nintendo 64 units, with just under 1.9 million units shipped domestically within Japan and more than 2.1 million units shipped to the U.S.

The Nintendo numbers are especially impressive in light of the widespread shortages in December for both hardware and software. "We started out last year with a capacity for only about 500,000 units a month total, which had to be parceled out between Japan and the U.S.," says George Harrison, vice president of sales for Nintendo of America. "That's up to just over 700,000 units a month now. That's still supplying both Japan and the U.S., and we're preparing to launch Europe in March. It's definitely increasing, but the consumer demand was so great, it would have been almost impossible for us to forecast."

On January 6, Sony announced it had sold more than 10 million PlayStation game consoles since it began shipping units in December 1994. Sony had estimated in early December that it would sell more than 3 million units in 1996. Sega's performance may have been the biggest surprise of all. Many analysts had written off the Saturn, but the company's free-games promotion kept the company competitive for the holidays. "If you're a mother or father, and you're buying your child a next generation system, and you see a Nintendo 64, PlayStation, and Saturn—all at the same price, and you're getting three games with the Saturn—from a parent's perspective that's an attractive offer," says Brock.

Not surprisingly, software sales for the Nintendo 64 trailed those of the PlayStation in December. Brock estimates that the PlayStation accounted for more than half of the software sales, with the Nintendo 64 pulling in around 30%, and the Saturn grabbing about 15% of sales. Harrison says sales of Super Mario and the Nintendo 64 were virtually "one-to-one," and he projects that the eight titles that were available at the end of 1996 will grow to 40 to 50 titles by the end of 1997.

In defense of the limited number of Nintendo titles, Harrison points out that sales of PlayStation software are highly concentrated among the top ten titles. "While they have hundreds of titles out there, I'm sure there are several publishers who are facing returns or steep markdowns as they try and get rid of inventory," explains Harrison. "As we've looked at it over the past several months, 60% or almost two-thirds of their volume was concentrated in their top ten titles."

While arguing quality over quantity is always a good strategy for a company with fewer titles, it does put pressure on Nintendo to come up with hit after hit. "That's a tough thing to do," says David Cole, an analyst with DFC Intelligence. "If you look at Sony and Sega, their ratio of bad titles to good titles is probably 4-to-1 or 5-to-1. If you have 100 titles, maybe only 10 of them are good, but if you have 10 titles, all 10 of them had better be good. If Nintendo is going to release 40 to 50 titles this year, they're going to have to do much better than that 10% rate of quality." Because it's hard to predict which titles will do well, Nintendo's strategy is more risky, though it could pay big dividends in customer loyalty if successful.

A related problem for Nintendo is the cost of its cartridge-based software versus Sony and Sega's disc-based software. "There's a lot of room for Sony and Sega to come in and say 'We have a system that's a lot more cost effective because you have all this software priced in the $20, $30, and $40 range. Whereas with the Nintendo 64, you'll be paying $50 to $80 every time you want to buy a software title,'" says Cole. Consumers don't generally think about future software costs when they choose a machine, so Nintendo may have enough time to build up its market share before Sony and Sega can educate consumers about Nintendo's overall system cost. Higher cartridge costs and tighter control from Nintendo could also discourage third-party developer support, which puts pressure on Nintendo to develop a higher percentage of hits for its own platform.

Despite having fewer titles than the competition, Nintendo will continue to emphasize its software rather than the platform itself. "It's still our intention to have people do exclusive titles, or at least have an exclusive window on the title that they develop," says Harrison. "Our history in the 16-bit wars with Sega showed us that consumers began to blur the distinction when many titles were coming out on both platforms at the same time." Nintendo was forced to fight back with an ad campaign that emphasized which titles were available exclusively on the SNES. The company also placed "Only on Nintendo" labels on some of its packages.

How are the three companies likely to fare throughout the rest of the year? Cole says that Nintendo and Sony can count on at least 30% of the market—with the remaining 40% up for grabs among all three companies. "The main issue is whether Sega can have a comeback—and that's a very real possibility."

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