Key Points

• Hardware Results-PS3 Triumphs and The Wii Falls Short
• Call of Duty 4 Claims its Third Victory
• Burnout Paradise on Top for New Releases
• Super Mario Galaxy Underperforms
• Rocking It Out

Introduction

This report is intended to aid industry professionals and the press in drawing insight and discovering trends occurring in the video game industry through the use of the simExchange video game prediction market (www.thesimexchange.com), a data aggregation system in which gamers, developers, and industry investors trade virtual video game stocks and futures to predict how video game products will sell and how they will be critically received.

Total Software Sales

Total software sales came in at $610 million, an 11% increase over January 2007, even considering that January 2008 included one less week in retail accounting. These strong sales were driven by premium titles such as Call of Duty 4, Guitar Hero III, Rock Band, and newcomer Burnout Paradise.

The prediction market quickly priced in this news as February’s overall software sales expectations rose to $586 million, a 32% increase over last year’s $441 million.

Hardware Results-PS3 Triumphs and the Wii Falls Short

The biggest upset of the month is the PS3 triumphant victory over the Xbox 360, marking the first time the system has outsold its chief rival in the US since launch. Although, we do not know to what extent a hardware shortage played on Xbox 360 sales, it is likely the PS3 is beginning to change the tides on its rival. This assumption is implied by the prediction market’s February expectations, which forecasts the PS3 to outsell the Xbox 360, 289,000 units to 275,000 units, respectively. The most interesting aspect of this shift is that neither side had any exclusive titles nor hardware price drops in January. Possible factors amounting to this shift include Sony’s Blu-Ray gaining traction as the HD format of choice and Sony PS2 loyalists finally making the next-generation jump.

The Nintendo Wii posted dismal results in January, which at first glance may indicate a performance issue with its consumer demand that dominated 2007. Examing the forward looking data can explain the story. February’s expectations have decreased by 15%, down to 407,000 units since NPD released its data while March’s expectations have increased by 3% to 463,000 units. The prediction market is predicting decreased sales to persist through February but to return to normal in March. The market may believe that Nintendo will ensure sufficient supply to support its March North American release of Super Smash Bros. Brawl (Wii), currently forecast to sell 2 million copies in March. This implies a possible explanation for decreased Wii sales in January and February as being Wii hardware was diverted from the United States to support the Japanese release of Smash Bros Brawl.

Call of Duty 4 Claims its Third Victory

Already holding the crown for November and December 2007, Call of Duty 4 added another notch to its belt by claiming a victory in January with the Xbox 360 SKU taking the top spot. A repeat in February is unlikely as the prediction market is expecting Devil May Cry 4 for the Xbox 360 to sell 393,000 units and an increase in month-over-month sales for Call of Duty 4 is highly unlikely.

Burnout Paradise on Top for New Releases

Burnout Paradise led sales among new releases in January with the Xbox 360 version selling 144,000 units. This was inline with our estimate of 151,000 units, which was generated without the listing of an NPD Future for this title. This indicates that extrapolation of sales ratios between the GLS Stocks for different platform versions can be useful in predicting the monthly sales of platform versions that are not listed on the exchange.

This technique can also be applied to this month’s Call of Duty SKUs, which we only had a Xbox 360 version listed. Per our GLS stock of both SKUs, the Xbox 360 version is expected to outsell the PS3 version by a 2.72 to 1 ratio. Applying this to the 359,700 units forecasted by the Xbox 360 January 2008 NPD Future, we can predict the PS3 version sold 132,242 units, which is quite close to the actual 140,100 units. This new technique only adds to the many tools The simExchange can provide the industry for forecasting sales.

Super Mario Galaxy Underperforms

Super Mario Galaxy sold 172,000 units, well below market expectations. Given that Super Mario Galaxy makes a great tie in purchase for any new Wii owner, the dismal Wii hardware sales for January likely hindered sales of Super Mario Galaxy.

Rocking It Out

Guitar Hero III for the Wii led the month among all the Guitar Hero III and Rock Band SKUs with 239,600 units sold, 36% above market expectations. On the Xbox 360 side, Rock Band inched out Guitar Hero III, 183,800 to 182,700 units, respectively. These strong sales of both Rock Band and Guitar Hero III continue to support the theory that social gaming is emerging as one of the most prosperous genres for publishers in the industry.

• US Hardware in January 2008

  Title	Actual units	Expected units	% From Expected
  Nintendo Wii	274,000	396,900	-30.96%
  Nintendo DS	251,000	483,700	-48.11%
  Xbox 360	230,000	288,600	-20.30%
  PlayStation Portable	230,000	233,000	-1.29%
  PLAYSTATION 3	269,000	209,300	+28.52%
  Total Hardware Units	1,227,000	1,611,500	-23.86%

• US Software in January 2008

  Rank	Title	Actual units	Expected units	% From Expected
  1	Call of Duty 4: Modern Warfare (Xbox 360)	330,900	359,700	-8.01%
  2	Wii Play (Wii)	298,100	--	--
  3	Guitar Hero III: Legends of Rock (Wii)	239,600	175,900	+36.21%
  4	Rock Band (Xbox 360)	183,800	197,300	-6.84%
  5	Guitar Hero III: Legends of Rock (Xbox 360)	182,700	--	--
  6	Super Mario Galaxy (Wii)	172,000	391,800	-56.1%
  7	Burnout Paradise (Xbox 360)	144,100	--	--
  8	Call of Duty 4: Modern Warfare (PS3)	140,000	--	--
  9	Mario Party DS (DS)	138,500	--	--
  10	Mario & Sonic at the Olympic Games (DS)	133,000	154,400	-13.86%
  NR	Burnout Paradise (PS3)	83,000	110,900	-25.16%
  NR	Advance Wars: Days of Ruin (DS)	81,000	102,400	-20.9%
  NR	Kingdom Under Fire: Circle of Doom (Xbox 360)	52,000	80,300	-35.24%
  NR	Sonic Riders: Zero Gravity (Wii)	39,000	97,500	-60.00%
  	Total Tracked Software Units	1,314,300	1,670,200	-21.31%
  	Total Software Sales	$610.6 million	$523.1 million	+16.73%

*(Exclusive NPD Data provided to The simExchange in Blue)

Results based on NPD data have consistently shown that The simExchange prediction market can predict results not only more accurately than traditional models and surveys, but also more quickly adjust forecasts based on industry and product news.

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About Jesse Divnich

Jesse Divnich has been working in the video game industry for over 10 years. During that time he has assumed many professional roles including: beta tester, programmer, publisher analyst, and for the last 6 years, a private analyst and consultant for buy-side investment firms. Jesse Divnich has received many awards for his work in the private investment sector as an analyst covering publicly traded video game companies. Currently, Jesse Divnich has switched from the private sector to the public sector as an Analyst for The simExchange where he writes analytical articles on various industry topics.

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