Key Points

• Nintendo Wii to remain the number one selling home console despite Halo 3
• PS3 exclusive titles do not move PS3 hardware units
• PSP Lite sales are growing the portables market, not cannibalizing DS sales
• PS3 price cut or new model is still expected by the prediction market
• Halo 3 sales not affected by PS3 hardware news or PS3 exclusives
• The Legend of Zelda: Phantom Hourglass to sell nearly 1 million copies in two months in a market where casual gamers have diversified interests

This report serves as an introduction to a new series of analyst research articles offered by The simExchange Research. These reports are intended to aid industry professionals in recapping the month's video game sales and offer insight on the current and expected trends in the video game industry.

The simExchange Research can offer the industry a unique perspective through its interpretation of market activity on The simExchange video game prediction market (www.thesimexchange.com). Gamers, developers, and industry investors trade virtual video game stocks and futures to predict how video game SKUs will sell within an NPD monthly reporting period or over the title's lifetime globally.

Results based on NPD data have consistently shown that The simExchange prediction market can predict results not only more accurately than industry analysts but also more quickly adjust forecasts based on industry news. Our analysis will also include information and insight from the retail community, development community, investment community, and other industry professionals.

The simExchange's Market Predictions

Correction: The chart previously indicated a forecast of 180,000 units for Madden NFL 08 (PS3) when it was supposed to be 108,000 units.

• US Hardware in September 2007

  Title	Predicted unit sales
  Xbox 360	423,000 units
  PLAYSTATION 3	164,000 units
  Wii	485,000 units
  Nintendo DS	501,000 units
  PlayStation Portable	284,000 units

• US Software in September 2007

  Title	Predicted unit sales
  BioShock (Xbox 360)	292,000 units
  Brain Age 2 (DS)	182,000 units
  Halo 3 (Xbox 360)	2,980,000 units
  Heavenly Sword (PS3)	182,000 units
  Lair (PS3)	95,000 units
  Madden NFL 08 (Xbox 360)	250,000 units
  Madden NFL 08 (PS3)	108,000 units
  Metroid Prime 3: Corruption (Wii)	267,000 units
  Skate (Xbox 360)	150,000 units
  Stranglehold (Xbox 360)	249,000 units
  The Legend of Zelda: Phantom Hourglass (DS)	385,000 units

Hardware Sales

Hardware sales in September are expected to be similar with sales in August, with consideration of the fact that September is a five-week retail month. Despite the release of Halo 3, the title forecasted by the prediction market to be a dramatic console mover in September, the Nintendo Wii still successfully holds the number one spot for home consoles again at an expected 485,000 units sold. A close second is the Xbox 360 at 415,000 units and finishing in third place once again is the PS3 at an expected 164,000 units. This would be the third straight month that the Wii, Xbox 360, and the PS3 followed this market share breakdown in the home console market. Trading on the prediction market predicts similar trends continuing into the holidays. Currently, trading for October predicts the same market share breakdown as recent months for each system.

Prediction market expectations for handheld hardware are expected to be 501,000 units for the Nintendo DS and 284,000 units for the PSP. Although the Nintendo DS has dominated the handheld market for some time, the prediction market forecasted an increase in October sales for the PSP when the PSP LITE was announced. The forecast of the Nintendo DS was unaffected. This implies that consumers purchasing the PSP LITE either already own a PSP and are upgrading or have been holding off their PSP purchase until the release of the PSP LITE. We concluded that the introduction on the PSP LITE is growing the handheld market and not steering consumers away from the Nintendo DS.

PS3 Price Cut / PS3 40GB Model

Rumors of a PS3 price cut, software bundling, and the release of a new cheaper PS3 model have been circling the Internet for months. There were expectations for a PS3 price cut at this year's TGS show in Tokyo but no such announcement was made. The PS3 future for October and its lifetime stock did not show any significant changes after the TGS show and also did not show any significant changes as rumor were leaked about a possible new introduction of a 40GB PS3 SKU. This indicates that the prediction market is still expecting some sort of price reduction for the PS3 hardware in the near future. Trading also predicts that if such an announcement is made officially, no significant changes in PS3 sales should be expected. The prediction market's current forecasts for October and November are at 151,000 units and 292,000 units, respectively. These figures are taking into account the possibility of a cheaper PS3 model.

Xbox 360 software bundling

Microsoft recently announced a new holiday Xbox 360 bundle to include Marvel Ultimate Alliance and Forza Motorsport 2. After the announcement, the prediction market dropped October's expectations by 10,000 units. The prediction market was aware of the software bundling back in September, but expected an early to mid October release, which explains the small decrease. Current expectations for October and November are 309,000 and 493,000 units, respectively. Given all the recent news and trading in the market, it is apparent that consumers have already made up their choice as to which system(s) they plan on purchasing this season. There is no cost effective strategy that either Sony or Microsoft could implement this late in the season to change the minds of the consumers. The prediction market expects the current home console trend to continue through the holiday season with the Wii leading the pact followed by the Xbox 360 and then the PS3.

Wii Outsells Xbox360

It is typical to see a slowdown in sales for a console during a month of no major releases. It is also likely that other consoles would be affected by a major release on another system. In September, the Nintendo Wii was in such circumstances. Despite a weak release schedule, Halo 3, and a continued hardware shortage, the prediction market is once again forecasting the Wii to be the top selling home console in September.

Software Sales

Software sales for September are expected by the prediction market to be $630 million, compared to $446 million in the same month last year. This equates to a 41% increase in sales year-over-year. Sales were strongly driven by the major release of Halo 3 and The Legend of Zelda: Phantom Hourglass. Also the continued strong performance from titles like Madden and BioShock also drove sales to these record levels.

Future Software Sales

Currently the prediction market is expecting strong software sales for October with $554 million which would be an increase of 50% percent over last year. Sales again are going to be driven by the continued success of Halo 3, BioShock, Madden, and The Legend of Zelda: Phantom Hourglass. New comers are also expected to add to the success: Guitar Hero III, Project Gotham Racing 4, Ratchet and Clank, Manhunt, and Half-Life's Orange Box are just some of the major titles being released in October.

Halo 3

To no surprise, the prediction market expects Halo 3 to be the number one selling game in September at 2.98 million units. Rumors of another PS3 price drop, the PSP LITE announcement, the release of Heavenly Sword, and Lair for the PS3, and the success of BioShock on its own system did not affect the trading range of the Halo 3 lifetime sales stock and its September NPD future. This would suggest that solidarity of sales and loyalty for Halo 3 was so strong that no other news could impact the prediction market's expectations of Halo 3.

To continue last month's analysis on the relationship between Halo3 and the Xbox 360, the following table shows Xbox 360 sales for the last 3 months including the markets expectation for October.

• Xbox 360 Sales

  	July	August	September	October
  Units	170,000	276,000	423,000	306,000
  M/M $ Increase		62.35%	53.26%	-27.66%

The table shows increasing month-over-month sales as we lead into the Halo 3's release with it finally showing a month over month decrease in October, which of course, is to be expected.

Lair and Heavenly Sword

The PS3 had two exclusive AAA titles in September: Lair and Heavenly Sword. These titles are expected to sell 182,000 units and 95,000 units respectively. The previous table represented Halo 3's ability to drive Xbox 360 hardware sales, the following table shows PS3 sales over the last 3 months including the upcoming October month.

• PS3 Sales

  	July	August	September	October
  Units	159,000	130,000	164,000	151,000
  M/M $ Increase		-18.24%	26.15%	-7.93%

The trading of these two futures contracts indicate that the prediction market believes that these titles are not driving hardware in a way typically expected from exclusive titles. Also, the table indicates that sales of the PS3 are less volatile than those of the Xbox 360, to what titles are released. This begs the question, what kind of exclusives for the PS3 is necessary to drive hardware as Halo 3 did for the Xbox 360? This subject will be revisited in the coming months as we approach more PS3 exclusive titles.

The Legend of Zelda: Phantom Hourglass

The prediction market is expecting 385,000 units in September with a follow up of 519,000 units in October. Nearly a million units in two months on a handheld system dominated by users in the "casual" market is a pretty impressive achievement. We believe the prediction market is expecting high sales for this Zelda title due to its originality as previous handheld Zelda titles have been remakes or ports of previous released version from other systems (NES/SNES). The prediction market is expecting Phantom Hourglass to be one of the top 10 selling individual SKU's this holiday.

Rock Band vs. Guitar Hero

We recently began trading contracts to forecast a game's quality with our Metacritic Futures. These Metacritic futures can gauge how great of a game the new comer Rock Band will compare to the reigning champion Guitar Hero III. Currently, the market expects a higher Metacritic score for Activations' Guitar Hero III over EA's Rock Band, 91% to 89% respectively (Xbox360). For the other platforms, Guitar Hero III is expected to achieve Metacritic scores no lower than 88%.

Typically, it takes a critically acclaimed newcomer to overcome the incumbent in niche markets, or even achieve a survivable piece of the market. The prediction market presently anticipates Guitar Hero III to sell 358,000 units in October compared to Rock Band's 239,000 units in November (Xbox 360). Given the month lead Guitar Hero III has and the projected higher review scores; it would take a strong marketing campaign by EA to convince consumers to hold their purchases until Rock Band's release.

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About The simExchange

The simExchange (www.thesimexchange.com) is the online prediction market for video games. Launched in November 2006, The simExchange allows thousands of gamers, developers, and industry watchers to forecast the video game industry. Participating in The simExchange is completely free and no real money is involved.

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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