The NPD Group will always be “irrelevant”

A popular story last week was a statement made by EA’s Labels president Frank Gibeau on the NPD Group’s sales tracking:

My point is it’s an irrelevant measure on the industry. It’s totally irrelevant. We don’t even really look at it internally anymore.

Statements like this have been pretty common over the years from both gamers and industry insiders alike. The game industry has changed since the year 2000. More and more people are buying games online instead of in stores. On top of that games have grown outside of the US and Japan. There is a massive games market in China. The European games market is now bigger than the US games market. Back in 2000, the NPD Group’s reports were capturing about 80% of the games market. These days they are only around 40% of the market. You could say 80% was representative of the market, but at 40%, that is no longer the case.

A lot of people are criticizing NPD Group for this. I mean how can they keep releasing reports and getting the media into a frenzy every month when their reports are not representative? Well, the NPD Group is not stupid. They know digital sales information is desired, and they want the information too. The problem is this information not available. I do not think it will ever be available. You see, there are not enough middlemen in digital sales.

In the retail sector, there are publishers and retailers but also shippers and manufacturers. If a publisher does not release retail sales data, the NPD Group can turn to the other three, the middlemen, to get a good picture of the overall sales. With digital sales there is no need for shippers and manufacturers. Consumers just download the games. Without that information, they really cannot do any analysis on digital sales.

Online there is the digital storefront middleman. Websites like Steam, Gamersgate, Green Man Gaming, and Good Old Games all exist as middlemen in between the publisher and the consumer. So far, however, they have been reluctant to release sales information. I believe this is because they do not want people to see how much money they are really making, lest the market become flooded with copycats and they make less money, but even further down the road, these middlemen will not exist either.

There is nothing stopping publishers from making their own digital storefront. Consumers can access their storefront just as easily as a middleman storefront. There is no place for the middleman in that situation. We already see this with EA’s Origin. For the most part EA games sold online are exclusive to Origin. You might be able to buy them on other websites, but you have to activate and play them through the Origin client. Eventually, all games will be exclusive to their respective publisher’s platform.

As you know publishers are big marketers. When a game sells well they are happy to make a big announcement on the success, but when a game sells poorly, you do not hear a peep from them. So NPD Group cannot get information from the middlemen right now. Even if they could get access to this data someday, it will not make a difference. Publishers will force those middlemen out of business eventually, and publishers will never release detailed sales data on all their games.

The NPD Group has no options here. They either continue what they are doing reporting retail sales only, or they abandon game sales tracking and focus on the other industries they analyze. I think retail sales do have their place though. Even if retail sales go down to 10% or 20% of the market, they can still show some trends in the industry. Just know that we will never have an accurate overall picture of the industry.

Why Skyrim Sold Better Than Oblivion

Recent reports peg Skyrim with 7 million copies shipped (3.5 million sold) in the first two days. That’s not nearly as good as Modern Warfare 3’s 12.3 million shipped (6.5 million sold) in one week or even Battlefield 3’s 10 million shipped in five days (5 million sold), but Skyrim’s numbers are way better than you would think.

Let’s compare Skyrim’s sales to Starcraft 2’s sales. Starcraft 2 sold 1.5 million copies in the first two days. By the end of the month (30 days) it had sold 3 million. So from two days to one month, Starcraft 2 sales roughly doubled to 3 million. If we assume Skyrim, another immensely popular title, also doubles it’s sales by the end of the month, Skyrim will sell 7 million copies by the end of the first month.

Now we can compare it with Oblivion more easily. Looking at this old Gamespot report shows that Oblivion sold 1.7 million copies in 21 days. We can make another assumption here that within 30 days it sold another 300,000 copies to put Oblivion at 2 million copies in one month. Doing the math here, we can see Skyrim is likely to sell 3.5 times as many copies as Oblivion did, but what about the growth in the game industry? Could there just be 3.5 times as many gamers now and the popularity is roughly the same?

The video game sales reports have the answer. I found the Entertainment Software Association to have a lot of good information on this. According to their Video Games in the 21st Century (PDF) report, 2006 annual video game retail sales, the same year Oblivion was released, were $7.4 billion. They don’t have any data for 2011 annual sales yet. The year is not even over yet, but they do have 2010 sales. Their Sales and Genre webpage puts the numbers at $15.9 billion retail sales for 2010. So the game industry has grown by 2.06 times from 2006 to 2010.

If you’ve been paying attention to the game sales reports this year, the sales have been down overall compared to 2010. In fact the NPD Group, the game sales tracking firm, expects 2011 game sales to be from 1% to -2% growth for the year. That means the 2011 figures should end up very close to the 2010 figures, and we can use the 2006 to 2010 growth as a good estimate for 2006 to 2011.

So in reality, Skyrim sales have actually increased quite a bit relative to the growth of the industry. Skyrim is more popular than Oblivion, and the reason for that is a combination of good luck and good timing. Think about it. The highly anticipated RPGs this year (not counting MMOs) were Dragon Age 2, The Witcher 2, Skyrim, Mass Effect 3, Diablo 3, and to a lesser extent Torchlight 2.

Mass Effect 3, Diablo 3, and Torchlight 2 were all delayed to 2012. All three of those were originally planned for Fall release, the same time as Skyrim. Bethesda Softworks got very lucky with that. Then, there was only Dragon Age 2 and The Witcher 2 as competition for 2011. Dragon Age 2 was a generally considered a disappointment. The Witcher 2 was well received by both reviewers and fans. but released back in May, outside of any real competition with Skyrim. Up to Skyrim’s release, hungry RPG gamers only really had The Witcher 2. There was a lot of pent up demand for a new RPG to dig into. Skyrim released at the perfect time.

Skyrim sold much more than Oblivion, even taking into consideration the growth of the game industry (the increase in gamers). The year started with six high profile RPGs expected to release in 2011. Three of them were delayed into 2012. That left only Dragon Age 2, a disappointment that gamers avoided, and The Witcher 2, released a full six months before Skyrim. Through good luck and good timing, Skyrim did much better than Oblivion. Bethesda Softworks will be have to work mighty hard to top Skyrim when they eventually make The Elder Scrolls 6.