Article: Japan - Games That Could Save the 360

[BenSkywalker]

Scooby claimed that MS had SOLD (I presume to consumers, though he may have actually been using the same shady language as MS) 5 million 360s, which is demonstrably false.

In the US consoles are not sold to retailers. They are moved to a distributorship and then shipped to retail locations- without money moving hands. When the system moves through the POS(point of sale) then the distributor and then the manufacturer are credited. Anything that is subject to very small margins and large price fluctuations tends to be handled the same way. There is an interest fee charged for the product being held(extremely small) for the timeframe between when a product hits retail and when it is sold through(as the asset is held up for that period of time).

The only viable shot MS has to take Japan is DragonQuest- that is the only audience with the level of fanatacism to go out and buy the 360 solely for that title. That would hand them ~20% of the Japanese market, and if they could also land FinalFantasy then they would be well on their way to making huge headway into the market. This isn't going to happen as MS is a shameful company in Japan. They laid people off while reporting corporate earnings in the billions of dollars for each quarter, they are disgraceful as a business. That kind of losing of face will assure that they aren't dealt with in a serious fashion by the major Japanese companies for many years.

In a realistic fashion MS should be far more worried about how incredibly poorly they are doing in their home market. They are behind the pace set with the original XBox despite being the only next gen console in town- last time they were up against a storming PS2 when they launched and the Cube which had decent support at the time.

http://videogamecharts.com/page3.html

MS is doing very poorly in the US right now, barely edging out what the Cube managed in the 360's strongest territory. In realistic terms MS should be focusing on what they can do to avoid losing Western developers with those kind of numbers.

 

[TheChefO]

In the US consoles are not sold to retailers. They are moved to a distributorship and then shipped to retail locations- without money moving hands. When the system moves through the POS(point of sale) then the distributor and then the manufacturer are credited. Anything that is subject to very small margins and large price fluctuations tends to be handled the same way. There is an interest fee charged for the product being held(extremely small) for the timeframe between when a product hits retail and when it is sold through(as the asset is held up for that period of time).

The only viable shot MS has to take Japan is DragonQuest- that is the only audience with the level of fanatacism to go out and buy the 360 solely for that title. That would hand them ~20% of the Japanese market, and if they could also land FinalFantasy then they would be well on their way to making huge headway into the market. This isn't going to happen as MS is a shameful company in Japan. They laid people off while reporting corporate earnings in the billions of dollars for each quarter, they are disgraceful as a business. That kind of losing of face will assure that they aren't dealt with in a serious fashion by the major Japanese companies for many years.

In a realistic fashion MS should be far more worried about how incredibly poorly they are doing in their home market. They are behind the pace set with the original XBox despite being the only next gen console in town- last time they were up against a storming PS2 when they launched and the Cube which had decent support at the time.

http://videogamecharts.com/page3.html

MS is doing very poorly in the US right now, barely edging out what the Cube managed in the 360's strongest territory. In realistic terms MS should be focusing on what they can do to avoid losing Western developers with those kind of numbers.

5 million units worldwide at $300-400 without a system seller is very poor eh?

 

[BenSkywalker]

5 million units worldwide at $300-400 without a system seller is very poor eh?

Less sales in its' "strongest" territory then the original XBox with no competition. Yes, that is very, very poor. They launched early to get a head start, they are not doing a good job of it. The lack of system selling software is certainly killing them right now, there is no compelling reason to pick up a 360 if you own a remotely decent PC and any of the last gen consoles. That isn't what MS was supposed to be accomplishing with their hyper early launch. At comparable time on market the PS2 had a ~36% lead in the US, and unlike MS they were still supply limited at that point. The XBox had a ~19% lead over where the 360 is now. I suppose if you really want to you can spin this in your mind to being good for MS, but as of right now they are trailing the first XBox in their most important territory by a sizeable margin. That doesn't bode well.

 

[patsu]

In the US consoles are not sold to retailers. They are moved to a distributorship and then shipped to retail locations- without money moving hands. When the system moves through the POS(point of sale) then the distributor and then the manufacturer are credited. Anything that is subject to very small margins and large price fluctuations tends to be handled the same way. There is an interest fee charged for the product being held(extremely small) for the timeframe between when a product hits retail and when it is sold through(as the asset is held up for that period of time).

Ben, are you saying consoles are moved via consignments ? So Sony/Microsoft still take title of stocked PS3/Xbox 360 even if they are sitting on retailers' shelves ? Or did I misunderstand you ?

 

[BenSkywalker]

Ben, are you saying consoles are moved via consignments ?

Not exactly, but sort of. It is actually the norm for most of the retail industry, but it is pretty much mandated for anything resembling a console(no margin with high price volitility).

So Sony/Microsoft still take title of stocked PS3/Xbox 360 even if they are sitting on retailers' shelves ?

In a sense, yes. For certain purposes it doesn't function that way, the stores have posession of the physical inventory and they are responsible for them until they hit POS. If they fail to make it to POS then the store is completely liable for the cost(meaning a sale for Sony/Nin/MS) unless it is a credited return on the part of the manufacturer.

It is because of this that Sony can announce a new price for the PS2 and every store you walk in to will have that price on the same day. Take a chain like Wal-Mart where they may have a quarter million units in stock on a global basis. If Sony says we are moving the price point from $299 to $199 you think Wal-Mart is going to swallow a $25Million loss? Not a chance. The system works out well for everyone. Same general principal applies to games although there are exceptions in both cases. Take for example Wal-Mart's Black Friday specials. They may call up Nintendo and say "We want 500K GBAs at a $35 price point"- Nintendo may give them that with the caveat that they purchase the product outright- this removes any potential inventory backlog concerns on Nin's part and removes them from potential markdown liability in the long run if the systems don't sell through. This also works for games too. This is why when a title makes it to the 'greatest hits' line the retail price on existing inventory can be reduced without the stores dealing with the loss(they wouldn't stand for it).

It actually works this way for most products in the retail segment, from clothes and shoes to automobiles. Seasonal merchandise is frequently different, ie- Christmas lights and such, but they tend to have margins in the ~200% range as opposed to the normal ~25% you would see on a general item(consoles tend to be 0.5% margin or less). The grocery industry works quite differently which tends to be one of the reasons they operate so much more effectively per man hour then the retail industry(margins in the 5% range are normal).

 

[patsu]

Thanks for the clarification Ben ! May I ask then who foot for the distis' inventory cost given that the margin is so little ? Does the 0.5% margin only apply to the retailer (at POS) ? How much does the disti get per console sale on the average ?

This is indeed quite different from hi-end hi-tech products. Based on your descriptions, it seems that Sony and Microsoft have little channel overhead in revising their pricing.

 

[RancidLunchmeat]

Automobiles work the same way?

I thought the dealerships purchased the vehicles via loan and paid interest on all the inventory they didn't move. Thus the reason for better pricing at the end of the month, etc?

Walmart and the likes surely aren't paying interesting to console manufacturers for each day the consoles sit unsold on their shelves.

Do I have the sales model for automobiles wrong, or was that just a poor example?

 

[BenSkywalker]

Thanks for the clarification Ben ! May I ask then who foot for the distis' inventory cost given that the margin is so little ? Does the 0.5% margin only apply to the retailer (at POS) ? How much does the disti get per console sale on the average ?

This is a very interesting and very drawn out element to explain in its' entirety but pretty much how it works as of now is either the distributor is owned by a retailer or the products are directly shipped from the manufacturers own distribution centers to the retail outlet. The way it works in a general sense is that distribution centers order items on very large scales and they make their money by the truckload/stops/distances(large outlets tend to order entire semis worth per day, smaller outlets may only have a pallets worth every few days- large scale obviously gets big discounts). The simplest way to put it is that distros are in essence a FedEx for large scale deliveries. Their margins are based on how much they move, not on a general margin as is done in retail. The billing works that way even when product is moved from distro to retail on a facility owned by the same company.

The margin for consoles covers everything from the time it leaves Sony/MS/Nin until it hits POS. Obviously they are not worth handling at all by themselves, but you sell one game or accessory and you have recovered your lost margins and costs associated with distribution- you sell the typical ~5 games per console(lifetime) and its' margins fall in line with a typical electronics device(which is quite lucrative).

Based on your descriptions, it seems that Sony and Microsoft have little channel overhead in revising their pricing.

There isn't an ounce of fat to trim from the time it leaves their door until it hits POS. It truly is an impressive model to operate under, although it has its drawbacks(fuel price bump has made it so that currently it is impossible not to lose money if you have an internal distribution method per unit, although as mentioned earlier that is covered with game sales).

I thought the dealerships purchased the vehicles via loan and paid interest on all the inventory they didn't move. Thus the reason for better pricing at the end of the month, etc?

Walmart and the likes surely aren't paying interesting to console manufacturers for each day the consoles sit unsold on their shelves.

You are correct in automobiles and that is how the retail market works also(the 'loan' is via the manufacturers for most items). This is why when you hear about a retailers credit rating being cut it is a HUGE deal.

 

[RancidLunchmeat]

You are correct in automobiles and that is how the retail market works also(the 'loan' is via the manufacturers for most items). This is why when you hear about a retailers credit rating being cut it is a HUGE deal.

Ok... Now I'm confused. You've agreed that my understanding of the automobile market is correct. You then state that is the method that is also used for the majority of the retail market.

(you didn't say majority.. you said 'retail market', but I'm providing an insignificant % of variance here just to be on the safe side and because it isn't releveant to my main point)

So... How does the console market work again? If the retail market works like the automobile market.. that is the POS suppliers purchase the products or buy loans to purchase the products and pay interest until those products are moved... this is different with consoles?

Are you saying that if Walmart bought 20,000 TVs from Sony they'd take a loan out from Sony and pay interest on those TVs until they were sold, at which point they'd stop paying interest on the unit, pay off the debt, and pocket the profit? But if they bought 20,000 PS3 from Sony, no money would change hands at all until Walmart had sold a PS3, at which point they'd pay back Sony and pocket the profit?

(Actually.. you mentioned third party distributors, but I have a very difficult time that very large retailers don't deal directly with the manufacturer.)

 

[Guden Oden]

5 million units worldwide at $300-400 without a system seller is very poor eh?

I've no interest in starting or maintaining any kind of system-bashing discussion (particulary since I own a 360 myself), but you gotta agree with me there's a significant dearth of titles - particulary high-profile ones - for the 360 right now. Has there been any hit game released since Oblivion, which was MONTHS ago now? I can't think of any.

I'm sure this is affecting sales figures.

 

[aselto]

Has there been any hit game since Oblivion for any other platform?
I know 360 needs a system seller ASAP, but there's no point in bashing the system - it's slow time for the industry and publishers are saving their big guns for holiday season, regardless of a platform.

 

[BenSkywalker]

So... How does the console market work again? If the retail market works like the automobile market.. that is the POS suppliers purchase the products or buy loans to purchase the products and pay interest until those products are moved... this is different with consoles?

Are you saying that if Walmart bought 20,000 TVs from Sony they'd take a loan out from Sony and pay interest on those TVs until they were sold, at which point they'd stop paying interest on the unit, pay off the debt, and pocket the profit? But if they bought 20,000 PS3 from Sony, no money would change hands at all until Walmart had sold a PS3, at which point they'd pay back Sony and pocket the profit?

In the general sense you are thinking of things along the proper lines, but it isn't exactly a 'loan'- neither in the auto industry or in the retail market. What ends up happening is that the manufacturers extend retailers a line of credit, not a line of credit for cash but one for physical assets. Sony may tell WalMart that they can have, say, 60Million dollars(made up numbers) worth of their merchandise on hand without paying in advance. This merchandise has an interest rate charged versus the wholesale dollar amount(which tends to work out to be much lower then the prime rate) of the inventory/assets that the retailer has. They don't take an actual loan for money and then pay the balance, they are forwarded merchandise based on their credit line(smaller manufacturers and retail chains tend to rely on a companies generic credit rating from the major financial institutions while larger manufacturers and retailers such as Sony and WalMart will handle things based on an individual basis).

(Actually.. you mentioned third party distributors, but I have a very difficult time that very large retailers don't deal directly with the manufacturer.)

Most distribution centers are set up to function, effectively, as a third party entity. I have never worked for Wal Mart but I have worked for a few different multi billion dollar corporations and their, wholly owned, distribution centers function as a third party.

But if they bought 20,000 PS3 from Sony, no money would change hands at all until Walmart had sold a PS3, at which point they'd pay back Sony and pocket the profit?

Under normal circumstances they are still paying the interest, but it does get a bit more complicated. If a manufacturer ships out a large quantity of product that has a street date on it, then retailers don't tend to be liable for any interest on the fronted line of credit until the street date. If Sony were to ship Wal-Mart 500,000 consoles for launch a month in advance, WM would not be required to pay any interest on the systems until after the launch date hit. Back in the mid 90s I was managing an electronics store during the launch of the N64- I had an oppurtunity to secure a large shipment of them ten months prior to launch(about one hundred times what we ended up getting). My superiors up the corporate ladder refused to authorize me to make the purchase as they didn't want to deal with the interest payments as they were certain it would have taken a year to sell off that level of inventory(I made sure to clarify that we would not be liable for interest until the street date, obviously the order wasn't going to be filled until a few days prior to launch anyway). If my order had been allowed to go through as I wanted and we sold an average attach rate for games to hardware that we did with what supply we ended up with we would have doubled our YEARLY profit margins. A bit off the subject, but just a small anecdote about some first hand experience I have had dealing with working around this particular issue(for the record, I am now in a position that is much better then the people who refused to allow me to make the purchase order are ) in terms of dealing with interest liabilities and console launches.

Has there been any hit game since Oblivion for any other platform?

Mario for the DS. Other then that- they all have a large library of hit titles already(excluding the PSP which is currently tanking vs the DS). As of now I think I have purchased almost every non sports game on the 360 and I'd really like it if there was a lot more available- particularly some titles remotely close to Oblivion. While the 360 certainly has a better library right now then the PS2 did at comparable life cycle points, the lack of complete backwards compatability and the reduced demand for the systems should really be giving MS some motivation to get moving on it.

 

[Shifty Geezer]

While the 360 certainly has a better library right now then the PS2 did at comparable life cycle points, the lack of complete backwards compatability and the reduced demand for the systems should really be giving MS some motivation to get moving on it.

What can MS (or any of these companies) do at short notice to fill blank spots? If they commission a load more games, that'll be nigh on a year before they get out there. I don't know how they can 'get moving'. I think for the parent companies, all they really care about is getting a strong Christmas period (or Winter) lineup, and then leave it to 3rd party to contribute whatever they feel like to the summer months. I can see anyone's going to invest in any major titles for the summer peiod.

In MS's case, they have done perhaps as much as they can with Live! Arcade Wednesday. Not that that is likely to sell consoles in store, as the customer won't see a growing library of titles on the shelves, but it might keep owners a little happier and still talking about their console.

 

[BenSkywalker]

What can MS (or any of these companies) do at short notice to fill blank spots?

Backwards compatability would be nice. I was in the store the other day and noticed they had a great deal on Riddick. I've never had time to play the game when it was big, and decided that it would be a great way to fill the void. Unfortunately it isn't one of the games that works. Right now I don't have my XBox hooked up to my main gaming TV, just the 360 ATM(my PS2/XBox went in to the family room for multiplayer titles so the kids couldn't throw each other of their respective rooms when they started losing, my Cube has been there for a while, my 360 is in my bedroom). So when I walk into the store and don't see any 360 games, MS is losing cash due to their lack of BC- not to mention they don't have that library to help prop them up. They have a lot of killer titles for the original system, and some of the early adopters weren't owners of the XBox- they could increase their mindshare, use it as a tool to build demand and make money in the process. They have chosen that these are not serious factors. I can tell you out of the people I know who were PS2 only owners that are currently 360 owners, their systems are all collecting dust. Now they are interested in all the latest news on the next gen- except none of them seem to care about the 360 titles one way or the other. Obviously that is entirely anecdotal, but the fact remains that the 360- outside of Oblivion- has proven to be overall a decidedly last gen console with a really weak lineup. For last gen Sony finished with a larger lead in the US alone then MS sold consoles world wide. They didn't build nearly as much mindshare as they may like to believe. They still NEED to be better then Sony, and markedly so, to swing things their way.

In MS's case, they have done perhaps as much as they can with Live! Arcade Wednesday. Not that that is likely to sell consoles in store, as the customer won't see a growing library of titles on the shelves, but it might keep owners a little happier and still talking about their console.

Frogger...? No, they haven't come remotely close to what I would consider making even an effort in terms of 'Arcade Wednesday'. A multibillion dollar profit per quarter corporation can manage to release one poor old arcade game per week- that is nothing at all. Sure, StreetFighter is big. What about landing MegaMan? How about Double Dragon(arcade port)? Give us Outrun, the older MKs, maybe even some old school RPGs. Right now I can walk into pretty much any store that sells games and pick up an arcade perfect port of Frogger for $10, only it comes with another fifteen to twenty games. MS hasn't made the slightest bit of an effort outside of StreetFighter. If it were remotely close to a viable effort they would be pushing out a dozen games a week- which they could easily do if they wanted to- and the poorest of them would be what we have seen to date(outside of Geometry Wars). For that matter, nothing is stopping full scale development of entirely new properties- Geometry Wars Evolved is without a doubt the best game currently on Live!- what is stopping more of that sort of effort?

I understand that stepping up a full release schedule is going to take them a long time. Clearly they didn't take this generation seriously enough going into it(Sony didn't either with the last gen, I'm not saying that indicates auto failure or anything else). There are, however, a lot of things that MS could be doing if they honestly wanted to improve the situation. Get your BC up and running, increase the amount and more importantly the quality of the retro titles you are releasing and put the effort into developing some new IP for Live! Arcade. These are things MS could have already done by now if they were honestly interested in improving their customer satisfaction, but that very clearly isn't their top priority.

 

[patsu]

I remember DS also suffered similar drought during its first year. I think the better titles will come through (Although I agree having "unrestricted" BC would be good for MS).

Do you think they are saving their major moves to counter PS3 later ? Summer is bad console season afterall ?

 

[Powderkeg]

Less sales in its' "strongest" territory then the original XBox with no competition. Yes, that is very, very poor.

Is it?

They've sold 2.5 million more systems world-wide in the first 6 months than the original Xbox did.

Just because their launch strategy of releasing in all 3 major regions in a single month limited supplies in one doesn't mean they are doing poorly when their total sales are more than double the original system, does it?

Fact is current 360 sales in the US are a lot closer to the rate the PS2 sold at than they are the original Xbox, and world-wide they've nearly doubled Xbox sales with the 360. How can you possibly call that "very very poor"?

 

[one]

Do you think they are saving their major moves to counter PS3 later ? Summer is bad console season afterall ?

They are Gears of War, Forza 2, Blue Dragon I guess. Preferably with an exclusive Halo 3 demo disc, but it may be a bit too early.

Since this thread is about 360 in Japan, what's important is Blue Dragon. They'd aired a teaser commercial for a while, but I don't know why they stopped promoting the game without giving out more game media.

 

[scooby_dooby]

Is it?

They've sold 2.5 million more systems world-wide in the first 6 months than the original Xbox did.

Just because their launch strategy of releasing in all 3 major regions in a single month limited supplies in one doesn't mean they are doing poorly when their total sales are more than double the original system, does it?

Fact is current 360 sales in the US are a lot closer to the rate the PS2 sold at than they are the original Xbox, and world-wide they've nearly doubled Xbox sales with the 360. How can you possibly call that "very very poor"?

Whoa...whoa...you're being entirely too logical right now. Lets dial back the common sense shall we

 

[Serenity Painted Death]

Xbox only sold 500K in sixth months?

 

[zed]

Fact is current 360 sales in the US are a lot closer to the rate the PS2 sold at than they are the original Xbox, and world-wide they've nearly doubled Xbox sales with the 360. How can you possibly call that "very very poor"?

what fact after 8 months NPD numbers for the US are
360 2.0 million
xbox 2.4 million
ps2 2.7 million

the 360 is doing worse than the xbox after 8months in the US,