







Ars Technica's latest analysis of the worldwide game console market will look largely familiar to anyone who has been following our previous reports. Sony continues to slowly increase its majority share, while Microsoft holds relatively steady and the Wii U slides quickly into market obscurity.

Last week, all three major console manufacturers released their quarterly financial reports for the period ending in September. Sony once again reported the strongest console sale results, shipping four million consoles to stores during the three-month period, up from 3.3 million during the same time a year ago. Nintendo also saw its quarterly console shipments improve slightly from a very low base, up from 610,000 consoles last year to 720,000 consoles this year.

(We'll include the usual disclaimer about sales versus shipments here: while the two numbers aren't precisely equivalent, hardware units shipped to stores are usually sold through to consumers within four to six weeks, according to industry analysts. Most units shipped by the end of September have likely been cleared off store shelves by this point, having little impact on the relative console race. The terms are used interchangeably throughout this article.)

Determining sales information for the Xbox One was harder than ever this quarter, as Microsoft didn't break out shipment numbers for the Xbox One or the Xbox family as a whole in its latest report. The only hint about the company's console sales came in an off-hand sentence saying that "Xbox hardware revenue decreased 17 percent, mainly due to lower volumes of Xbox 360 consoles sold."

Last year, Microsoft sold 2.5 million Xbox systems in the third calendar quarter, and we estimated that anywhere from 1.44 to 1.8 million of those were Xbox One systems. We multiplied those numbers out based on the contemporary prices of the Xbox One and the Xbox 360 at the time (and some guesswork on the distribution of differently priced bundles) to get a range of roughly $809 to $874 million in Xbox hardware revenue for the period. Lop off 17 percent and you get $671 to $725 in hardware revenue for the third quarter of 2015.

Next, we had to split out the Xbox One revenue from the Xbox 360 revenue. Last year at this time, based on our estimates, the Xbox One was responsible for anywhere from 70 to 80 percent of all Xbox hardware revenue. But Microsoft said that this year's revenue drop was "mainly due to lower volumes of Xbox 360 consoles sold." Given that and the increasing age of the Xbox 360, we estimated that the Xbox One is now responsible for 90 to 95 percent of all Xbox hardware revenue.

Divide all of that back out by the Xbox One's current sale price of $350, and you get 1.73 to 1.97 million systems sold for the quarter. That's a slight unit sales increase from a year ago despite the overall Xbox hardware revenue dip, made possible by cratering Xbox 360 sales and a price drop for the Xbox One. Our estimation method means this figure is a bit less solid than usual, but we're relatively confident it's in the right ballpark.

With those numbers in hand, we can see that Sony continues the slow but relentless erosion of the competition's positions in console market share. The PlayStation 4 now controls roughly 52 percent of the worldwide console market (Fig. 4) and enjoys its largest ever relative lead over the Xbox One in this market. Microsoft continues to sell enough systems to prevent Sony from having PlayStation 2-style dominance of the market, but it's not selling nearly enough to achieve anything close to parity.

Microsoft’s sales aren’t improving quickly enough









To see just how that increasing sales gap between the PS4 and the Xbox One plays out, it's useful to look at the year-to-year changes in both system's fates. For all intents and purposes, the end of the third quarter also ends the second full year of sales for both the Xbox One and PS4 (even though the first reporting "year" is closer to 11 months of actual sales, since both systems launched in North America in October). This means we can look at relative improvements in sales performance for both consoles smoothed out over an entire year rather than focusing on the sometimes jumpy quarterly numbers.

So which system showed the most improvement in its second year on store shelves? That depends on how you look at it. On a relative basis, Microsoft seemed to have the better year, with annual sales increasing over 25 percent compared to just a 17 percent increase for the PS4 (Fig. 5). But the PS4 was starting at a much higher base of 13.5 million sales in its first 11 months compared to about 7.2 million sales for the Xbox One in the same period.

The result (Fig. 6) is that the PlayStation 4 actually outsold the Xbox One by a slightly larger margin in its second year (6.8 million more console shipments than Xbox One) than it did in its first (6.33 million more console shipments than Xbox One). In other words, while the Xbox One is increasing its sales at a faster rate than the PS4, Microsoft still lost more ground to Sony this year than last on an absolute basis.

Of course, if current annual sales rate increases continue, the Xbox One would eventually overtake the PS4 in the annual sales race. However, that process would take quite a while. Fig. 7 above shows just how long, projecting out how annual sales would look if the PS4 continued to increase annual sales by about 17 percent a year and the Xbox One continued to improve at about 25.5 percent annually.

It's important to note that console sales patterns decidedly dowork in this way, and it's a bit ridiculous to expect annual sales to continue increasing in this kind of parabolic curve. Still, it's interesting to see that based on current trends, the Xbox One wouldn't start to outsell the PS4 on an annual basis until 2024. At that point, Sony would have continued building up a significant life-to-date lead of over 50 million consoles worldwide before Microsoft would be able to stop the bleeding (Fig. 8).

The takeaway from this hypothetical is clear: Xbox One sales need to improve at a faster rate (or PS4 sales need to start slowing down significantly) if Microsoft wants to have any hope of pulling even with Sony's sales in this console generation. Xbox Division Chief Phil Spencer might say that Microsoft isn't that concerned with the Xbox One's relative market share, but for anyone who is, the road ahead continues to look difficult.