Heavy sales promotions early in November, before Black Friday, did not convince shoppers to spend early as sales for the first three weeks of the month fell by 5 percent compared to the previous year. Overall NPD estimates that 2010 sales for the 9 week sales period will total $14.9 billion down 4 percent from last year.

"Record sales in 2009 across major categories such as notebook PCs and TVs, combined with a significant slowdown in the pace of price declines created a difficult headwind for the industry in 2010," said Stephen Baker, vice president of industry analysis at NPD.

"With retailers and manufacturers focused on price maintenance, tech consumers ignored early season promotions, and instead keyed in on the traditionally price-aggressive deals offered during Black Friday and the week before Christmas. As a result, sales for the first three weeks of November and the first three weeks of December were significantly weaker than the traditional bookmark shopping periods."

NPD estimated early this year that tablet cannibalization rates could be as much as 15 percent likely impacting the sales of close to 1 million PCs during the holiday season. Notebook unit volume fell 9 percent with little to no discounting.

Some of the categories that have traditionally lent themselves to gift-giving items experienced a rough holiday season. Point-and-shoot camera sales declined 9 percent in units, MP3 player unit sales dropped 8 percent, GPS fell 24 percent in units, and digital picture frame unit volume fell by 24 percent.

"The industry suffered during the 2010 holiday season as the high-volume categories such as cameras and MP3 players experienced unit volume declines," said Baker.

"Though more niche and converged devices were attractive to consumers looking to replace older products, the volumes to drive industry growth simply weren’t there."
 

More than half (56%) of iTunes buyers purchase music exclusively, and majority of iTunes user search time is focused on looking for music.

“Sales growth in digital music has been slowing, and some of that decline might be related to the distraction from apps; however, iTunes shoppers are still completely engaged with music, whether it’s about listening, discovering or buying,” said Russ Crupnick, vice president and senior entertainment analyst for The NPD Group.

“Apps and video certainly do compete for consumer dollars, but they can also be used to promote music and re-energize digital music and video download sales.”

The report also looked at the question if apps are valuable to users or mostly frivolous. Two out of three iPhone and iPod touch owners who have downloaded apps report using them regularly, instead of just using them briefly.  In addition, nine out of 10 have downloaded a free app, which Crupnick says, “points to a major up-selling opportunity to paid versions of the same app.” Plus 69 percent of iPhone and iPod Touch owners who have not yet paid for an app told NPD they are interested in possibly doing so in the future.
 

NPD’s "iTunes Usage Report" asked consumers to report on their reactions to a music service offering free and unlimited streaming of content from the consumer’s own iTunes music library, and several paid options for music subscriptions offering combinations of music streaming, music downloads, and universal Web access to the consumer’s iTunes music library.

Between seven million and eight million iTunes users in the U.S. would have strong interest in one of the paid subscription options. These consumers said they would be willing to pay a minimum monthly fee of $10 for streaming music or access to their music libraries on multiple devices.

NPD estimates that there are 50 million iTunes users in the U.S. According to NPD’s music industry research, a model that offers iTunes users free access to their own music libraries would attract in the range of 13 to 15 million subscribers.

"After the service’s launch, user numbers could conceivably rise substantially, as they upgrade to newer connected devices and actually experience the benefits of cloud-based music," said Russ Crupnick, vice president and senior entertainment analyst for The NPD Group.

"If the consumers who indicated strong interest in a paid subscription actually adopted one of those services at $10 per month, the market opportunity is close to $1 billion in the first year, which is roughly two-thirds the revenue garnered by the current pay-per-download model."

"We don’t yet know what, if any, effect these services might have on the traditional pay-per-download music model, or whether consumers will ultimately spend more on digital music overall, if or when any of these options eventually rolls out," Crupnick said.

Apple is in a good position to launch a cloud-based service since it purchased music website Lala and eventually shut it down in May, leaving many to wonder what the company’s next move will be.

 Overall, U.S. gamers spend 13 hours per week playing games, up from 12.3 hours in 2009.

When looking at the number of hours gamers spend per week playing video games, hours spent playing both console and PC games showed a marked increase over last year’s study, with console games increasing 9 percent and PC games increasing 6 percent.  The number of hours gamers spent playing portable games saw a decline of 16 percent. 

"With these kinds of shifts in the composition of the gaming consumer and changes in gaming behavior, it’s clear that the need to understand gamers and their purchase patterns remains critical information to those that develop, market and sell games," said Anita Frazier, industry analyst, The NPD Group.

The average age of gamers increased slightly over last year from 31 years of age in the 2009 study to 32 years in this year’s study.  Avid PC Gamers and Offline PC Gamers, comprising 11 percent and 8 percent of the gaming population, respectively, are the oldest segments with an average age for both of 42 years.
 

The report found three-quarters (75%) of iPhone and iPod Touch users are connecting to the Internet to download entertainment content and apps, compared to 19 percent of game console users and 17 percent of Blu-ray Disc (BD) set-top users.

"It’s not surprising that Apple users are ahead of others when it comes to downloading Web-based content, given the breadth of the company’s app catalog and the head start iTunes had selling music for the iPod," said Russ Crupnick, entertainment industry analyst for NPD.

"Like other groups of early adopters, consumers downloading entertainment content are mostly younger and male; however, as app stores expand beyond Apple, as connected devices become more commonplace, and as connectivity is simplified we expect to see more activity on other devices and platforms."

Among iPhone and iPod Touch users who downloaded content, free apps were the most popular download category, followed by video-game apps, and music downloads. Among consumers who connected via game consoles, game add-ons were the most popular category, followed by purchased downloads of games, and movie rentals.

"Music now competes with games and other apps for share of device, share of wallet, and share of time," Crupnick said. 

"Entertainment companies need to start to thinking of apps in broader terms, not only as a way of garnering direct sales from downloads, but also as a pathway to paying for additional entertainment content. For example, an app that reviews movies could also be a direct channel for purchasing DVDs, BDs, or digital forms of video."
 

Those demographic groups are the ones with the most interest in buying an iPad. Only 18 percent of all consumers indicated a real interest in owning an iPad while 27 percent of 18-34 year olds and 24 percent of Apple owners said they were extremely or very interested.

One of the main reasons Apple owners are interested in the iPad is because it’s an Apple product.  Thirty-seven percent cited "liking the Apple brand" as a top reason for their interest in the iPad. That tied with "multi-touch screen," which was also the number one reason driving interest among 18-34 year olds. The 18-34 year old demographic is also the most likely to play music and access the Internet on the iPad.

"The most interested potential iPad customers see it primarily as a music device, or for its internet access capabilities," said Stephen Baker, vice president of industry analysis at NPD.  "Considering what people are planning to use the iPad for, it’s not hard to understand why people who have these capabilities on other devices, such as the iPod Touch or a notebook/netbook, may not want to spend $500 or more on a similar device. 

"This points to the need for Apple to close the content deals that focus the iPad on what is likely to be its best long-range value proposition around high quality media consumption."

For some consumers, and Apple owners, spending $500 or more for a new device that does not yet have a clear advantage over other devices is not appealing. Among the tech-savvy 18-34 year old demographic, 57 percent cited price as the number one reason they aren’t ready to buy; that’s 25 percent more than the overall percentage of non-interested buyers. Among Apple owners, 43 percent felt that the pricing was too expensive.  But it’s not the price tag alone that’s making the iPad seem too expensive to these non-interested buyers. 

The other factor is that they are equating the iPad to a notebook or netbook replacement.  Among 18-34 year olds and current Apple product owners "rather use a notebook or netbook instead" was cited by 51 percent and 44 percent respectively of those demographics as a reason not to buy.   

Even those demographics who have the most interest in the iPad are not making a strong commitment to buy an iPad in the near future and that reflects what overall consumers are saying.

When asked what the likelihood of purchasing an iPad in the next six months was, 9 percent of all consumers surveyed said they were "extremely or very likely" to do so, as did 10 percent of 18-34 years olds and 9 percent of Apple owners.  But there were a greater number of consumers who were "not very likely" or "not likely at all" to purchase an iPad in the next six months.  Sixty-six percent of both the all consumers surveyed and 18-34 year olds don’t foresee an iPad purchase in their future, and 60 percent of Apple owners felt the same way.
 

 Among those reporting they personally play video games on at least one type of console, 54 percent said they play games online, down slightly since 2009 and 2008 (56% and 55% respectively).

The average number of hours spent per week on online gaming has increased from 7.3 hours per week in 2009 to 8 hours per week in the 2010 report. This means that, despite the decline in overall online game play, those who are playing, are spending more time playing than they did last year.

"While the percentage of the population that reports playing games has declined slightly, this study details other metrics which point to both stability and growth in both online and offline gaming," said Anita Frazier, industry analyst, The NPD Group."

The report found 71 percent of online gamers purchased or received a game over the 2009 holiday season. There were no major changes to the percent of online gamers making purchase from 2008 to 2010, and also no significant changes regarding average volumes purchased during that same time period. This indicates online gamers buying habits may not have been significantly impacted by the recession and it may be a positive for the future.

"The installed base of video game systems continues to grow, the platforms available to play games continue to expand, and the options for content acquisition have never been greater, especially online," said Frazier.
"And yet, effective monetization of many forms of online gaming continues to be a topic of much debate and discussion within the industry."

"Mobile gaming, for instance, has advanced to play a bigger role and the iPhone, in particular, is attracting a lot of attention given the dizzying array of game apps available for this device. Social networks have emerged as the hot venue for online gaming, due to the huge number of subscribers these are attracting. But still, it’s unclear which business models are working in this space."

The PC is still the most-used system for online gaming, with 85% of online gamers reporting using a PC for online gaming activities.  Among non-PC systems, the Xbox 360 maintains its leadership for the third year in a row as the top video game system used for online gaming at 48%.  In contrast to 2009, when Wii was leading over PS3 by 8 percentage points, PS3 and Wii are now neck and neck, with about 30 percent of online gamers reporting that they use each system for online gaming.

This is due to an increase in use for online gaming on the part of the PS3, which increased 10 percentage points since last year. The top three systems with the highest average hrs/wk spent gaming online (using the respective systems they own) are: Xbox 360 (7.3 hrs), PC (6.6 hrs) and PS3 (5.8 hrs).

The report found all 10 of the top-selling mobile phones purchased in the fourth quarter of 2009 came with a touch screen, a QWERTY keyboard, or both.

"Regargless of whether they opt for a data plan, consumers want richer user interface options," said Ross Rubin, executive director of industry analysis at NPD.

"The humble keypad is losing the race to optimize a handset’s surface."

Based on U.S. consumer purchases of mobile phones in Q4, the top 10 handsets were:

1.    RIM BlackBerry Curve (all 83XX models)
2.    LG enV3
3.    Apple iPhone 3GS (both models)
4.    Apple iPhone 3G
5.    Motorola Droid
6.    LG enV Touch
7.    RIM Blackberry Tour
8.    Samsung Intensity
9.    Samsung Solstice
10.    Samsung Impression

In Q4 2009 Apple, LG and RIM all declined in unit share, and Motorola’s Droid, even with its mid-quarter launch, was the fifth most purchased mobile phone in the U.S.

NPD also found that 46 percent of phones sold in Q4 had QWERTY keyboards (compared to 31 % in 2008) and 34 percent had touch screens (compared to 20% the prior year.)
 

The majority (93%) of owners said they were "very satisfied" or "somewhat satisfied" with their device. Only 2 percent indicated any level of dissatisfaction.

Features are important to e-reader owners. More than half (60%) said wireless access was their favorite feature on their e-reader and nearly a quarter (23%) mentioned touch.

"Both the display technology and available content on e-Readers are optimized for those interested in books, said Ross Rubin, executive director of industry analysis at NPD.

"Pairing these optimizations with wireless technology for transparent access and touch screens for easy navigation has resonated with the avid readers that have been early e-Reader adopters."

Even with great features, e-reader owners are still looking for more in these relatively new devices. Some recommended improvements from owners include more book title availability (42%), longer battery life (39%), and color screens (34%). Content is important, with 46 percent of owners saying they were most satisfied with the selection of titles for their e-readers while 39 percent said they could find every title they were looking for.

E-reader owners are not completely tied to their devices to do their reading. About three-in-ten say they use at least one other device for reading e-books, such as a PC or a smartphone.

"As we have seen with music, photos and video, books and other printed matter are slated to appear on a wide array of devices that offer tradeoffs in such factors as screen size and battery life," said Rubin.

"As the recent introduction of Apple’s iPad demonstrates, applications now on smartphones benefit from larger screens, and industry leaders are recognizing the importance of supporting multiple platforms by supporting multiple clients and open standards."
 

Related Articles:

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Total retail non-games software revenue fell 7 percent in 2009 to $2.4 billion.  That is an improvement over the 10 percent decrease in 2008. Unit volume for 2009 dropped 6 percent and average selling price dipped 2 percent.

Operating systems was the only category to post both a revenue and unit increase over 2008.  With new operating system releases from both Microsoft and Apple in the back half of the year sales traffic, volume, and interest in boxed software were at very high levels.   Both OS releases posted record sales and growth figures for their initial launch periods and continued to perform strongly even after their initial entry into the market.

"2009 was a mixed bag for the packaged consumer software market," said Stephen Baker, vice president of industry analysis at NPD.  "There is always a burst of interest when new versions of operating system are released.

"But weak results in the more stable sales categories, like tax and system utilities, drove overall revenue down.  Shifting channel activities and a move to more online purchasing took a bite out of both of those segments in 2009.   The outlook for 2010 is for similar sales results as the lack of any OS launches will likely be offset by the release of Office 2010."

Business software was the only other category, besides operating systems, to post a unit gain. The category grew 6 percent, due in part to ASPs dropping 15 percent.  MS Office Home and Student delivered strong sales volumes during both the back-to-school and holiday periods as a result of aggressive price promotion. 

The average selling price fell from $118 in the prior year to $106 in 2009.  Apple’s iWork 2009 also saw strong unit volume growth as average prices declined more than 15 percent on the single-user version. With these falling prices, however, category revenue took a hit posting a 10 percent decline.
 

Related Articles:

>US Video Game Revenue Down 31%

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>42% Of Americans Play Games Online