“The continued economic turmoil, and in particular the troubling unemployment rate, is undoubtedly impacting industry sales,” said NPD analyst Anita Frazier. “Our latest Economy Tracker indicated that although consumers’ general opinion about the economy is improving, their outlook on their own personal situation is worsening. If consumers’ personal outlook continues to erode, they could very well be much more conservative with their holiday shopping this year.”

A somber warning for the videogame industry. Even recent price cuts on game consoles have done little to spur demand.

“Year to date, the hardware category has experienced the sharpest decline in the industry, with unit sales down 10 percent compared to the same time period last year,” Frazier wrote. “Recent price cuts helped spur a one- to two-month increase in unit sales, and this month’s Wii sales reflect that boost, but the other platforms have not sustained the sales momentum after price reduction.”

The videogame industry may be recession-resistant, but it is clearly not recession-proof, as some once believed. Sales data, below.

U.S. Hardware Sales, October 2009

1. Wii 506.9K
2. Nintendo DS 457.6K
3. PlayStation 3 320.6K
4. Xbox 360 249.7K
5. PSP 174.6K
6. PlayStation 2 117.8K

U.S. Top Ten Software Sales, October 2009

1. Uncharted 2: Among Thieves (PS3, Sony) 537,000
2. Wii Fit Plus (Wii, Nintendo) 441,000
3. Borderlands (360, Take 2) 418,000
4. Wii Sports Resort (Wii, Nintendo) 314,000
5. NBA 2K10 (360, Take 2) 311,000
6. Halo 3: ODST (360, Microsoft) 271,000
7. NBA 2K10 (PS3, Take 2) 213,000
8. Forza Motorsport 3 (360, Microsoft) 175,000
9. Kingdom Hearts 358/2 Days (DS, Square Enix) 169,000
10. FIFA Soccer 10 (360, Electronic Arts) 156,000

Under terms of the deal, EA (ERTS) will initially pay $300 million for the developer of such social games as Pet Society, Who Has the Biggest Brain and Restaurant City, including a $25 million retention agreement with Playfish employees. It will subsequently pay $100 million more if the company meets undisclosed profit targets.

By acquiring Playfish, EA is not only validating the social gaming market, but perhaps setting the valuation benchmark for Mafia Wars creators Zynga, which is expected to go public next year. It also tempers–to some extent, anyway–concerns that the lead-generation scam controversy that recently blew up around Zynga and Playfish might harm their perceived value in the market.

“This deal came about very quickly, but let me say that Playfish was never ‘up for sale’,” de Halleux told PaidContent. “We were focused on building our business, because we believed—and still do—that the game industry is changing. EA approached, and we realized that we could be in a better position to act as an agent of change, through them. We could build games and attract users on our own, but this deal accelerates that to a degree that wouldn’t have been possible.”

“Social gaming, with its emphasis on friends and community, is seeing tremendous growth and this is the right time to invest to strengthen our participation in this space,” said Barry Cottle, senior vice president and general manager of EA Interactive. “With the addition of proven expertise from Playfish, their broad consumer base and strong game brands, we’re moving ahead aggressively in our plans to lead in the category of cross-platform social entertainment.”

If there was ever a doubt that social networks might be a viable gaming platform, this acquisition pretty much obliterates it.

“The cost of smart phones is considerably higher than feature phones for which the early termination fees were created years ago at $175,” said Verizon spokesman Jim Gerace. He added that the new $350 ETF declines by $10 per month through the life of the contract and customers can avoid it by buying their devices off contract and paying full retail price.

An interesting move for Verizon (VZ), which just last year agreed to pay $21 million to settle a class-action lawsuit filed by California consumers over the very early-termination fees it is now increasing. The plaintiffs in the suit alleged that Verizon’s ETFs were illegal under California law and that they were designed to unfairly lock consumers into long-term contracts and prevent them from switching carriers. When Verizon settled the suit, it denied any wrongdoing, insisting that early-termination fees are simply a means of recovering legitimate costs. And to some extent Verizon does have a point.

Full retail price for the Motorola’s (MOT) new Droid is $559.99. With a two-year contract, Verizon sells the handset for $199.99. Theoretically, that’s a $359.99 subsidy (I have no idea at what price Verizon purchases Droid from Motorola). So if Verizon allowed subscribers to break their contract after a month without paying an early-termination fee, the company would stand to lose money. And subscribers who did so could subsequently sell the device online and potentially make a profit, though a small one.

So it’s certainly understandable that Verizon and other carriers want to protect the subsidies they dole out for these new smart phones. And as noted earlier, Verizon’s new ETF drops by $10 each month a subscriber remains under contract. But at this rate, subscribers are still bound to pay a $110 termination fee in the 23rd month of a two-year contract. The contract is nearly over, the subscriber obligation to Verizon almost fulfilled, yet the company can still slap its customers with nearly a third of the full ETF if they break it at that time.

By month 23 of a two-year contract, does Verizon really stand to lose $110 if subscribers decide to switch carriers? Doesn’t seem likely if subscribers can walk away just a month later without consequence, taking their handsets with them.

Since Verizon is pro-rating the ETF, why isn’t it doing so in such a way that it zeroes out by the end of the contract?

And isn’t the fast pace of innovation in the smart-phone sector such that prices–for both component and device–are dropping so quickly that high ETFs aren’t really justified? Remember, you can get Apple’s (AAPL) iPhone for $99 today. When the iPhone debuted in 2007, it commanded a price of $499/$599, depending on model.

I’ve put those same questions to Verizon and will update here when I hear back. In the meantime, here’s what Consumers Union policy analyst Joel Kelsey has to say on the matter: “When people want to switch wireless services, the biggest cost they face is early termination fees. These fees are designed to lock people into long-term contracts and stop them from getting better deals. Early-termination fees make the marketplace less competitive. Verizon’s move is painful proof that it’s time for lawmakers to crack down on these fees.”

UPDATE: Verizon Wireless spokesperson Nancy Stark offers the following answers to the questions I posed above:

Your first question regarding the balance at month 23 or 24 assumes that, at that point, we have recovered all of our subsidy and up-front costs for every device. That simply is not so.

On your second question, while the pace of innovation plays a role in prices coming down somewhat, it also plays a role in driving up costs as more and more complexity that customers want is added to phones–from premium HTML browsers to high-resolution MP cameras with optical zoom; videoplayers; music players; dual processor chipsets; WiFi; very high display resolution, operating systems such as BlackBerry, Windows Mobile, Palm, Android–ALL with the added value (vs a desktop) of mobility, and ALL in one tiny device that ALSO allows you to talk to anyone from anywhere. phew! (by comparison, I recently paid $200 for a camera and all it can do is take pictures, and it has only middle of the road capabilities.)

But getting back to ETFs specifically. The most important point is that Verizon Wireless customers do not have to have an ETF at all if they do not want to. ETFs allow customers to have it either way: They can have no ETF and pay full retail for their device. OR, they can get a greatly discounted device by having an ETF.

In the consumer market, Apple (AAPL) scored 811 points out of a possible 1000, exceeding the industry average of 765. Its closest rival, LG–the only other company to beat that average, scored 776.

Apple’s performance in the enterprise market was equally impressive. The company scored 803 points out of a possible 1000. That was 79 points more than RIM, whose BlackBerry took second place with a score of 724 points, the industry average.

And what of Palm (PALM) devices and smart phones running Microsoft’s (MSFT) Windows Mobile OS? Neither had a particularly remarkable showing. Among consumer smart phone users, Palm devices scored 731, while WinMo devices from Samsung and HTC both scored 739. And among business users, Palm devices scored 688, while WinMo devices from Samsung and HTC scored 697 and 692, respectively. The study, it should be noted, was fielded between January and June 2009, so it does not account for Palm’s new Pre handset. (See charts below; click to enlarge.)

Clearly, the iPhone has gained a fair bit of traction in enterprise in a relatively short time. Who was it again who said the iPhone “doesn’t appeal to business because it doesn’t have a keyboard”?

[Image credits: MacDailyNews, J.D. Power and Associates ]

Priced at about $36 per user per year, iNotes is cheaper than Google’s (GOOG) Apps Premier Edition offering, which costs about $50 per user per year. And while it might not offer as many bells and whistles (IBM’s 1GB of storage is significantly less than the 25GB that Google provides), IBM (IBM) claims it more than makes up for it in security, reliability and privacy.

“We run the world’s most mission critical systems for banks, telcos and utilities,” said Sean Poulley, IBM’s vice president of online collaboration services. “It’s fair to say we’re pretty trusted….Candidly, Google has shown itself to be weak….There is a world of difference between supporting a consumer-grade service and a business-grade service. We’re bringing business class services and support with mission critical reliability at a price lower than the competition.”

Rabid demand for the iPhone has emptied not just the company’s physical retail outlets, but its online store as well. “We continue to see extremely high levels of demand for the iPhone which means it comes in and out of stock very quickly and will be why the Web site hasn’t had any since Monday,” an O2 spokesperson told the Telegraph.

News of the shortage comes just days after O2 rivals Orange and Vodafone both announced plans to carry the iPhone later this year, bringing an end to O2’s exclusivity deal with Apple (AAPL). If Apple is unable to meet consumer demand with just a single U.K. carrier, how will it cope with three?

A reasonable question, but one for which Apple presumably has an answer. Said Forrester (FORR) analyst Mark Mulligan, “I don’t think [Apple] would expand if it couldn’t meet consumer demand, as that would lead to extreme consumer dissatisfaction–which compared to its peers, Apple is usually good at avoiding.”

“We estimate that the iPhone represents more than 100 percent of O2 UK’s growth, 6 percent of subscribers, 14 percent of service revenues and 13 percent of earnings before interest, tax, depreciation and amortization,” said Bernstein analyst Robin Bienenstock. “In the UK O2 has consistently taken contract share from competitors (in particular Vodafone) since its sole distribution of this iconic brand began.”

So what will happen now that three carriers will be peddling the device? A price war, most likely. “Research shows that in every country where there is more than one operator selling it, it is cheaper,” Steven Hartley, analyst at technology research house Ovum, told The Telegraph. “It could be very disruptive, but it depends how Orange play it. If they get really aggressive O2 will have to respond and a full-on price war could start.”

A more interesting question to ponder, though, is whether the end of iPhone exclusivity abroad means the end of exclusivity in the states as well. Apple’s (AAPL) contract with AT&T (T) is set to expire as early as next year, but that doesn’t necessarily mean it won’t be renewed–much as customers dissatisfied with the carrier’s network hope it does. By ending exclusivity with AT&T, Apple could offer the iPhone through Verizon (VZ) as well, potentially more than doubling U.S. iPhone sales in the near term. But to do that, the company might have to build another version of the device, which would remove the advantage of manufacturing and supporting a single model per year.

The week that took us from August to September was one for the books over at BoomTown, especially if you’re 12.

Kara spent Monday morning at Activision Blizzard (ATVI), where they are pushing forward with the entire Guitar Hero line, even as the game industry faces a nearly 50 percent decline in U.S. sales this year. Kara got to play hero to several of the forthcoming releases, including previewing the much anticipated DJ Hero console.

The youth movement continued with the fancy bar graph from Forrester Research’s annual “State of Consumers and Technology,” which drove home an important fact of life for media outlets. All the money being spent on new media expansion is a fight for the young; older consumers are sticking to more reliable fare.

BoomTown wasn’t just about the kids though, as 23andMe co-founder Linda Avey announced her exit from the gene-juicing business to focus on a foundation related to Alzheimer’s research. Avey co-founded 23andMe with Anne Wojcicki in 2006 with early money from Genentech (DNA), Google (GOOG) and New Enterprise Associates, as well as Wojcicki’s husband, Google co-founder Sergey Brin.

While BoomTown was keepin’ it real with the kids, Digital Daily was abuzz with a spate of iPhone news. John started Monday off on the topic of the Sept. 9 iPod event with confirmation that music, indeed, will be center stage. In the Apple world, that means iPods and iTunes, though Beatles fans are keeping their fingers crossed.

Readers got a compare-and-contrast of Apple’s (AAPL) foreign and domestic policy when John covered a potential two-carrier system in China and the long-awaited stateside activation of MMS features in the iPhone OS3. Meaning that while China may get the iPhone carrier flexibility so far absent in the U.S. market, American consumers are just about to get a new feature that’s been standard on every smartphone for a year or more.

MediaMemo covered a fluid week in the world of media giants and Top Chefs. Disney (DIS) went off to the mines and instead of seven dwarfs, found Marvel and the rights to its 5,000-character portfolio. Disney CEO Bob Iger didn’t think $4 billion was too much to pay to bring Iron Man and friends to the happiest media empire on earth and is sure the company will benefit from such “rich intellectual property.”

If the Disney vault got 5,000 new friends this week, eBay said goodbye to one long-time partner. Peter reported that the long, difficult breakup between eBay and Skype was finalized when eBay sold a 65 percent stake in the VOIP juggernaut to the internationally mixed bag of Silver Lake, Index ventures, Andreessen Horowitz and a Canadian pension fund.

Peter rounded out the week of motion with lots of changes in Google’s ranks. The search giant shuffled the chairs with David Fischer moving out of the self-serve ad business with no sign yet of a replacement. Google China saw the big chair turn upside-down when Kai-Fu Lee announced that he’d leave the company this month to begin his own venture. Lee will be replaced by the tag team of Boon-Lock Yeo and John Liu, who will oversee engineering and business, respectively.

Not all Google’s shifts were outbound though. “Charlie’s Café” at the main campus got its Top Chef back after Preeti Mistry failed to make the cut on the Las Vegas iteration of the popular TV show. Regular fans of the show weren’t surprised by her dismissal, but at least Google can put one in the plus column this week.

Over at The Mossberg Solution, Katie took aim at a possible answer to a question plaguing all image-conscious technophiles: Yea or nay to the omnipresent Bluetooth earpiece. Plantronics (PLT) and Aliph, maker of the Jawbone, both say yea and are upping the ante on the recently reviled symbol of cellphone userdom. Katie reviewed the fashion-forward Discovery 975 and Jawbone Prime, each designed to separate its users from $130. In exchange, they’ll get redesigned outsides and some new features that might even put one back in Brad Pitt’s ear.

“The fifth-consecutive month of sequential increases in semiconductor sales reflects improving demand in the consumer sector,” SIA President George Scalise said in a statement. “Sales of consumer products such as netbook PCs and cell phones are supporting the modest recovery in demand that is now under way. Purchases of Information Technology products by the enterprise sector continue to be tempered by caution and longer replacement cycles. There is also evidence of a return to seasonal industry patterns.”

Great news, coming as it does after the chip industry’s seemingly endless procession of bad. Certainly, it’s reassuring that the SIA sees “evidence” of a return to normal sales patterns, even if they are at a lower level. The semiconductor sector is typically among the first industries to recover ahead of a broader market turnaround. This latest report suggests we may be at the beginning of just that or at least at an inflection point where the uncertainty in consumer and enterprise technology markets that’s been such a drag on the industry begins to abate.

That’s the word from agency Chairman Julius Genachowski, who says he’s concerned not just with the competitive ramifications of carrier-exclusivity deals, but with their tendency to limit customer access to top smartphones. “There are markets in the country where if you wanted an iPhone, if you wanted a Pre, you just couldn’t get it–from anyone,” Genachowski told Bloomberg. “So one question is, is that consistent with broad consumer interests?”

Vermont residents and those living in the rural areas of other states who can’t use the iPhone because AT&T (T) offers only roaming coverage there would likely say the answer to that question is no. But AT&T, Verizon (VZ) and other Tier 1 wireless carriers disagree. They claim exclusive handset deals are beneficial.

“The popularity of the iPhone and its innovative features and applications…has provoked an unprecedented competitive reaction,” James Cicconi, AT&T’s senior vice president of external and legislative affairs, wrote in a letter to the Senate Judiciary antitrust subcommittee. “Exclusive handsets have provided U.S. consumers the most advanced devices in the world at distinctly affordable rates. By allowing a carrier and a manufacturer to share the enormous risks and costs of bringing an inventive but unproven new device to market, exclusive arrangements both quicken the pace of technological advancement and incentivize the carrier to offer even greater handset subsidies to its customers.”

Verizon argued that point as well in a recent letter to Congress’s Telecommunications Subcommittee. “Exclusivity arrangements promote competition and innovation in device development and design,” the company said. “We work closely with our vendors to develop new and exciting devices that will attract customers. When we procure exclusive handsets from our vendors we typically buy hundreds of thousands or even millions of each device. Otherwise manufacturers may be reluctant to make the investments of time, money and production capacity to support a particular device.”

In some cases, perhaps. Though I doubt Apple (AAPL) and Research in Motion (RIMM), maker of the BlackBerry, feel that way these days. If there’s reluctance anywhere, it’s reluctance on the part of carriers like AT&T, which can’t bear the thought of losing its exclusive on the iPhone, without which it will face defections and slowing growth.

Since it was first released in November 2004, the browser has succeeded not just in dislodging Microsoft’s (MSFT) IE from its dominant market position, but in proving that an open-source project can become a widely used consumer application. Now, it is fast approaching its billionth download and is likely to hit that milestone this afternoon.

As of this writing, Mozilla’s Firefox Download Counter is showing 999,935,615, with upward of 20 downloads every second. Though that number is for downloads-to-date, not active users, it’s still an impressive one and says a lot about the mindshare Firefox has managed to capture in a relatively short time against a rival that’s bundled with the most ubiquitious operating system on the planet.

As Mozilla CEO John Lilly told me this morning, “It’s a billion votes–a billion intentional decisions–for people to take control of how they interact with the Web. We–the whole Mozilla community, really–are really proud to have been part of building a product that’s been downloaded so many times, but more importantly, we’re all proud to have helped people take more control over their online lives by making intentional decisions.”

UPDATE: Mozilla tells me Firefox hit the one billion downloads mark at 7:47 am PDT/10:47 am EDT.

Below, Lilly and Mozilla chairman Mitchell Baker in an interview with Walt Mossberg at our recent D7 conference:

]]> http://digitaldaily.allthingsd.com/20090731/firefox-to-reach-1-billion-downloads-friday/feed/ 3 http://digitaldaily.allthingsd.com/20090728/bofa-reconsiders-manifest-destiny/ http://digitaldaily.allthingsd.com/20090728/bofa-reconsiders-manifest-destiny/#comments Tue, 28 Jul 2009 18:01:10 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=22288 Remember the last time you set foot in a real brick-and-mortar bank? Me either. And we’re not the only ones. With more and more people managing their financial affairs via PC and mobile device, a bank’s retail presence no longer need be as ubiquitous as it once was.

The latest institution to realize this–Bank of America (BAC) which, according to The Wall Street Journal, plans to close up to 10 percent of its 6,100 branches across the country over the next three-to-five years. It’s not yet known when the closures will begin or exactly how many locations will be closed. BofA says only that “Our vision is the network will be managed downward over time.”

About time too. With fewer and fewer consumers banking at their local branches and remote deposit capture an easy matter via ATM, it seems foolhardy to maintain them.

“They are not economically viable,” Rochdale Securities analyst Dick Bove wrote in a recent note to clients. “The branches are likely to be closed for three reasons: a) branch economics are changing; b) the need for positioning has been reduced; and c) the fear of regulation suggests closing branches now makes sense.

“When America was building new houses in the millions,” Bove continues, “it was creating new neighborhoods. Banks competed with each other to get branches into the new communities in the choicest locations. Branches were often built in supposed choice locations just to keep the competitors out. This strategy has now been abandoned. Many of the new communities have been abandoned. These branches need to be abandoned.”

]]> http://digitaldaily.allthingsd.com/20090728/bofa-reconsiders-manifest-destiny/feed/ 0 http://digitaldaily.allthingsd.com/20090724/microsoft-tweaks-laptop-hunter-ads/ http://digitaldaily.allthingsd.com/20090724/microsoft-tweaks-laptop-hunter-ads/#comments Fri, 24 Jul 2009 18:00:43 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=22148 ]]> http://digitaldaily.allthingsd.com/20090724/microsoft-tweaks-laptop-hunter-ads/feed/ 0 http://digitaldaily.allthingsd.com/20090721/aapl-q3/ http://digitaldaily.allthingsd.com/20090721/aapl-q3/#comments Tue, 21 Jul 2009 20:35:38 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=21819

To see Peter Kafka’s liveblog of Apple’s Q3 Earnings Call, click here.

The economy is in recession, consumer spending is down and the PC market is in the worst decline since the Great Dark Times of 2001.

And Apple is doing just fine.

After market close Tuesday, the company reported earnings that crushed the Street’s estimates into a fine iPod-white dust. Analysts surveyed by Thomson Reuters estimated that Apple (AAPL) would earn $1.16 per share on $8.16 billion in sales. Instead, it earned $1.35 on $8.34 billion for a profit of $1.23 billion.

Apple shipped 2.6 million Macs in the quarter just as NPD forecast and it sold 5.2 million iPhones. iPod sales were down seven percent to 10.2 million. Gross margin was 36.3 percent, up 34.8 percent year-over-year, and international sales accounted for 44 percent of revenue during the period. For its fourth quarter, Apple expects to earn $1.18 to $1.23 per share on revenue of $8.7 billion to $8.9 billion.

“We’re making our most innovative products ever and our customers are responding,” Apple CEO Steve Jobs said in a statement. “We’re thrilled to have sold over 5.2 million iPhones during the quarter and users have downloaded more than 1.5 billion applications from our App Store in its first year.”

Clearly, business is good in Cupertino, recession be damned. Apple shares rose two percent to 154.68 in after-hours trading on the news.

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