Xbox 360 'attach rate' worries analysts


Each time Microsoft sends out a release to promote its Xbox 360 business, the company tends to highlight a number of statistics, including those for its expanding games portfolio, Xbox Live usage, and the Xbox 360 attach rate.

Currently, the attach rate for the system stands at an impressive 5.2 games bought per console. But is this actually a healthy statistic? Susquehanna Financial Group analysts Jason Kraft and Chris Kwak argue that this high attach rate may actually be bad sign.

 "It is natural for us to conclude that the higher the attach rate, the greater the console's appeal to its owners and the bigger the revenue per console for game publishers. However, we believe the unusually high attach rate on the 360 is a sign of an increasingly unhealthy console growth rate, and should be worrisome to publishers and investors," wrote Kraft and Kwak. "In our view, it is akin to a baseball player who has a very high batting average but who has only played five games through the first three months of the season."

The duo continues by pointing out that the majority of 360 owners are the hardcore gamers and early adopters who typically buy more games. In order for a console's install base to grow, more casual gamers (who generally have lower attach rates) need to come on board.

 Kraft and Kwak added, "We observe that in the early transition period of a console, a handful of games can have a dramatic effect on attach rates. It is also evident that small changes in the installed base (or lack thereof) can have dramatic effects on the cumulative attach rate. Rather than indicating a healthy gaming ecosystem, the relatively high Xbox 360 attach rate is a damning commentary on the limited hardware installed base, most of whom are hard-core gamers.

"What publishers need from the 360 is quicker adoption of hardware and a rapidly growing installed base on which to sell progressively more game units. A slower expanding attach rate in the face of steady growing 360 console base is more favorable for publishers. Otherwise, publishers may have to wait for 2007 and the PS3 before the game market truly takes off."

 "If the Xbox 360 sports an attach rate of 10 by holiday 2007, it will probably be because it has failed to gather critical momentum. What does it benefit publishers and investors if 10 games are being purchased by a total audience of 10 million 360 owners? It doesn't take effort to see that a console with an attach rate of 8 and an installed base of 50 million is superior to a console with an attach rate of 12 with an installed base of 20 million," they further explained.

 Ultimately, this could be a bad sign for the video game industry. Kraft and Kwak said that they believe the PS3 will exhibit similar attach rate characteristics. In fact, they noted that the PS3 could have even higher attach rates than the 360 in its first year. "Lest anyone conclude this is just the step-function trend of next-gen consoles, we caution that a high attach rate is likely a symptom of hardware shortages and a limited installed base. This is bad for publishers," Kraft and Kwak concluded.