The PS3 / X360 SW Drop Off is now entering the terminal phase

[TheSource]

It looks like the PS3 / X360 software market has entered the danger zone for game purchase rates per year, where the size of the base begins to become meaningless to sustaining the overall software market. The official cut off to me is two games per user in the decline part of the cycle. Once you decline from two games purchased per average user, no amount of hardware sales can mask the declining interest in the platform and software rapidly falls off. Now, check out the spot where PS3 + X360 have entered 2013:

              LTD Combined HW        Yearly SW Purchased            Game Purchase Rate of Entire Base

2005              1.2m                                    2.8m                                                  2.33

2006              9.2m                                    30m                                                   3.25

2007              25.0m                                  98.6m                                               3.94

2008              46.1m                                  197.7m                                             4.28

2009              69.3m                                  204.0m                                             2.94  

2010              96.3m                                  265.0m                                             2.75

2011              124.3m                                303.1m                                             2.44

2012              146.6m                                278.9m                                             1.90 -------> Danger Zone.

2013E             161.5m                               230m                                                 1.42

2014E             170m                                   115m                                                0.67

2015E             174m                                   60m                                                  0.34

2016m            176m                                   20m                                                  0.11

2017E              177m                                   5m                                                    0.02

If the purchasing rate had declined to only, 2.1 from 2.44 in 2012, PS3 / X360 SW would have increased by 1.5%. This is why it is the danger zone - the drop from 2.4 to 1.9 games purchased for the base is far more dangerous than the drop from 3.5 to 3.0, or 4.2 to 3.2. We're also at the point where it is nearly impossible for hardware growth to be more than 10-15% in terms of overall growth from the cumulative previous figure, so any decline of purchasing will now lead to big time software drops despite ongoing meager hardware growth. Purchasing rates also tend to take a big hit when the most active users move on to new systems, and the next Xbox and PS4 will be here soon - which is why I have 2014 as half as big as 2013.

This isn't anything unusual - typically new platforms launch immediately (within 18 months) after the purchasing rate of the base drops below two games per user. Wii got to about two games purchased per user in mid 2011, PS2 & GC got there in calendar 2005, N64 got there in early 2000, PS1 got there in 1999.