Addicted to Growth - Video game market Fall & Beyond(part 1)
According to the NPD Group's Mat Piscatella the US video game spending is up 40% for the first half of the year. Hardware sales hit a 7 year high up 21% year-over-year, led by strong growth year-over-year by the Xbox One and a strong performance by Nintendo’s SNES Classic Edition - both PS4 & Switch continued to perform strongly but weren't a driver for growth so far this year. Accessory sales shot up 41%, with headset & headphone sales nearly doubling after Fortnite gained popularity. While in content sales(full-games, DLC, microtransactions and mobile games) were up 43% year-over-year, with majority of the growth being driven by a big increase in mobile game spending.
With strong growth in digital sales, retailers are faced with the challenge of competing with convenience. Last year almost 50% of video game sales in the UK were digital. With this growing trend it's retailers that are increasingly under pressure, while publishers & hardware makers are ripping the benefits of increasing engagement via their digital store fronts. From Steam, uPlay, Orgin, Nintendo eShop, PSN to recent rumors about Microsoft investing into streaming for their next gaming hardware based on the Scarlett Cloud Platform. Major publishers, studios and hardware makers are looking to put the pinch on video game retailers and reap the benefits of an ever growing market.
Continued strong growth North America, Europe and Japan during the fall
Video game sales show high seasonality trends, with maximum sales occurring during the fall due to a combination of holidays, digital store and retailer promotions(Black Friday, Cyber Monday, & Christmas Shopping). Nintendo for example makes around 50% of it's total hardware, software and other sales during the fall quarter. There are several factors that will drive strong growth this fall:
Continued popularity of Fortnite in the US & Europe, a game that reached the cultural zeitgeist & currently driving video game consoles & accessories sales
Fortnite's popularity might be challenged by Call of Duty's new Battle Royale mode but the different aesthetics of the two games should allow them to co-exist. With over 100 Million downloads on Mobile and currently the biggest game on consoles it still has room for growth due to one main factor - it's yet to release in the biggest video game market, China. Chinese internet giant Tencent has pre-registered 10 million players for the eventual release of Fortnite in China on PC but more on that later....
New Subscription Services launched this year by Microsoft and Nintendo
Microsoft has currently launched two initiatives it's All Access Plan which allows users to pay for an Xbox One X or Xbox One S along with Xbox Live Gold and Game Pass via 24 monthly payments. While earlier in the year they launched their Game Pass Service a Netflix-like subscription that allows users to pay for some of their biggest exclusives like Halo, Sea of Thieves, Forza etc. which Microsoft plans to expand to include other games. These initiatives aim to provide a greater value proposition to new buyers and along with acquisition of new gaming studios should help with their strategy of long-term engagement with their users - driving monthly recurring use of their platforms.
Nintendo is also finally launching a pay-wall for it's online services, Switch Online Service will launch on September 18th. The service which will cost $20 per year will include cloud saves, paid online play for multiplayer games, a library of Classic NES games with added online play, smartphone app and special offers for subscribers. As the fastest selling console for Nintendo since the Wii, this will be a new revenue stream for Nintendo. With over 30 Million Switch owners by the end of the year this new revenue stream should be one of the driving forces behind an expanding digital revenue sources for Nintendo.
Activision launching Battle Royale Mode in Call of Duty: Black Ops 4
Call of Duty's beta reached nearly 600,000 viewers on Twitch today, through a stellar marketing campaign that combines influencers, an open Beta that showcases the new mode and aggressive co-marketing by Sony - we are probably going to experience one of the biggest launches in the franchise history. Last year Call of Duty WWII was the biggest launch in PS4's history - it's likely this year will eclipse that by a good amount.
Take Two launching Red Dead Redemption on Xbox/PlayStation
Take Two is also set to have a strong fall performance with Rockstar's first new game since Grand Theft Auto V in 2014. GTAV has gone on to sell over 100 Million copies, driving revenue via Grand Theft Auto Online, so it's a tough act to follow even for Rockstars*. Still Red Dead Redemption 2 was meeting pre-order forecasts for the Holiday season back in August according to analyst Doug Creutz from investment firm Cowen & Co. The original Red Dead released in 2010 sold over 13 million copies as of 2013, Take Two haven't released sales numbers since than but we will probably see strong growth with the sequel.
Sony exclusive Marvel's Spider-Man is a huge critical & commercial success
Sony has had a fantastic year of exclusives, God of War launch earlier this year and it resonated with both critics and gamers selling over 5 million copies in it's first month. So far we know that Spider-Man has doubled GoW's initial result in at least two countries. UK where it's the fastest selling game of the year beating out Far Cry 5 which launched on PS4, Xbox & PC & Japan where it is the biggest opening for a Spider-Man game ever. Although Insomniac still hasn't announced it, it's likely Spider-Man sales during its launch month will be close to 8 million which will be a record for a Play Station 4 exclusive.
Sony just announces PlayStation Classic mini console
PlayStation Classic will launch on 3 December with 20 build-in games. The announcement follows Nintendo’s huge success with its own retro console releases. This will add another reason why Sony fall revenue is likely to increase this year compared to last. Nostalgia has already driven other classic consoles to multi-million sales and PS Classic is likely to follow the same blueprint.
Nintendo banking on Holiday Blockbusters
Last year Nintendo's Super Mario Odyssey, in just over two months sold over 9 million units. This ended up being the only major game Nintendo released on the Switch during the busy Holiday season. The one reason Switch didn't have a stronger fall performance was the need for Nintendo to continue supporting their legacy handheld - the 3DS. Last November coincided with the launch of the last major title for the 3DS - Pokemon Ultra Sun / Ultra Moon was launched on the 3DS with 7.17 million sales by the end of the year.
Switch moved 7.3 million, while 3DS sold 1.91 million during the October to December period. This year due to the lofty fiscal year goal of 20 million units of Switch hardware and 100 million units of Software, means that Switch will need to ship more than 10 million hardware and 50 million software during the fall to be on pace meeting Nintendo's own guidance. The main drivers behind these type of sales will rest on some of Nintendo's biggest franchises - Smash, Pokemon & Mario Party. During the recent Nintendo Direct - special hardware bundles for both Smash and Pokemon were announced.
Smash Ultimate set to Smash Records
Smash is a celebration of gaming & one of the biggest franchises on Nintendo systems. The prior entries Smash 4 for 3DS and Wii U sold over 14.6 million units since release and there is a lot of reasons to expect Smash Ultimate to eclipse that number in short order. Nintendo themselves refer to the game as the "biggest crossover in gaming history". The game is expected by many to ship more than 10 million copies in it's launch month and is already the best selling game on Amazon.com for 2018 four months prior to launch. With a Smash Bundle launching earlier don't be surprised if its could very well be the biggest console launch for a Nintendo game of all time.
Pokemon Lets Go integrates Massive Mobile Hit
Pokemon Company is set to release a remake of Pokemon Yellow on the Switch this November. The new game will have integration with the smash mobile hit Pokemon Go. Pokemon Go reached over 800 million downloads in May 2018, generated over 1.8 billion in revenue and recent updates have ensured the active player-base has grown this summer. Pokemon Lets Go could tempt Mobile players to pick-up a Switch. Pokemon's release should help Nintendo expend the Switch audience as it's immensely popular among kids & women.
Super Mario Party brings the party to the casual audience
Super Mario Party will no doubt be dwarfed by the two heavy hitters which launch after it, but it should still be the best performing Mario Party game since the Wii. Wii Party ended up selling 9.3 million copies. As an extremely accessible party game Super Mario Party's task is growing the audience through providing novel experience that multiple people can enjoy.
In the second part of the article I will focus on trends effecting the Japanese Video Game market, China's recent licensing row & predatory practices that are a long term threat to sustainable growth in the industry.
- Strong growth in Japan driven by Nintendo
- China halts new game licensing
- Addicted to Profits
- Future of uncertainties