Game Consoles See Revenue Growth with Digital Distribution

With the coronavirus pandemic, more people are staying at home and, according to Newzoo, 700+ million of them are playing video games on consoles. The market research firm said the console industry is slated to rake in $45 billion in revenue this year. Microsoft and Sony have unveiled new consoles, and Niko Partners analyst Daniel Ahmad stated that consoles are a “much more profitable business” than a decade or more ago, especially since digital distribution of games enables the game companies to enjoy bigger profit margins than before.

CNBC reports that, “whereas publishers would traditionally make about $35 on a $60 game sold in-store, online downloads mean they can now make as much as $45 per game; this can increase to 95 percent for platform holders like Sony selling their first-party games digitally.” Digital download numbers continue to rise, with “both Microsoft and Sony selling digital-only versions of their new consoles at lower prices.”

Microsoft plans to expand its player base “across a range of different devices, including its Xbox consoles, Windows PCs and smartphones” and, in September, also launched its xCloud gaming service as part of its Xbox Game Pass subscription platform.

“We think of the console as something that is always going to be part of gaming, because what it does is it effectively gives someone the flagship experience,” said Microsoft corporate vice president of gaming ecosystem Sarah Bond. “But the other thing we’ve seen — and there really has been a rise in this over the last 10 years — is people wanting to game across devices. So the console plays that role as part of an ecosystem where people can actually game anywhere.”

Sony is promoting its PS5 as an “all-in-one system that gives players access to its exclusive games as well as its PlayStation Plus and PlayStation Now subscription services, which offer online gaming, some free titles and cloud gaming.”

According to analysts, PlayStation 4 had a leg up on Microsoft’s Xbox One “due to the number of exclusive games it sells … such as ‘God of War’ and ‘The Last of Us’.” Nintendo also benefits from its “vast catalog of intellectual property, with series like ‘Animal Crossing’ and ‘Super Mario’.” Big Tech is also entering gaming, with Amazon, Facebook and Google debuting their own cloud gaming services.

Ahmad said that, whereas “Google and Amazon are trying to compete with the likes of Steam and Epic Games as digital game distribution platforms themselves … on the other [hand], Facebook is using game streaming as an advertising tool.”

Console players are the ones who are adopting cloud gaming, added Ahmad. But Newzoo pointed out that, “it’s going to be an opportunity for tech companies of all stripes to take advantage of the growth in mobile gaming, which now accounts for almost half of the entire market.” Microsoft, for one, “sees cloud gaming and subscriptions as a chance to drive more users toward its content,” and, to that end, purchased video game publisher Bethesda Softworks, for $7.5 billion.

“Content is key to people driving our gaming subscription, and it’s something that people look for,” said Bond, “who added that Bethesda’s content would help ‘accelerate’ growth of its Game Pass subscription service.”

Sony Says the PS5 Would Still Be Sold Out Without a Pandemic, Engadget, 11/24/20
There Are 400 Games in Development for Google Stadia, Engadget, 11/24/20
Xbox Chief: the Best Argument Against the Xbox Series S Was Sony, The Verge, 11/24/20
Xbox Head Phil Spencer Says Console Tribalism Is ‘One of the Worst Things About Our Industry’, The Verge, 11/24/20

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