Sep 20 2020
The Video Game, DVD and Recorded Music Retailing industry is about to witness its biggest change. More games will be sold online digitally than ever before with console makers launching all digital consoles and subscription-based streaming services on the rise. Industry revenue is forecast to decline at an annualised 7.4% over the five years through 2024-25.
Sony Interactive Entertainment (Sony) revealed the price and release date (12 November 2020) for its upcoming next generation console, PlayStation 5, on 17 September 2020, with the full edition priced at AUD$749.95 and the disk drive free digital edition priced at AUD$599.95 in Australia. Many consumers believe this launch signifies the push from the Japanese console maker for an all-digital future for gaming. The digital edition costs significantly less than the full edition with no downgrade in feature and performance, making it one of the best entertainment deals for the upcoming holiday season.
Sony’s main competitor Microsoft is also launching two new gaming consoles for the holiday season with Xbox One Series X, and Xbox One Series S. The latter is Microsoft’s version of a disk free digital console. In addition, Microsoft has partnered with Telstra to offer a monthly subscription-based Xbox All Access buying option. Similar to a monthly phone plan, instead of paying the full amount, consumers will incur a monthly cost to gain access to a brand new console plus Xbox Game Pass Ultimate. This release is Microsoft’s answer to the all-digital gaming future. It is an online streaming platform that offers free games to its subscribers at no extra cost. It also comes with Microsoft’s cloud gaming service xCloud.
Two of the three major console makers have both announced disk free digital-only consoles, with Google yet to introduce its cloud-based gaming platform Stadia in Australia. These significant releases are clear signs that the businesses are shifting towards the all-digital future. The Video Game, DVD and Recorded Music Retailing industry has already felt the impact of such shift. JB Hi-Fi Limited reported in its FY 2020 annual report that its software sales were down 12.1% including music, movies and games software. Another major player in the industry, Electronics Boutique Australia Pty Limited (EB Games), has also posted a sharp drop in revenue with a 14.3% decrease in overall sales.
An all-digital future seems inevitable. Console makers prefer digital distribution over a physical release for many reasons. Digital distribution removes the manufacturing cost and stock management issues. Each console maker also has its own exclusive digital storefront. By selling games directly from its own platform, console makers can get the full profit out of each sale instead of sharing the profit pie with a third party retailer.
The COVID-19 pandemic and the government’s strict quarantine rules have also changed consumers’ behaviour as to how long they play video games for and how they buy games:
- The average number of hours spent playing video games has increased significantly as a way to pass time at home.
- Consumers are buying more games online as opposed to a physical copy as many retail stores are currently closed.
- Video game production has been significantly disrupted, resulting in a shortage of physical copies in stores.
JB Hi-Fi Limited reported a 56.6% increase in Australian online sales in FY 2020. Nintendo Australia Pty Ltd, the third major console maker, also posted a whopping 119.1% growth from its digital sales revenue in FY 2020. Its contribution to its overall sales revenue has also increased from 7.5% in 2019 to 12.9% in 2020. This result demonstrates a strong showing of how consumer behaviour has shifted towards embracing a digital future.
Pre-orders for PlayStation 5 have been sold out at all major retailers in Australia, indicating that consumers’ appetite for video games remains strong despite the current hardships attributable to the COVID-19 pandemic. However, how consumers purchase video games is undergoing a major overhaul, putting pressure on operators in the Video Game, DVD and Recorded Music Retailing industry to innovate to remain viable.
IBISWorld related industries and company reports mentioned in this release:
Video Game, DVD and Recorded Music Retailing industry in Australia
Electronics Boutiques Australia Pty Ltd (EB Games)
Google Australia Pty Ltd
JB Hi-Fi Limited
Nintendo Australia Pty Ltd
Microsoft Pty Limited
Sony Interactive Entertainment
Telstra Corporation Limited