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Updated U.S. Video Game Market 2017 Holiday Predictions

U.S. Video Game September Results Representative of a Resurgent Console Market

Oct 31, 2017
Mat Piscatella, Industry Analyst ;
Video Games

The NPD Group reported U.S. sales of video game products in the month of September grew 39% when compared to a year ago, reaching $1.2B in the month.

Performance of console software was the most impressive in the month, as dollar sales grew 52.1% compared to September 2016 reaching $726m, thanks in large part to the releases of Destiny 2 from Activision Blizzard and Take 2’s NBA 2K18.

This growth in console software dollar sales is, in fact, the highest in tracked history for the month of September.

So how has the console software industry transitioned from 2013 proclamations that “Mobile Kills the Console” to highest recorded growth?

  • Appealing hardware - Consumers have purchased the new consoles at levels approaching all-time highs.  On a time-aligned basis, the PS4 and Xbox One combine to currently feature an installed base that’s 25 percent higher than that of the PS3 and Xbox 360; and they are on pace to finish the year ahead of the time-aligned combined installed base of the PS2 and original Xbox. The Nintendo Switch, launched earlier this year, has been supply constrained since launch, with demand far exceeding available supply.  Can the Nintendo Switch reach the sales levels achieved by the Nintendo Wii in the U.S. over its first 12 months?  Difficult to say, but it’s very possible.
  • A wide range of appealing content – A far wider variety of games is available today than at any other point in history.  We’re also seeing a wide range of price points and business models to go along with a larger assortment of genre, gameplay, and art styles featured in these games.
  • The rise of digital distribution – The data is clear - digital distribution is a market growth driver that’s making the overall available market bigger.  Not only because of the wider variety of titles that digital distribution makes possible, but also because of consumer convenience, accessibility, and flexibility in pricing and promotional programs.  Digital distribution has also fueled expansion of available business models supporting titles that strive to achieve deeper and more sustained player engagement, the driver of extended sales success at a title level.

For more insights from the month, please take a look at my YouTube video of September market highlights here.

U.S. Video Game Market Holiday Predictions (UPDATE)

Looking ahead to Q4 results, I expect continued growth, even if not at the same lofty levels seen in the September results.

In June, I published my predictions for holiday 2017.  Nothing in the data we’ve seen since has pushed me off any of these expectations:

  • Call of Duty: World War II will be the quarter’s best-selling game, with sales growing more than 25 percent versus last year’s Call of Duty: Infinite Warfare.
  • At least 4 titles will achieve $100 million or more in Q4 packaged consumer sales.
  • The top 5 selling games this Q4 will combine to generate at least 20 percent more packaged consumer revenues than the top 5 one year ago.
  • This year’s top 5 selling games of Q4 will be Call of Duty: WWII, Star Wars Battlefront II, NBA 2K18, Super Mario Odyssey and Destiny 2.
  • By the end of Q4, approximately 320 packaged titles will reach retail shelves, up from 271 a year ago, and up from the 21st century low of 230 games in 2015.
  • At year’s end, the time-aligned installed base of the PlayStation 4 and Xbox One will exceed that of the PlayStation 2 and Xbox by 5 percent, and will be ahead of the PlayStation 3 and Xbox 360 by at least 25 percent.
  • Sales of portable hardware and software will be down by at least 40 percent versus Q4 2016.
  • At least 90 percent of Q4 packaged software sales will come from the PlayStation 4, Xbox One and Switch.

The only change I might make now is adding Assassin’s Creed: Origins to potentially replace Destiny 2 as the #5 game of Q4, only because the September launch of Destiny 2 was so massive that the timing of sales may have been pulled forward.

In any case, I expect double-digit percentage dollar sales growth to be a common theme in both hardware and console software reporting through the rest of 2017.

 

The 2017 U.S. Video Game Market Looking Much as I Expected in January (UPDATE)

At the beginning of the year, I posted my 2017 outlook.  Checking in on progress through the end of Q3, the market is shaping up almost exactly as I’d anticipated:

  • Over 5,000 games will release on STEAM in 2017.  For every title released on consoles or portables at retail, at least 25 titles will release on STEAM.
  • Users, not Units, will be firmly embedded as the planning currency for console game publishers, so expect more incentives to stick with one console game longer.
  • Virtual currencies and consumables will be baked into more (most?) console games.
  • Gold editions will become more prevalent, lifting average selling prices at launch well above $60.
  • The Nintendo Switch will experience hardware shortages, alter the console landscape.

I underestimated how many titles would come to STEAM in the year.  As of this writing, nearly 6,000 games had reached STEAM in 2017, and we may be well on our way towards seeing 7,500 or more in the year.  Steam Direct has certainly had an impact in making it an easy process to place titles on the STEAM marketplace.

Engagement, virtual currencies, consumables (loot boxes), and gold editions have all been very hot topics going into the holiday, with almost all the biggest titles pursuing extended engagement using a multitude of these mechanics.

Nintendo Switch has exceeded the lofty expectations I had for it entering the year.  It’s not only altered the console landscape, it features what could be the strongest year one software lineup of any console in history.  With the coming launch of Pokémon RPG and extended support of indie and major third-party development, Nintendo Switch could rewrite the record book for console installed base and adoption by the end of its lifecycle.  Will Pokémon RPG drive multi-console unit ownership per household?  Will the hardware be iterated on, as Nintendo has managed previous consoles and portable devices?  How many more 90+ rated games will we see on the platform?  The answers to these questions will ultimately determine the ceiling, but so far there is much reason for optimism.

It’s been quite some time since the console market in the U.S. has been in such a strong position for potential continued growth.  Driven by innovations in both hardware and content, and pushed forward by high levels of consumer engagement, the console space has reasserted itself.  The short to mid-term outlook of the space remains exceptionally bright for those that can adjust to the ever-changing landscape.


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