U.S. consumer spending on video games is projected to reach $13.4 billion in the combined November and December 2020 holiday period, an increase of 24 percent when compared to a year ago. Growth is expected to be driven by console hardware, headsets, gamepads, mobile, digital full-game and post-launch content on console and PC, and subscription. Annual U.S. consumer spending on video games may exceed $50 billion in 2020, which would constitute a new record high for the U.S. market.
However, significant market uncertainties exist, which provide a high range of error to the projection.
While there is always high uncertainty in a console transition year, 2020 has obvious additional factors at play that did not exist in prior periods. It would be difficult to overstate the impact that pandemic-driven changes in consumer behavior have had on the video game market. A surge in video game players and engagement through the spring and summer months depleted market inventory of existing hardware, while fueling a corresponding surge in content and accessory spending. The impact of these changes is expected to continue throughout the remainder of the year.
According to The NPD Group’s 2020 Gamer Segmentation Report, the U.S. now has 244 million video game players - 30 million more than in 2018. And players are playing more - an average of 14 hours per week in 2020 - compared to 12 hours two years ago.
This surge in player count and engagement, combined with reduced spending in experiential gifting (such as travel, theme park and sport tickets, for example) should combine to result in more available holiday dollars for video game products and services.
But what fun is a holiday outlook blog without some predictions for the U.S. video game market?
- PlayStation 5 and Xbox Series console sales will sizzle – I’ll start with the most obvious prediction. PlayStation 5 and Xbox Series consoles should be among the hottest holiday gifting items of 2020. Units will be tough to find with continued strong demand into 2021.
- Nintendo Switch will be the best-selling console of holiday 2020 – Switch will also be a hot holiday gifting item with more households picking up multiple Switch consoles in the fourth quarter. The lack of available inventory of new PlayStations and Xbox systems will leave Switch as an appealing available option (although supply may still be difficult to find).
- Gamepad and headset spending will set new holiday records – These accessory segments have shown extended strength for months; and with new consoles on the way, I expect a refreshed demand surge for gamepads and headsets throughout the holiday window. This will allow both to achieve new record-spending highs.
- Holiday 2020 hardware will see the lowest price promotion in history – The surge in hardware demand seen throughout the spring and summer months of 2020 has left inventories for PlayStation 4 and Xbox One consoles lean, leaving little incentive to price promote. While some bundling for legacy hardware may exist, particularly around Black Friday, I do not see price promotion being a significant factor in the holiday 2020 market.
- Call of Duty: Black Ops Cold War will be the best-selling game of 2020 – And Call of Duty will be the U.S. market’s best-selling gaming franchise for the 12th consecutive year.
- Backwards compatibility and shortage of next generation releases will result in longer tails for legacy generation titles – I am expecting many titles from the PlayStation 4 and Xbox One catalogs to see refreshed demand with adoption of next generation consoles. We will not see the sharp platform breaks that were experienced in prior generational transitions.
- Subscription spending will surge – This area has been a growth segment for some time, but an emphasis on these services with next generation consoles will lead to a sharp uptick for early adopters. Xbox Game Pass Ultimate will be a primary driver.
- Next generation’s limited storage provides opportunity for storage accessories – The included SSD hard drives on the next generation consoles are not particularly large. For those early adopters who will want to dive into their content libraries or explore the content available through subscription services and free-to-play live service games, additional storage may become a must-have.
There are other areas that I’ll be paying close attention to, including the continued floundering of the VR market, a potential bump to physical content sales driven by gifting, and to what extent the reduction in experiential spending during the holiday will impact video games. It is a fascinating time in the video game market.
New consoles, more players, increased player engagement, wider variety in titles and services than at any point in the industry’s history, and a shift in spending away from experiences to other segments all give video games strong market tailwinds this holiday. It is not so much a question of whether the U.S. video game market will set a new spending record this holiday, rather the question is how high the new record will be.