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September 30, 2013

Holiday Season 2013 Video Game Outlook

Matt HudakAnalyst Opinion by Matthew Hudak

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The video games industry has not been very strong of late, posting a retail value decline of 2% globally in 2012.  For the coming holiday season, however, new consoles from Sony and Microsoft will be released in November. Add to this signs of economic recovery in numerous developed countries and it is likely to be the ideal time to convince consumers to upgrade their static home systems. One question, however, remains - which company will be best able to capitalise on this holiday season?

A King in the North?

One of the key reasons behind the decline of video games globally was North America, which accounts for nearly a 30% value share of the US$71.4 billion market. The region witnessed a retail value decline of 12% in 2012. Due to its enormous share of the video games market, this region is critical for console manufacturers. It is the primary area of focus for Microsoft and Sony this holiday season as both release their respective next generation consoles, the Xbox One and PS4. Nintendo, in a bid to remain competitive, will also drop the price of the Wii U to US$299.99, making it the cheapest of the three consoles.

However, with a lack of system moving games such as a new Zelda or Smash Brothers, the odds on Nintendo gaining any ground this holiday season remain slim. It is largely now a fierce competition between Sony's PS4 and Microsoft's XBox One, and at the moment Sony appears to have the edge. Sony’s PS4 received a much stronger initial reaction following its E3 presentation, largely due to the number of consumer-friendly features, such as disc sharing and no internet requirement, which Microsoft did not have at the time. Microsoft experienced a tremendous backlash from gamers, and has since backpedalled on many of its early Xbox One features. To bring the console more into line with consumer preferences it now allows disc sharing, does not require a constant internet connection, and does not need to be connected to a Kinect to function. However, its console is still US$100 more expensive, giving Sony a good chance to regain market dominance this holiday season.

Xbox One.JPG

FIFA casts a very large shadow

Western Europe is another key market for console makers, accounting for 23% of static console sales in 2012. Sony is doing very little different from its North American launch, although it is lowering the price of its PlayStation Vita. The PlayStation Vita has a remote play feature with the PS4, and may therefore make buying both a Vita and a PS4 attractive for some consumers. Microsoft, on the other hand, has partnered EA so that all pre-orders of Day One Edition Xbox One will come with a free digital download of FIFA 14. This is big news as FIFA is typically the second best-selling static console game in Europe. By bundling it with the Xbox One, Microsoft has made its console much more attractive to the large and loyal FIFA fan base in Western Europe.

Before Nintendo goes west, it must go east

Japan has also traditionally been a major area for video game consoles, accounting for 8% of global static console sales. The Japanese market has been largely dominated by domestic companies Sony and Nintendo, which together accounted for nearly 98% of console sales in 2012, with Microsoft being largely a minor player. While Sony has been an incredibly strong retail threat in Japan over the past five years, the company appears to be fully focused on North America in 2013 as the PS4 has been delayed in Japan until February 2014. Nintendo now has a chance to regain its position as the leading static console system in Japan with the Wii U this year. This is an opportunity that Nintendo cannot afford to miss as it needs to create a large enough Wii U base to stoke future software sales in Japan. And although this holiday season will not see any next generation console competition, Sony has not entirely abandoned the region. The company is releasing a new Vita TV console in November which will allow consumers to play PlayStation Vita games on their television and stream the PS4 console to any television hooked up to the Vita TV.

The Console Throne

Ultimately, the victor of this first round of the console war will be unclear until the dust settles after the New Year. Like many eager children around the world, major console makers are waiting for the winter, which typically marks the beginning of the holiday rush. And they will certainly not have to wait too long because winter is coming.


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