Cross Walk in Blue

Holiday Season 2013 Video Game Outlook

September 30th, 2013
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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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