Virtual goods and subscription services have become integral to the console industry, rivaling the sales of high-priced standalone games. Research by Ampere Analysis shows that console players are expected to spend $21 billion on in-game items and subscriptions this year, which is equal to the amount spent on game downloads and physical discs. This shift in consumer spending habits can be attributed to the rising popularity of free games like Fortnite, which debuted in 2017. These games offer an alternative to expensive titles and encourage players to spend money on virtual currencies, outfits, weapons, and access to additional content. While the majority of revenue comes from a small minority of players, industry leaders like Electronic Arts anticipate that live services will continue to be a significant source of income.
According to Ampere, global revenues from console games are predicted to increase by 1.3% to $42 billion in 2022, recovering from a decline in the previous year. The total market, including hardware, is expected to grow by approximately 5% to $61.5 billion. However, this shift towards virtual goods and subscriptions presents a challenge for console makers, developers, and publishers. Sony, in particular, faces difficulty as it relies heavily on exclusive premium titles for its PlayStation 5 console. These live service games dominate player engagement, making it harder for traditional publishers to compete. Piers Harding-Rolls, head of games research at Ampere, contrasts the enduring appeal of games like Fortnite with blockbuster releases that often lose player attention quickly. This transformation is making the console market more similar to mobile gaming, where free-to-play apps with optional purchases have dominated for years.
To adapt to this new era, traditional console publishers such as Activision Blizzard, Take-Two Interactive, and Electronic Arts have reinvented themselves by turning popular franchises into live games that players continue to engage with and spend money on for an extended period. A prime example is Grand Theft Auto V, which continues to attract players a decade after its initial release thanks to regular updates and additional content. Recognizing the value of content, Microsoft plans to acquire Activision Blizzard in a $75 billion deal, mainly to enhance its Xbox Game Pass subscription service. Sony’s subscription service, PlayStation Plus, while popular, relies more on exclusive premium titles. If players continue to gravitate towards free games like Fortnite, Sony may struggle to sell its PS5 console to anyone but the most dedicated players. Analysts suggest that Sony should reconsider its business model and adapt to the changing preferences of gamers. The rising development costs of premium games have led to higher upfront prices, further adding to the challenge.
Despite these challenges, the console market has shown signs of growth driven by improved availability of the PS5 and strong sales of Nintendo’s Switch. In the first half of the year, US gaming hardware revenues rose by 23% to $2.6 billion compared to the same period last year. Sony has sold 40 million units of the PS5 as of late July, but the console has experienced a slowdown as players face rising living costs. Sony’s chief operating officer Hiroki Totoki acknowledges that PS5 sales have not met expectations and accelerating the penetration of the console is a top priority for the company. Short-term strategies such as promotions and price discounts have shown some success, with PS5 sales volumes in the UK rising by 73% in the first 31 weeks of this year. However, the holiday season will be crucial, and compelling releases will be necessary to entice players away from popular free games like Fortnite.
The console industry faces a new dynamic as virtual goods and subscription services gain prominence. While challenges lie ahead for established players like Sony, the market has the potential for growth and success if companies can adapt to changing consumer preferences and offer compelling content to capture players’ attention.
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