Microsoft’s Xbox Series X (Black) and Series (White) gaming consoles are showcased on November 10, 2020 at a flagship store of SK Telecom in Seoul.
Jung Yeon-jae | Via AFP Getty Image
LONDON – We’ve come a long way from the 80s arcade.
According to market research firm Newsu, the way more than 700 million people play video games today is on a dedicated console, with the console industry increasing revenue to achieve $ 45 billion in revenue this year. And the way companies in the sector are making money has changed rapidly over the years.
Now with Microsoft and Sony’s new consoles on sale, both companies have a clear push in software and subscriptions – similar to the way Apple has placed greater emphasis on services in recent years.
They are hoping to capitalize on the growing demand for the game as consumers around the world spend more time at home during the coronovirus epidemic. But a viral epidemic is not the only thing that has recently changed in the gaming industry.
According to Nico Partners analyst Daniel Ahmed, Console is a very profitable business for firms like Microsoft, Sony and Nintendo a decade or two ago.
In CNBC’s “Beyond the Valley” podcast, he said, “We’re now getting to a point where hardware is profitable, software has always been profitable, and network services play a huge role in maintaining people within the console gaming ecosystem She has been. “
Ahmed said that digital distribution of games allowed firms to rake in larger profit margins than selling physical copies in stores. While publishers traditionally make about $ 35 on a $ 60 game sold in-store, online downloads mean they can now make as much as $ 45 per game.
Sony and Nintendo have reported much higher digital download numbers this year. This trend is likely to continue, with both Microsoft and Sony selling digital-versions of their new consoles only at low prices.
The so-called gaming ecosystems become even more important over the next few years. For example, Microsoft is placing great bets on building its player base across a range of different devices, including its Xbox, Windows PCs and smartphones.
The company commercially released its XCloud gaming service in September as part of its Xbox Game Pass subscription platform. Cloud gaming allows users to play a game that streams from a company’s remote infrastructure to their device. Such services are typically available through paid subscriptions similar to Netflix, but for games rather than TV shows and movies.
“We think of consoles that are always going to be a part of gaming, because what it does is it effectively gives someone a dominant experience,” Microsoft’s corporate vice president of gaming, Sarah Bond, in an interview Said “Valley for Beyond.”
“But the other thing we’ve seen – and actually increased in the last 10 years – is people want to play games across devices,” she said. “So the console plays that role as part of an ecosystem where people can actually play anywhere.”
Japanese rival Sony, meanwhile, is offering the PS5 as an all-in-one system that offers players its exclusive games as well as subscriptions to its PlayStation Plus and PlayStation Now, which offer online gaming, some Offer free titles and cloud gaming.
Analysts say the PS5’s predecessor, the PlayStation 4, largely beats Microsoft’s Xbox One console, as it sells exclusive games. Sony’s in-house studios have produced several popular franchises, such as God of War and The Last of Us.
Nintendo likewise leverages its vast inventory of intellectual property, with series like Animal Crossing and Super Mario selling multi-million hits on its Switch console.
As a company it is less concerned with the next-gen console battle of Microsoft and Sony to choose from, rather than the wave of constant demand for switches. However, it has not missed the race towards subscriptions and services, using its paid Nintendo Switch online feature to drive additional sales from the software.
Now, other tech giants are stepping on the turf of gaming companies. Google, Amazon and Facebook have all released their own cloud gaming services, which seek to form part of the $ 160 billion dollar game market.
Ahmad of Nikko Partners said that there are two main strategies stemming from Big Tech: On the one hand, Google and Amazon are trying to compete as digital game distribution platforms with the likes of Steam and Epic Games. On the other hand, Facebook is using game streaming as an advertising tool.
“How it works, you’re scrolling through your Facebook feed and you can immediately jump in and experience a game,” he said. “If you like that experience, you can instantly click to play and play more on the device of your choice. In the console, you can do that via instant demo. Instantly without downloading the game download.”
Ahmed said that at the moment, cloud gaming is seeing affinity among console gamers who want to enjoy it on other devices. According to Newsu, this is going to be an opportunity for tech companies of all leases to take advantage of the growth in mobile gaming, which now accounts for about half of the entire market according to Newsu.
Microsoft, a $ 1.6 trillion company, sees cloud gaming and subscriptions as an opportunity to drive more users towards its content. The company recently bought the video game publisher behind hit franchises like Bethesa Softworks, The Elder Scrolls and Fallout for $ 7.5 billion.
“Content is important to those driving our gaming membership, and it’s something that people look for,” said Bond, who said Bethesda’s content will help accelerate the development of its Game Pass subscription service.
Ahmed feels that more consolidation may be on the horizon: “The ability of games to generate greater amounts of revenue over a long period of time is very important for these platform owners.”