TTHERE IS NOTHING HERE quite like a captive audience. When Sony, a Japanese electronics giant, reported its latest set of quarterly results on October 28, the star performer was the video game division of the company, which makes the series. play PlayStation game. If it was a normal year, sales would probably drop, as Sony’s current model ̵1; the PlayStation 4 – is nearing the end of its life.
But in a year marked by lockout and working from home, instead, revenue from games grew 11.5% year over year (and operating profit increased 61%) as people internal consumers have access to their controllers. Sony is not alone. Microsoft, their long-time rival, announced its own results the day before. Its Xbox One console got a similar upgrade, but revenue was up 30%. Good times have repeated across the industry (see chart).
Most forecasters expect covid-19 to boost the video game business. The pandemic brought a change in other forms of home entertainment, from table games to video streaming to books. But the scale of the increase surprised industry followers. Tom Wijman at Newzoo, a game industry analyst firm, says that when the pandemic begins, his company predicts industry revenue will increase by about $ 2 billion over existing forecasts. The latest figures, he said, show that the real figure is already close to $ 17 billion. Newzoo currently estimates industry revenue will reach $ 175 billion this year, up 20%. Even for an industry that has grown 9% annually, 2020 is still a stormy year.
It is not over yet. Between a bunch of ads, and trailers PR, Sony and Microsoft are preparing to replace their existing consoles with new, more powerful machines. On November 10, Microsoft will release Xbox Series X. Two days later, Sony will meet with PlayStation 5. With the locked Christmas season popping up in many parts of the world, demand for both will be very strong. high. If industry rumors about pre-orders are correct, some consumers may have to ignore them.
At the same time, both companies will keep an eye on some big new competitors. Amazon, Facebook and Google all think the time is right to try their luck in the game business. Over the past decade, streaming has revolutionized music, television, and movies. The technology giants claim that cloud computing, fast broadband and 5G The mobile network means the right time to try the same thing with video games.
Start with the dashboard itself. Sony won the previous round in the console war, selling over 100 million PlayStation 4 and more than 1 billion games. Microsoft does not provide official figures, but most analysts claim that sales of the Xbox One (confusingly, the third version of the Xbox) are only half as high. Most people were expecting Sony to outdo it this time around. Piers Harding-Rolls at Ampere Analysis, a media analytics firm, thinks 5 million new PlayStations will be sold in the coming Christmas, compared with 3.9 million Xbox.
One reason is brand loyalty. Michael Pachter, an analyst at Wedbush Securities, said: “There are a lot of followers who cult when it comes to consoles. “PlayStation owners will essentially buy another PlayStation and Xbox owners will get a new Xbox.” Another Sony strategy, focusing on existing gamers. Analysts say the company is selling at a loss – a common tactic among game console makers. Sony’s marketing has emphasized exclusive, large-budget games aimed at committed gamers and not available elsewhere.
Sony executives will expect analysts’ predictions to be correct, as the PlayStation 5 is crucial to its future. The company’s gaming division is currently the largest. Its recent success has reduced the impact of problems elsewhere, such as its imaging division, which has suffered the troubles of Huawei, a Chinese tech giant that is in its major clients (see Schumpeter).
For its part, Microsoft claims itself not worrying about exactly how many new Xboxs it sells. It also focuses on market expansion as well as trying to win over existing gamers. More than 3 billion people own smartphones and mobile games – smaller and more casual than console titles – is the most popular type of application. Phil Spencer, who runs Microsoft’s Xbox division, estimates that only about 200 million homes worldwide are willing – or maybe – to splash out on expensive gaming hardware like consoles.
Therefore, Microsoft is working to reduce the barriers to adoption. It will offer rental purchases for its new Xbox. It is heavily promoting “Game Pass,” a subscription service that offers access to an online library of hundreds of games for up to $ 15 per month (a quarter of the upfront cost of one regular high-end console games).
Cloud of conflict
At the heart of this strategy is a service called xCloud, which aims to eliminate the need for a dedicated console, by running games in remote data centers and streaming the results. to a smartphone with an internet connection televisions, or any monitor that can be connected to the internet and game controller.
In rich countries, the streaming feature could let players play anywhere, not just at home – making the game like what Spotify and Netflix did for music and movies. In poorer countries where smartphones are ubiquitous and data plans are cheap, it could bring console games to millions of new players. Mr. Spencer said: “There are 1.2 billion people in Africa and the average age is 20.“ Many of them follow our game – they know the characters, the story, even the date of the broadcast. onions. They just lack the equipment to play them. ”
Game streaming isn’t a new idea. Past efforts have been plagued by technical issues (streaming games, which must react immediately to a player’s actions, is much harder than streaming movies or songs to people. passive view). And Microsoft isn’t the only company that thinks the time is ripe. Sony offers its own version, which is called “PSNow ”(although it’s limited to older games only), so does Nvidia, a chip maker that focuses on games, and so are several other companies. Other tech giants with little experience playing video games are also piling up. Google launched “Stadia” in 2019. Amazon announced its “Luna” service in September. On October 26, Facebook took a hit with its own “Facebook Gaming” service.
Game streaming sounds appealing on paper, but few expect it to transform the industry overnight. “I would describe the market as an embryo,” said Harding-Rolls. There was one major concern, however: Ampere tracks 60 companies whose service is in public testing or available for use. And if the streaming does take place, it has the potential to demonstrate disruption like it did on other media. “If you can make the streaming work, you can grow the game market by 10x,” Pachter said. The video streaming war has seen tech giants and media companies spend billions of dollars on content. Similar joke may be playing out in games. On September 21, Microsoft bought ZeniMax Media, the company that makes the best-selling “Fallout” and “Elder Scrolls” game series, for $ 7.5 billion.
It’s too early to pick out winners and losers, but most analysts think Microsoft is in a good position. Its Azure cloud business is the world’s second largest, giving it an reach many competitors lack. Last year, Sony, which lacks its own cloud infrastructure, said it was exploring an option to use Azure to power its own gaming services. And unlike Google or Amazon, their only true cloud competitors, Microsoft has decades of experience in the gaming business.
But its rivals also have strong points. Amazon has 150 million subscribers to its Prime service, which already includes streaming video and music. Google can take advantage of YouTube, where game videos are very popular. Facebook plans to promote its service to people who have played simpler, browser-based games on its existing platform, boasting over 2 billion users per month. And Sony’s success with the PlayStation proves that size isn’t everything. Have it all to play. ■
Correction (November 6, 2020): An earlier version of this article quoted Tony Habschmidt’s mistake at Newzoo, instead of Tom Wijman. We apologize for the error.
This article appeared in the Business section of the print edition titled “Games Just Getting Started”