T.Nothing here Quite like a kidnapping audience. When Japanese electronics giant Sony announced its latest set of quarterly results on October 28, star performer Payne had a video-gaming division, making the PlayStation a line of consoles. If it had been a normal year, revenue might have been lower, as Sony’s current model, the PlayStation 4, is coming to an end.
But with one year marked by the lockdown and working from home, as home customers reach out to their controllers, play revenue has increased by 11.5% year-on-year (and 61% in operating profit). Sony is not alone. Microfte, its gaming arch-rival, announced its own results the next day. Its Xbox One console is similarly complementary, though revenue has increased by 30%. Repeated in good industries (see chart)
Most forecasters expected the Covid-19 to boost the video-gaming business. The epidemic has given Philip a boost to other forms of indoor entertainment, from board games to video streaming to books. But the scale of the boom has surprisingly caught industry watchers. Tom Wijman at sports-industry analytics company Newsu says that when the epidemic began, his company forecast an increase in industry revenue of about bn 2bn, on top of its current forecast. The latest figures, he says, suggest that the actual figure is closer to $ 17bn. Newsu now estimates the industry’s revenue will reach $ 175bn this year, a 20% increase. Even for an industry that grows at 9% annually, 2020 has been an uninterrupted year.
It’s not over yet. Advertising, trailers and P.R., Sony and Micro .ft are preparing to replace their existing consoles with newer, more powerful machines. MicroS .FX Xbox Series X will be released on November 10th. Sony will respond with PlayStation 5 two days later. With locked-down Christmas in many parts of the world, demand for both will be higher. If industry rumors about pre-orders are true, some customers may have to go without.
At the same time, both companies will be keeping an eye on many new competitors. Amazon, Facebook and Google all think it’s time to try their luck in the gaming business. Streaming has revolutionized music, television, and movies over the past decade. Tech giants like cloud computing, fast broadband and 5G Mobile network means it’s time to try something similar with video games.
Start with the console itself. Sony won the first round of console wars, selling 100m PlayStation 4s and more than 1bn games. Microsoft .ft does not provide official figures, but most analysts believe that sales of the Xbox One (confused, the third iteration of the Xbox) were only over half. Most expect Sony to outsell its rival this time as well. Pierce Harding-Rolls, a media analysis company at Ampere Analysis, thinks the 5m new PlayStation will be sold in the run-up to Christmas, compared to the 3.9m Xboxes.
One reason is brand loyalty. “There’s a lot of sectarianism when it comes to consoles,” said Michael Pachcher, an analyst at Wadbush Securities. “PlayStation owners will most likely buy another PlayStation, and Xbox owners will get a new Xbox.” The second is Sony’s strategy, which focuses on existing gamers. Analysts believe the firm is selling machines at a loss – a common tactic for console manufacturers. Sony’s marketing emphasizes exclusive, big-budget games that are aimed at committed gamers and are not available anywhere else.
Sony officials will hope that analysts’ estimates are correct, as the PlayStation 5 is important for its future. The firm’s gaming division is now its largest. Its recent success has offset the impact of problems elsewhere, such as in its imaging department, which suffers from the woes of one of its biggest customers, the Chinese tech company Huawei (see Schumpeter).
Microsoft .ft, for its part, claims to be unaware of how many new Xboxes it sells. It’s as much about expanding the market as it is about trying to win over existing gamers. More than 3bn people have smartphones and mobile games – smaller and more casual than console titles, the most popular type of app. Phil Spencer, who runs Microbox.com’s Xbox division, estimates that about 200 million homes worldwide are ready or capable of scattering expensive pieces of gaming hardware, such as consoles.
Microsoft .ft is therefore trying to reduce the barriers to adoption. It will offer higher-purchase deals for its new Xbox. It greatly promotes “Game Pass”, a subscription service that offers access to hundreds of games online for up to $ 15 per month (a quarter of the cost of a typical high-end console game).
Cloud quarrel
At the heart of this strategy is a service called Excloud, which aims to eliminate the need for a dedicated console by playing games in remote data-centers and streaming results to smartphones, connected to the Internet. TVs, or any screen that can be compressed to the Internet and game controller.
In rich countries, streaming can give gamers, not just at home, games and games for what Spotify and Netflix have done for music and movies. In poor countries, where smartphones are common and data plans are cheaper, it can bring console gaming to the reach of millions of new players. “There are 1.2bn people in Africa and the average age is 20,” says Mr Spencer. “Many of them follow our games – they know the characters, the stories and the release dates. They only lack the devices on which they should operate. ”
Game-streaming is not a new idea. Previous attempts have been beset by technical problems (streaming a game, which should respond immediately to a player’s actions, is more difficult for a passive viewer than streaming a movie or song). And Micro .ft is not the only pay firm that thinks the time is right now. Sony offers its own version, called “P.S.Now ”(although it is limited to older games), such as Nvidia, a gaming focus chipmaker, and many other companies. Other tech giants with little experience in video-gaming are also entering. Google launched “Stadia” in 2019. Amazon announced its “Luna” service in September. On October 26, Facebook threw its hat into the ring with its own “Facebook gaming” service.
Game-streaming looks amazing on paper, but few expect it to transform the industry overnight. “I’ll describe the market as a fetus,” says Mr. Harding-Rolls. Still, there’s a big interest in it: Empire tracks 60 companies whose offers are in public testing or available for use. And if streaming does occur, it is likely to prove to be as disruptive as it is in other media. “If you can do streaming work, you can grow the gaming market tenfold,” said Mr. Pachare. In video-streaming wars deep-pocketed tech giants and media companies spend billions on content. The same can be said in joking games. On September 21, Micro .Fte bought Zenimax Media, a series of best-selling “Fallout” and “Elder Scroll” games in -7.5 bn.
It is too early to pick winners and losers, but most analysts believe that the micro .ft is in good shape. Its Azure cloud business is the second largest in the world, giving it access that many competitors lack. Last year Sony, which lacks its own cloud infrastructure, said it was looking at an option to use Azure to power its own gaming services. And unlike Google or Amazon, its only real cloud competitor, Microsoft Microsoft Ft, has decades of experience in the gaming business.
But its competitors also have strong points. Amazon has 150th subscribers to its Prime service, which already includes streaming video and music. Google will be able to take advantage of YouTube, where gaming videos are popular. Facebook plans to pitch its service to people who already play simple, browser-based games on its existing platform, which boasts 2bn users a month. And Sony’s success with the PlayStation has proven that size isn’t everything. There is everything to play. ■
Correction (November 6, 2020): Tony Hebsmid was mistakenly quoted at Newsu, instead of Tom Wisman, in an earlier version of this article. We apologize for the error.
This article appeared in the business section of the print edition under the title “Games just start”
