Tag: Industry

Xbox’s Best Holiday Sales Result Pushes Microsoft’s Annual Gaming Revenue to Record $16 Billion

DomsPlaying1 Comment

As I reported back in October, Microsoft’s Gaming division at the time saw its healthiest first fiscal quarter ever.

Now, it’s going one step further. On the strength of its first party lineup and growing subscription base, Xbox has just achieved its best holiday on record and blasted past a new milestone for annual sales, establishing a record 12-month figure.

Mere days after announcing the biggest acquisition in industry history in its purchase of Activision Blizzard, Microsoft is showing off why it’s pumping dollars so much into the space. Because it’s seeing great returns. During its 2nd quarter of 2022 financial report, Microsoft said Gaming revenue reached $5.44 billion during the holiday quarter.

That’s the single best October to December ever reported, 8% higher than last year which was the previous record holder of $5 billion. The main contributor to this record output was Xbox Content & Services, especially strong during the holiday season bolstered by flagship titles in the Halo and Forza series.

This performance also means annual Xbox sales for the Washington-based tech giant pushed passed the $16 billion milestone for the first time.

Combining the last four quarters of sales for Xbox reaches upwards of $16.28 billion. That’s 18% higher than December 2020 and 3% more than even last quarter, both of which included the launch of Xbox Series X|S. The fact that the rolling annual figure was this high shows payoffs in first party game development and key investments in partnerships for Xbox Game Pass’s extensive library.

According to Chief Executive Officer (CEO) Satya Nadella on the company’s conference call, the Xbox division saw both record engagement and revenue during the quarter. While he didn’t share specifics on the actual level of engagement or revenue, he did cite certain juicy tidbits I’ll dig into later.

Unfortunately, there was no appearance from newly-minted CEO of Microsoft Gaming Phil Spencer on the call or questions from analysts on anything related to the acquisition of Activision Blizzard. In fact, the only mention of the deal was reiterating what we already knew about its cost and closing during the fiscal year ending June 2023.

No worries. It’s time to move into the underlying numbers and corresponding reaction!

The above slides provided by Microsoft give a rundown of growth rates for Gaming and its sub-segments of Xbox Content and Services plus Xbox Hardware during the quarter ending December 2021. Namely, that 8% growth for Gaming leading to $5.44 billion in quarterly revenue which was in-line with the company’s expectations of high single digits.

Underlying this all-time number was double-digit growth in Xbox Content & Services, the sub-segment that includes software and subscription sales, which rose 10% in the quarter to around $3.86 billion or 71% of the total. Yet another record! Boosted by first-party launches like Halo Infinite and Forza Horizon 5 plus Xbox Game Pass expansion, this figure was especially impressive given its consistency around this time in late 2020.

On the conference call, Chief Financial Officer (CFO) Amy Hood mentioned there was “significant” growth for Xbox Game Pass subscriptions and first party software sales in the holiday quarter.

Why? According to Nadella, Halo Infinite has now attracted 20 million players since its staggered launch beginning back in November. It’s the largest start ever in the series that dates back to the original Xbox. Another thing that, hm, drove sales is how Forza Horizon 5 is now up to 18 million players after hitting the 10 million threshold within a week of launch in early November. These games also attracted subscription growth, the other key revenue contributor, as Xbox Game Pass now has 25 million members up from the last official figure of 18 million (with the latest rumor being around 22 million).

To me, this dispels a false notion that Xbox Game Pass isn’t properly monetizing its user base. Even those buyers that get in at a discount are sticking around, which generates ongoing revenue once the rate resets. The numbers back this up. I’d love to know more on the profit side, of course, but I work with what’s available.

Intriguingly, the 10% Content & Services growth was technically below Microsoft’s guidance of “mid-teens.” That’s because of weakness on the third party side. This signals under-performance of AAA multi-platform releases like Call of Duty: Vanguard and Battlefield 2042. Perhaps even Madden NFL 22 and other annualized sports titles. So while Call of Duty and Battlefield both were among the best-selling premium titles in the U.S. during 2021 as I wrote about here, this missed estimate implies a lower contribution to the bottom line of platform holders.

Taking a look at the above chart I’ve compiled, this is 12-month revenue going back over time for the gaming business. It helps to provide context in a couple of areas, and smooths out short-term fluctuations. The main thing it shows is the overall level of Xbox revenue over time. That’s the record $16.28 billion as of this latest period, compared to $15.86 billion last quarter then going back from there. Clearly the trend-line is on that upward trajectory since bottoming out in Q3 of FY 2020.

There’s also the split between Xbox Content and Services and Xbox Hardware categories. The green portion is for Xbox Content and Services, which most recently contributed $12.58 billion to the annual amount. The red portion is Xbox Hardware which is all physical gaming consoles under the brand. $3.7 billion this time. Both of those are also all-time highs.

Next up is Xbox Hardware. This sub-segment contributed the remaining portion of the record holiday quarter, growing 4% to almost $1.59 billion in revenue on the back of steady demand. It’s actually one of the few things in this report that wasn’t a record. That happened back in fiscal 2018’s second quarter, when hardware accounted for $1.78 billion. This year’s was still second best, so I’d say it’s doing alright.

To put it another way, the second holiday quarter for Xbox Series X|S generated almost $70 million more in dollar sales than its launch quarter did.

On the call, Hood shared how Microsoft is seeing continued buyer interest for both console models. Additionally she saw “better than expected” supply, which is a good sign considering the doom and gloom of the modern semiconductor situation.

This commentary and performance is mostly consistent with Spencer’s recent comments around Xbox Series X|S being the fastest-selling ever for the brand. Xbox Hardware is performing well during this early part of the generational cycle even in the fact of shortages, with Xbox Series S as the highlight because of higher availability. While we don’t have exact figures from Microsoft on hardware shipments globally, we do have an estimate from my friend Daniel Ahmad, Senior Analyst at Niko Partners, that it’s above the 12 million of Xbox One’s first year.

Here’s a telling experiment: What would Microsoft’s gaming revenue look like if Activision Blizzard earnings were considered? The latter hasn’t reported its last quarter yet, so I’ll use historical figures for a baseline in this thought experiment.

The most recent October to December revenue for Activision Blizzard was $2.41 billion. That means the holiday quarter for the combined entity would have been over $7.58 billion! For the full 12-month period, Activision Blizzard’s latest is $9 billion.

Which means, in aggregate, Xbox and Activision Blizzard annual revenue right now would be $25.33 billion. How does that compare to its major competitors? Well, it’s pretty impressive and much closer to the top-end than ever before, naturally.

I usually pull in figures for Sony and Nintendo as the three main console manufacturers. There’s also Tencent, the largest gaming company in the world, which is an absolute behemoth notably in mobile and the Asia Pacific region. So let’s see them all!

This is using annual and the caveat is Microsoft is the only one that’s reported this season so far. It’s still helpful to illustrate. Tencent’s latest strictly from its games business was $27.3 billion. Sony’s Game & Network Services segment hit $25.5 billion while Nintendo’s total sums to $14.7 billion, both using the exchange rates at their last reports. Which means Microsoft alone sits closer to Nintendo, while combined with Activision Blizzard it nearly surpasses Sony’s total and might even some day approach the untouchable realm of Tencent.

And that’s part of why Microsoft is willing to pay almost $70 billion for it.

As is tradition, I’ll quickly run down Microsoft’s overall results for the three months ending December before closing up.

Total revenue for the company rose 20% to $51.7 billion. It’s the first time quarterly sales topped $50 billion, pushed by an all-time high $18.3 billion revenue from its Intelligent Cloud segment. Operating profit moved up 24% to $22.2 billion.

Its results beat analyst consensus on both top-line revenue and earnings-per-share. Microsoft Cloud product revenue was a major highlight, increasing 32% to over $22 billion for only the second time ever.

We can learn a bit on gaming profitability from the More Personal Computing business unit margin movement and operating dynamics. This experienced 15% revenue growth to $17.5 billion. At $5.44 billion, gaming makes up around 31% of More Personal Computing. Operating income rose 22% to $6.36 billion, while expenses rose at a lower 17% rate partially as a result of gaming. It’s not perfect, but this can indicate sales contribution is outpacing costs.

It’s hard to overstate just how much the record revenue stats keep piling up for the Xbox business, reflective of Microsoft’s general strategy of user engagement and ecosystem establishment. This time it was first party software moving the needle, with major internal studios like 343 Industries and Playground Games leading the charge by pushing quality within key brands. The result is Xbox Game Pass literally paying off, thus generating opportunities for more future investment both organic and external.

Moving into the new calendar year, Xbox’s early 2022 exclusive slate is light during a quiet quarter for first parties. CrossfireX is a third party console exclusive from Smilegate and Remedy Entertainment launching in February, plus there’s indie partnerships hitting the platform throughout the coming months.

It is, however, quite the busy period for third party games with select titles like Rainbow Six Extraction available simultaneously on Xbox Game Pass. Dying Light 2, Elden Ring and Destiny 2’s The Witch Queen expansion all debut in February. There’s always the long tails from late year launches of Call of Duty, Madden, NBA 2K, Battlefield then other major ongoing games with seasonal updates like Fortnite and Apex Legends.

On the hardware side, Xbox Series X|S availability will continue to set the narrative. I don’t expect the higher end Xbox Series X to pick up stock any time soon, though I’m turning optimistic on Xbox Series S inventories based on recent trends and anecdotal evidence. Microsoft executives themselves said that hardware will continue to be impacted by supply limitations and didn’t provide guidance on growth expectations.

For the quarter ending March 2022, Microsoft expects gaming sales growth in “mid single digits” range. Assuming it’s exactly 5%, that’s $3.7 billion. For Xbox Content & Services, strong engagement and continued momentum will lead to increases in the “mid to high single digits.” Putting it around 7% then, this would generate $3.1 billion.

Guess what? Both would be fiscal third quarter records. The latter would even be the first time it’s passed $3 billion in a Q3.

“The other area obviously we’re seeing strength is in gaming,” Nadella highlighted during the analyst question portion of Microsoft’s earnings call. “We see the intensity of usage and the business model diversity around games, that increasingly the economics of gaming franchises is also radically becoming much more software-like.”

That certainly is the case, considering the multi-faceted approach where now, because of ongoing financial support in both areas, main contributors are actual first party software and Xbox Game Pass as a catalog of titles plus cloud experience.

Thus ends this quarter’s deep dive into Microsoft’s financials. I look forward to recapping other companies very soon! Be safe all, and stay healthy.

Note: Comparisons are year-over-year unless otherwise noted.

Sources: Daniel Ahmad, Microsoft, The NPD Group.

-Dom

Seven Major Games Industry Predictions for 2022

DomsPlaying

New year, new excuse to think we can predict the future!

In an annual series of articles I began last year, here is where I’ll document my biggest, sometimes boldest, games industry predictions for the 12 months ahead. It’s fun to guess, and honestly it’s even more fun to look back when all is said and done to see how wrong some of them were!

Speaking of looking back, out of my seven predictions for 2021, I’d say I got maybe half of them “right” when combining different elements. I said Switch would be the best-selling console in the U.S. during 2021, and that’s the trend based on reports from The NPD Group. I also thought Nintendo would debut a Pro model, when instead the company released its OLED step-up. Partial points?

I dubbed 2021 “Year of the Delay,” which was true in games and various industries due to both impact from coronavirus and chip shortages. My most substantial win was Sony and Tencent scoring major acquisitions, as both companies expanded reach globally with a number of investments. I saw the global games market value growing double-digits to upwards of $190 billion or more. Because of the aforementioned worsening supply and delays, Newzoo said the global value hit $180 billion on only 1% growth. It did say digital contributed 93%, right near my estimate of “above 90%.”

Otherwise, I guessed Rockstar Games would reveal its next title and how it wouldn’t be Grand Theft Auto VI. Technically it had the Grand Theft Auto: The Trilogy – The Definitive Edition, and there’s rumblings of a new Bully project, so I’ll take half credit? I spoke of the expansion of cloud gaming and projected that Amazon’s Luna service could be the standout. Cloud has grown in popularity and spending though I don’t think there’s necessarily a standout service right now, so I’ll say that’s a push. And lastly, Capcom still hasn’t announced a new fighting game which means I take the big L on that last one.

It’s now time to look ahead. I see a future where plenty of trends which started in recent times will accelerate such as services, cloud, mobile, consolidation, outing toxic work cultures, defining The Metaverse and even the dreaded blockchain and NFT barrage. Here are seven of my biggest industry predictions that, of course, will most certainly happen soon.

Workplace Culture, CEOs & Unionization

Starting with a downer, this is a sad prediction that hurts to write. I expect more disheartening stories of workplace toxicity and ongoing harassment at publishers of all sizes in 2022, following in the footsteps of Activision Blizzard, Ubisoft, Riot Games and others. It will always be difficult to hear victims speak out about stories of abuse and “boys club” cultures, however I do believe it’s a key step towards a better industry. The year will bring to light various stories and hopefully remove bad actors from powerful positions.

The downside is I anticipate both Activision Blizzard CEO Bobby Kotick and Ubisoft Chairman/CEO Yves Guillemot to remain in their respective offices. They and their leadership teams will claim things have changed. Even if that’s not much the case. (We’ll see.)

On the brighter side, I expect employees within at least one major publisher to work towards broad unionization plus a concerted shift towards hiring more women and people of color in executive roles. The industry is at a boiling point. A group of brave employees can, and I think will, unify under a common goal to bargain with leadership. It could serve as a beacon for others to bring demands to management, and potentially symbolize a shift in power dynamics. While I don’t know which company it will be, I do expect this can be the year where a unionization effort manifests.

Sony PlayStation Subscription Service Rebranding

This one is a slam dunk. (I’ll take what I can get!) With the success of Microsoft’s Xbox Game Pass service and rumors swirling of Sony’s response, I believe we’ll hear very soon about PlayStation’s rebranding of PlayStation Plus and PlayStation Now into a service allegedly code-named Spartacus. To firm up the prediction, I’ll list out specifics of how I think it could go.

At present, PS Plus and PS Now cost $10 per month individually. It’s messy. Spartacus will combine these, and I buy the rumored three tier setup with varying levels of service and price points. The first I expect to be priced at the current $10 since it’s essentially PS Plus. The second tier should have a catalog of prior and current gen software attached, so I’ll say $15. Then I can see a premier $20 per month service with the same online benefits and catalog plus a ton of older titles and cloud streaming available. Note: Xbox Game Pass base is $10 monthly while the upgraded Ultimate package is $15.

Going one step further, I think PlayStation will partner with either Electronic Arts or Ubisoft to bring EA Play or Ubisoft+ services simultaneously at launch of the rebranding in that highest priced tier. One or more pricing options will also have a console form of Discord bundled, as a result of the recent partnership between the two companies.

Then, here’s the biggie: I say at least one new first-party game will in fact launch into Spartacus during 2022. It might not be Horizon Forbidden West or God of War: Ragnarok. It could however be along the lines of a Destruction All-Stars which started on PlayStation Plus at launch in February 2021. Perhaps MLB The Show 2022. Or even Gran Turismo 7?

Nintendo’s Breathtaking Lineup & No New Switch

After surprising most talking heads by not releasing a new Switch “Pro” model in 2021, Nintendo opted for a slightly upgraded OLED iteration. The company also announced how its flagship sequel to The Legend of Zelda: Breath of the Wild is slated for release in 2022.

You know what? I believe them on Breath of the Wild’s follow-up. It will be out this year. (And absolutely should have weapon degradation because that’s a staple of what made the original so brilliant.) Consistent with my earlier call, I don’t believe it will launch alongside a new Switch model. Honestly Nintendo won’t say much of anything about new hardware during 2022, other than alluding to how its internal teams are always working towards the future. At most, I can see another accessory experience like Ring Fit Adventure or Nintendo Labo.

That’s because I think Nintendo’s hybrid handheld will have its second best year ever from a global unit sales standpoint. I’m targeting 25 million Switches shipped in the 12 months ending March 2022, slightly above Nintendo’s latest estimate of 24 million. That would be the best result since launch other than last year’s 28.83 million.

Elsewhere on the software side, I don’t think we’ll hear anything formal about the next full-fledged Mario Kart in 2022. While it’s clearly in development, I still say it will be tied to a Switch successor in 2023 or beyond. That said, I am calling for a major, dormant IP to make a return in 2022 for Nintendo with a mainline release. Let’s say it’s, at long last, EarthBound. Nobody is actually scoring these, right?

Finally there’s Metroid Prime for Switch, which I can see announced by E3 and released during the last quarter of 2022 to bolster Nintendo’s holiday period. Unfortunately, it’s probably not the full trilogy. It’s a remake of the first game. That way Nintendo can sell it for full price and still have two more similar releases in the future. It’s a business, after all.

Severe Impact of NFTs, Blockchain & Play to Earn Schemes

I dislike talking about this as much as the next level-headed pundit. In 2022, there will be plenty of chatter around blockchain games, non-fungible token (NFT) integration and so-called “Play to Earn” setups. Especially at the triple-A level. It’s driving investors wild. Anything that can make money, even if it’s temporary, will attract the attention of big budget publishers.

Diving into specifics, there’s flat out going to be tons of pitches around games built on the blockchain hand-in-hand with those that offer players NFTs for in-game items or cosmetics. Shoot, there already are. It’s only getting worse in 2022. Then there’s the corresponding rejection by core gamers against these things. That constant push-and-pull will partially define the industry this year.

I say *at least* three major global publishers will release their own full-blown NFT game, marketplace in an existing title or software specifically marketed as Play to Earn. One of them probably won’t even make it until the year-end. We’ll hear at least two or three stories similar to how S.T.A.L.K.E.R. 2 Heart of Chernobyl developer GSC Game World walked back plans for NFT usage after major backlash from its community. What about a game that smartly integrates these? I wonder if that’s even possible based on game development experts, so I can’t make that sort of prediction in good faith.

What I do know is this theme is going to be a nuisance all year. Could 2022 be the peak of blockchain and NFTs in gaming? That’s hard to say. It certainly does seem to be leaning towards short-term gains, however Bitcoin and cryptocurrencies aren’t going anywhere so I’d say buckle up.

Global Games Market Value Will Grow Low Single-Digits

How big will the global games market be when 2022 is said and done? Well, I think a little larger than it is right now. Similar to performance in 2021, I’m expecting a marginal increase. Under a 5% gain. Based on ending 2021 at roughly $180 billion, my target puts it between $182 billion to $185 billion on the upper end. I anticipate mobile will again be a driving force, gaining a similar single-digit percentage while console and PC will be slightly down or effectively even. Plus, digital split will remain above 90%.

Looking at hardware, Sony’s PlayStation 5 truly has an opportunity to surpass Nintendo Switch as the best-selling console in the U.S. specifically. However, I don’t think it will happen because of supply constraints expected to last until 2023. I’m leaning towards Switch repeating as the year’s top hardware. PlayStation 5 and Xbox Series X|S will have healthy years even given production challenges. I anticipate Sony will meet its annual console targets while just recently, Xbox leader Phil Spencer said this current generation is Xbox’s fastest-selling ever. With the availability of Series S in particular rising lately, I can see this continuing. (Just wish they would share actual numbers!)

On the consolidation side, we’ve already just witnessed the largest deal in gaming history with Take-Two Interactive overpaying for Zynga at $12.7 billion mere days ago. Over the next twelve months, I think there will be another “blockbuster” deal worth upwards of $5 billion to $7 billion. It could involve a Western publisher and Asian game studio. Maybe the other way around?

Yes, I’m being cautious on naming names because I want to sneak in some credit for this prediction this time next year! What I’m driving at is I expect a lot of investment in global expansion during 2022 for the top-end gaming publishers.

It’s Impossible to Escape The Metaverse

As much as many companies want to claim they are each creating one, we’re already living in a world filled with Metaverses. We have virtual identities established over years of existing online, our precious personal information aggregating into databases everywhere as we socially chat and make purchases from our devices. Lately it’s become the hot buzzword used by companies both within and outside of gaming trying to capitalize, and I expect The Metaverse to consume technology as a sector and especially the games industry during 2022.

I continue to believe that no one will agree on how to define The Metaverse, so it will remain a more nebulous concept for executives to use for pitch materials. Hardware manufacturers, social media giants and virtual realty players will all look for a slice of that metaphorical pie and try to capture users in their tailored version.

To coalesce this into an actual prediction, I’m thinking something like a half dozen games from publishers large and small will launch with The Metaverse as a “selling point” in the advertising deck. Meta, formerly Facebook, will certainly be one of them on their Quest family of devices. Epic Games will continue bringing as many brands as possible into Fortnite. At least a publisher or two will try to integrate virtual workspaces with online play, billing their experience as a “fun place to work.”

I do think there will be a game that comes out of nowhere in 2022 that captures the spirit of The Metaverse without actually advertising it as such, and for that reason it will become hugely popular. Like, Pokémon Go level of popular. Ironic considering how well that game integrates augmented reality elements. I don’t know who will make it, or who will publish it. Just that it will exist. You heard it here first!

New BioShock Will Be Revealed, Releasing in 2023

Time to have a little fun!

In what would be a monumental moment for my personal gaming tastes, I think 2022 is the year when we finally hear from 2K Games and its Cloud Chamber development studio on the next installment in the beloved BioShock franchise.

The fourth mainline game was announced back in 2019 when the team, which includes a number of folks who previously contributed to the older games, said it was several years away from release. The first-person, historical horror shooter is certainly well into development by now. Enough so that rumors are trickling about an Antarctic setting in the 1960s and a more open area design structure. Apparently it’s been dubbed code-name “Parkside,” and there’s even a rumored title of BioShock: Isolation floating about like the buildings in BioShock Infinite’s fictional Columbia.

In the past, I’d consider this more pie-in-the-sky than an actual prediction. With this fresh trickling of information alongside 2K parent company Take-Two Interactive sharing updated unit sales statistics (38 million to date for the series) on recent earnings reports, I’m feeling more confident than ever it will reveal the new BioShock this year. And schedule launch for sometime in 2023.

It has to happen sooner or later, right? Why not sooner!

That’s a wrap on my biggest predictions for the games industry in 2022. How many of these line up with yours? Are you willing to go on record with your boldest of predictions? Will this be the year of a spankin’ new Capcom (and maybe Marvel) fighting game announcement? Can I finally have my wish of hearing about BioShock?

Whatever happens, we have a lot to look forward to in gaming over the next several months. First quarter is a busy one for releases and the landscape will fill up over time. Here’s to another year!

Sources: Artturi Jalli (Image Credit), Bloomberg, Getty Images (Photo Credit), MarioWorld.com (Image Credit), New York Times, Newzoo.

-Dom

U.S. Games Industry Sales Set October Record as Seven New Titles Enter Top 10 List

DomsPlaying1 Comment

It seems October was a scary good month for video game sales in the States.

That’s according to the latest monthly report from industry tracking firm The NPD Group, which released its October 2021 stats for the U.S. games market today.

The data shows it was a record-breaking October for consumer spending, where it approached nearly $4.4 billion in sales or an increase of 16%. All three categories experienced some sort of growth, both during the month and across 2021. Video Game Content and Video Game Hardware rose double-digits in these time frames, while Video Games Accessories saw more modest single-digit gains.

Within the biggest contributor of Content, new releases occupied a staggering seven of the Top 10 spots on the overall software chart. Ubisoft’s open world action shooter Far Cry 6 landed the top rank, just above a surprising runner-up in Warner Bros’ co-op zombie tag-along Back 4 Blood. Nintendo then boasted the opposite of a dreadful start for the latest entry in its classic Metroid franchise, as Metroid Dread set its own super series launch record. And, as it often does, mobile continues a steady pace with October spending again exceeding $2 billion. A feat which mobile has achieved for eight straight months now.

Hardware remains the category with the most growth upside as both Nintendo and Sony showed consistency, even amidst a supply-limited situation impeding them and competitors from making as many consoles as they’d like in ideal conditions.

Nintendo Switch regained the top spot during October, as measured by both units sold and dollar sales. Primarily bolstered by the October 8th launch of its Switch OLED model which contributed over 40% of Switch unit sales for the month. The device family is also the best-selling of 2021 to date when using units as a gauge.

PlayStation 5 is still the year’s best-seller from a dollar standpoint, no doubt influenced by steady demand and a higher asking price. Curious to see if this keeps up through the holidays, given recent reports of Sony potentially reducing production targets given part scarcity in the global supply chain.

Here domestically, October represented a consistent trend lately of spending gains, record output for certain data points, hardware growth trajectory, mobile momentum and successful software starts. Demand was certainly still solid for consoles in particular, leading me to surmise the record October could have been even more stacked if it wasn’t held back.

“Strong hardware, subscription and mobile, this month [was] aided by the flow of new releases,” said NPD Group’s Mat Piscatella on Twitter. “Still don’t know how high the ceiling is for console hardware, [it’s] still (and will be for a long while) in a supply constrained environment.”

There’s a lot to cover, let’s start with the overall figures then move into category results.

United States Games Industry Sales (October 3rd, 2021 – October 30th, 2021):

Consumer spending in the U.S. games market moved up that aforementioned 16% to a best ever October amount of $4.4 billion. This means it’s upwards of $46.67 billion on the year as a whole. That’s 12% higher than the comparable period in 2020.

Seeing both of these totals rise double-digits given the more strict quarantine restrictions last year proves the market’s resiliency, maintaining buyers within ecosystems like mobile and subscriptions like Xbox Game Pass, plus the ongoing popularity of live service games with long tails. Combine that with hardware demand and there’s a recipe for growth even against high comparables.

Content i.e. software, subscription and mobile sales increased 11% in October, settling at $3.76 billion. That’s 86% of total spend for the month. We know that mobile passed $2 billion, comprising at least 46% of this Content category. Monthly mobile revenue growth reached 12%. This makes sense, rising from the single-digit gains around this time last year, because people are spending more time and money on their phones.

On the traditional software side, the big story is new releases. These accounted for four out of the Top 5, seven of the Top 10. Even enough to push mainstays like NBA 2K and Call of Duty down the list further than accustomed.

Leading the pack was Far Cry 6, which is already a part of the 2021 to date best-seller list as well at #8. The title also earned the top spot on PlayStation and Xbox individual charts. I didn’t see much from NPD Group in the way of direct comparison to prior entries. Which doesn’t mean I can’t do just that. Its predecessor Far Cry 5 also led its first month in March 2018. Ubisoft claims this year’s title has 25% more engagement than its predecessor, albeit didn’t share anything on copies or dollar results. For more context, Far Cry 4 debuted all the way down in 6th place back in November 2014.

Back 4 Blood charted at the second spot during October, securing that same rank on both PlayStation and Xbox sales lists. Developed by Turtle Rock Studios featuring veterans of the Left 4 Dead team, the multi-platform title no doubt benefited from a simultaneous launch into Xbox Game Pass. In a trend now seen consistently for years, starting in the subscription service actually compliments sales rather than cannibalizes them. The word-of-mouth effect works especially well for a game like Back 4 Blood focused on the social element of slaying the undead alongside friends.

On to more records. Nintendo’s Metroid Dread speed boosted towards a historic launch, rounding out the Top 3 for October even without its digital portion. It might have been ever better taking downloads into account. Even so, the Switch exclusive set a new series record for launch month dollar sales. Looking at strictly retail, Metroid Dread’s first month earned more than double that of prior best Metroid Prime in 2002. According to an interview with Nintendo of America President Doug Bowser, it sold 854K units in the U.S. alone during October marking the best start of all time for a Metroid release. (I assume his figure includes retail AND digital, whereas NPD ranks do not for Nintendo-published games.)

Moving past Madden NFL 22 at #4 we get to the somewhat shocking entry of Demon Slayer: Kimetsu No Yaiba: The Hinokami Chronicles ranked fifth overall and the same spot on the PlayStation list. The anime arena fighter published by Sega is the latest in certain Japanese titles launching simultaneously in the West, much to its benefit.

Other notable new launches include Marvel’s Guardians of the Galaxy from Square Enix at the seventh spot. Consistent with what I predicted earlier, keep in mind this happened with only a handful of days on record after a late October start. I wouldn’t jump to conclusions yet on calling it disappointing, especially given the Marvel brand backing. Right after this were Nintendo mini-game collection Mario Party Superstars then hockey simulator NHL 22 from Electronic Arts at 8th and 9th, respectively.

Beyond that, the rest were games launched in prior periods. One slight item of note is the second game from Ubisoft released in October Riders Republic was nowhere to be found. Not yet at least.

Up next are the rankings themselves. Then it’s more deets on Hardware and Accessories.

Top-Selling Games of October 2021, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Far Cry 6
  2. Back 4 Blood
  3. Metroid Dread*
  4. Madden NFL 22
  5. Demon Slayer: Kimetsu No Yaiba: The Hinokami Chronicles
  6. FIFA 22
  7. Marvel’s Guardians of the Galaxy
  8. Mario Party Superstars*
  9. NHL 22
  10. NBA 2K22*
  11. Mario Kart 8*
  12. Call of Duty: Black Ops Cold War
  13. Ghost of Tsushima
  14. Super Smash Bros. Ultimate*
  15. Animal Crossing: New Horizons*
  16. Minecraft
  17. Marvel’s Spider-Man: Miles Morales
  18. Diablo II: Resurrected
  19. Mortal Kombat 11
  20. The Legend of Zelda: Breath of the Wild*

Top-Selling Games, 2021 To Date, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Call of Duty: Black Ops Cold War
  2. Madden NFL 22
  3. MLB: The Show 21^
  4. Resident Evil Village
  5. Super Mario 3D World + Bowser’s Fury*
  6. Marvel’s Spider-Man Miles Morales
  7. Mario Kart 8*
  8. Far Cry 6
  9. Minecraft
  10. Assassin’s Creed Valhalla

Flip flopping over to the Hardware category, spending totaled $472 million in October. That’s up 82% from $260 million. Expanding to 2021 numbers, Hardware is above $3.88 billion which is 53% more than where it was a year back.

Pretty substantial growth that I’ll call wholly expected, given the lower comparison during a late generation cycle last year as it’s now been 11 months of data for new consoles from Sony and Microsoft.

After PlayStation 5 topped September, Nintendo Switch reemerged as the pack leader during October. Driven by a fancy new OLED iteration, it snatched back the top spot on both unit sales and dollars generated.

Bowser shared how Switch sold 711K consoles in the States overall last month. 314K, or 44%, were Switch OLED model. This figure tells a story on its own. The latest version featuring a more dazzling, larger screen plus other enhancements isn’t just attracting new buyers. It’s enticing existing owners to upgrade or replace. Whether they own the original 2017 model or have a Lite they are passing along to a family member or child, there’s plenty of demand among those that already bought some sort of Switch before. Plenty of potential on the demand curve.

“We see this as a strong start for the Nintendo Switch OLED model and a very strong indicator of the performance we can expect as we go into the holiday season,” said Bowser.

Considering this kick off for the OLED and consistency of sales, Nintendo Switch is currently the top-selling gaming device for 2021 by units sold. I believe it’s held that position all year given its recent track record.

Now, while PlayStation 5 gave up the lead on the monthly chart, Sony’s most recent console still retains the 2021 to date best as measured by dollar sales. Again its revenue potential is bigger than Switch, even with OLED being a slightly higher priced model within its particular family.

You might be wondering if there’s anything on Microsoft’s Xbox performance. Well, unfortunately I didn’t see any within The NPD Group’s reporting. I’ll assume the trend that Xbox is selling out, it’s just not producing as many boxes as its peers. Just wish the report confirmed this narrative.

Within the smallest and usually most uneventful category of Accessories, spending gained 5% in October to $158 million. Marginally above the $151 million last year. Considering the first 10 months of the year as a whole, it’s showing more growth at 9%. That’s upwards of $1.92 billion in sales for this segment.

Microsoft did lead in at least one aspect during October: Its Xbox Elite Series 2 Wireless Controller generated the most sales within Accessories.

Briefly digging into the category, game pads are the top seller for the year so far. Spending on game pads is 7% higher now than it was thru October 2020.

And looking at 2021 so far, PlayStation 5’s DualSense White controller continues as top dog. Because of its pricing and the popularity of its corresponding console, I believe it’s been the broad leader all year.

Hardware supply, hardware supply, hardware supply. And spankin’ new games. These are the highlights of October’s record report, a stellar period for overall spending, Nintendo’s Switch OLED model and standout entries in series like Far Cry and Metroid.

Echoing a hesitant sentiment on the console side, there’s been (unconfirmed) reports in the industry that Sony has slightly lowered its global target for PlayStation 5 production for the year ending in March 2022. Similarly, as I wrote last week, Nintendo formally reduced its worldwide annual Switch shipment guidance from 25.5 million to 24 million.

The word being thrown around is uncertainty, which is the bane of any analyst or predictor’s existence. We just don’t know when chip availability will improve. Still, it’s the pre-holiday rush season including the coveted Black Friday time frame, so expect a lot of competition for that top spot. My personal choice is Nintendo Switch leading November by units, then PlayStation 5 squeezing out a slight victory on dollars.

Bowser mentioned the general environment and Nintendo’s related effort during his interview.

“These challenges have been facing many industries, and they’ve been going on for quite some time,” he said. “But we’re working to meet demand for our holiday products, including Nintendo Switch OLED model. I will say things are constantly changing, but we’ve been working across the supply chain – from production to overseas transport to local distribution channels – to make sure we have a steady flow of hardware and games through the holiday cycle.”

Speaking of a steady flow of games, November will continue the fourth quarter spree of triple-A blockbuster launches in particular. It’s the season of heavy hitters.

Activision Blizzard, whose executives still haven’t fully addressed any clear steps being taken to improve workplace conditions and should be held accountable for their inaction in recent years, published its latest military shooter entry Call of Duty: Vanguard last week. I fully expect it to the November’s biggest seller, and enter the 2021 to date chart near the top.

Then there’s the glorious success story of Forza Horizon 5, which I expect to be in the Top 2 or 3 of the overall chart and easily top the Xbox platform list in November. The open world driving game from Playground Games already surpassed 6 million players according to Xbox’s Aaron Greenberg, overtaking my ambitious initial week estimate of 5 million! Not only is it a first-party Microsoft title going directly into Xbox Game Pass, the early access version attracted at least a million buyers based on in-game statistics. It should be the largest Forza Horizon launch of all time in the U.S.

There’s also the likes of Electronic Arts’ Battlefield 2042 (which I expect to round out the Top 3 on the total charts), Switch exclusive Pokémon Brilliant Diamond & Shining Pearl plus Rockstar Games presenting Grand Theft Auto: The Trilogy – The Definitive Edition. I expect a fun, eventful November especially given how October shaped up!

As usual, check out Mat at NPD Group’s thread for more details and further insights direct from the company itself.

Definitely look forward to digging into it then and chatting here or on social media. Until then, be safe, get those booster shots and thanks everyone for taking the time to hang out.

*Digital Sales Not Included, ^Xbox Digital Sales Not Included

Comparisons are year-over-year unless otherwise noted.

Sources: Aaron Greenberg, Bloomberg, GamesRadar (Image Credit), The NPD Group, Ubisoft, The Verge.

-Dom

Now That We Know Specs, How Much Will PlayStation 5 & Xbox Series X Cost?

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The short answer: We still don’t know. Yet that won’t stop us from speculating!

Even though we’re now a bit closer to seeing the full picture, there are still plenty of variables at play. Right now, no one on the outside actually knows.

That said, it’s time to guess.

After Sony’s “Road to PlayStation 5” video reveal of the technical specifications for its upcoming PlayStation 5 hardware, we know a lot more about components and power expectations for it alongside its main competitor in Microsoft’s Xbox Series X. So it’s easier to approximate where they might be at launch, currently scheduled for late this year. Which is great. Because while power is important, I’d argue price drives consumer sentiment more than anything.

For those looking for in-depth breakdowns of specs and numbers for Sony and Microsoft’s hardware, check out Digital Foundry’s work at this link for the PlayStation 5 and this one for the Xbox Series X. The team also compiled a comparison piece across the two consoles, at least based on the information so far.

Then there’s the latest collaboration with Digital Foundry, Austin Evans and Xbox Wire with even more detail into Microsoft’s project, plus Sony’s own PlayStation Blog post summarizing various items on its box. Plenty of places to soak up the technical jargon. It’s impressive coverage, to the point where even someone that follows the business and critical side of games can almost understand.

Here, we’re going to cover mostly the general points and see just what they mean for potential launch pricing. Price drives consumer decisions just as much as power, arguably even more so since it’s an easy comparison point between different products. Don’t worry if some of the tech side goes over your head. You’re not alone.

Based on the reports as you see above, the conclusion is the raw components and feature sets are mostly comparable with some important distinctions. In terms of capabilities, there are common ones. They support high frame rates and 8K resolutions. They’ve got Raytracing (get used to this buzzword for a fancy lighting technique). 3D audio. Custom AMD processors. Solid state drives. Some form of backwards compatibility for legacy software.

It’s looking at the divergences that spark discussion of course. Without getting too much into the weeds, I’ve heard it framed as such: The Xbox Series X is more powerful while the PlayStation 5 is notably speedier. The former has the more capable processing power, while the latter has a tailored solution for delivering the highest speed possible.

Which makes sense when we step back. Microsoft’s general philosophy is now about how it has the most powerful console this generation in the Xbox One X, and the focus remains on the upper end targeting tech enthusiasts this time as well. The upcoming Xbox Series X is twice as powerful as the improved version of its predecessor, the Xbox One X. Microsoft’s goal is to have games looking great and running smoothly plus is going to offer the ability to suspend and resume multiple games at once. Which fits with its ecosystem, software compatibility and catalog approach.

The downside to the raw power of the Xbox Series X is that it requires proprietary expandable storage options, which will add to the cost of keeping the console over time when hard drive space inevitably fills up. This certainly lowers its price tag, yet adds to the overall investment across the full generation. There’s also the question of first party software support, which is a primary concern though less relevant in this context.

Flipping over to Sony’s PlayStation 5, its specs are still impressive. While in raw terms its numbers are notably lower than Xbox, its implementation is slightly different in using what’s termed “variable frequency,” more plainly a type of “boost” to allocate its power budget. Sounds to me like a focus more on optimization rather than sheer strength.

This also fits with its design mantra of placing a major focus on speed. Limiting loading times for players, offering studios the tools to minimize downtime and providing better options on the consumer storage side. This is achieved by leveraging a custom system alongside its 825 GB solid state hard drive plus expandable storage that doesn’t require proprietary equipment. Simply, the real treat is its storage speed and flexibility.

Mark Cerny, Sony’s lead system architect and hypnotic public speaker, described the solid state drive as the single most requested component by software developers. Capabilities for the people that make games are just as important as delivering performance output to those that play them. Which is why the PlayStation 5 seems tuned for speed.

One disappointment of Sony’s messaging so far is its stance on backwards compatibility. The aforementioned PlayStation Blog post alludes to many of the most popular PlayStation 4 games being playable at launch on the new console generation, then comments that there are roughly 4,000 PS4 games on which they will be working on this feature. Does that mean only select games will be available? Or that those will benefit from the PS5 power? We need more clarification of this increasingly more important feature.

Capabilities for the people that make games are just as important as delivering performance output to those that play them. Which is why the PlayStation 5 seems tuned for speed.

This summary of the broader strategies across the two competing hardware makers brings us to the real debate:

How much will people have to pay to move to next gen later this year?

We’ll start with the PlayStation 5, mainly because we already have some insight into its supply chain and pricing decisions from a Bloomberg piece last month.

For context, PlayStation 4 released at $399 back in 2014 while 2016’s more powerful mid-step PlayStation 4 Pro hit that same price later in the cycle, after discounts applied for the original box.

Rumors suggest that the manufacturing cost for the upcoming PlayStation 5 is currently at $450 per console, which is well above the estimated $381 for the base model of its predecessor. And this is strictly speaking about component cost. It doesn’t include the additional marketing and distribution associated with launching a flagship product.

During a conference call with investors earlier this year, Sony’s Chief Financial Officer Hiroki Totoki said “We must keep PlayStation 5’s bill of materials under our control and we need to make the correct number of units in the initial production.”

That certainly sounds like component cost might be approaching levels that Sony didn’t anticipate. Knowing these factors, could we see the same $399 introductory price for the PlayStation 5 this holiday?

I think there’s an argument to be made that we will, and it’s where I predicted it to be when discussing the topic in late 2019. That was without knowledge of the power capabilities and higher-than-expected component cost. Console manufacturers traditionally have slim margins early in a console life cycle, though $399 would be clearly selling at a loss. Companies aren’t in the business of losing money.

I’m leaning towards upping my forecast to $449, with Sony eating those additional expenses in hopes of making it up in volume and software sales. This puts it roughly at what it costs to make, and it’s only 50 bucks more than where it launched PlayStation 4 nearly seven years ago.

Gaming has been largely free from the reality of inflation so far, what with big budget software costs remaining consistent through the years. Even if publishers are finding ways to generate additional revenue via downloadable content and customization options. With rising costs to build hardware, it’s looking like a higher baseline for console launch cost is approaching.

There’s also a chance that Sony’s console starts at $499, especially if supply chain constraints limit the availability of parts. I don’t think it will be this high due to both sticker shock and competitor decisions, yet we can’t rule out the possibility based on what we know of its specs now. Especially if Sony only has the one model at launch, its usual strategy.

Microsoft’s situation is somewhat different. It’s already revealed plenty about the beefy Xbox Series X. While there aren’t yet rumblings of how much it costs to build, we can deduce that it’s likely going to be more than the PlayStation 4.

Thing is, there’s still the unknown of Microsoft potentially offering a more affordable option simultaneously at launch. Allegedly the team is working in parallel on the Xbox Series X and what’s dubbed Project Lockhart, a slimmed down version with less power and a friendlier price. Similar to what phone manufacturers do. Two products, one targeting the enthusiast and the other suited more for a broader, casual audience.

Even this generation, Microsoft has dabbled with offering a variety of console options. Xbox One hit market in late 2013 at $499, a much higher price point than its competition. Problem was, it wasn’t actually more powerful. It was that way because of bundling Kinect.

We then saw the Xbox One S version in 2016, beginning lower at $299. The most powerful family member in the Xbox One X launched a year later, coming in at $499 to appeal to dedicated players that wanted more than the earlier models could produce.

Shoot, Microsoft has been even more experimental later this generation. The Xbox One S All-Digital Edition hit last year for $249, making it the most cost effective in the family. Even if it had little fanfare and we don’t actually know how well the market reacted.

Phil Spencer, Head of Xbox, hearkened back to the early days last gen in an interview with Eurogamer by saying “If you remember at the launch of Xbox One, we were $100 more expensive and less powerful. So, I won’t be in that position. There’s no doubt about that. As an industry that’s growing so fast, we do think about price. We do think about performance as well. I’m not going to sacrifice performance for the sake of price.”

Combining this sentiment with now seeing the power potential of Xbox Series X, I’m at a minimum of $499 for launch cost. I just don’t see a way Microsoft can price it lower and not take a serious bath on each unit. $549 is probably a smarter prediction, even $599 contingent upon the existence of the lower-priced Lockhart version of course. I don’t think Microsoft can enter next gen with only one console priced at $599. That’s beyond risky. I think the smart people on the team know that.

There’s ways to make it more enticing even at a higher price than the PlayStation 5. I’ve said bundling Xbox Live and/or Xbox Game Pass would go a long way to incentivizing the undecided audience towards the Xbox ecosystem. Even spreading out the cost with a payment plan, similar to its Xbox All Access program.

Gaming has been largely free from the reality of inflation so far, what with big budget software costs remaining consistent through the years.. With rising costs to build hardware, it’s looking like a higher baseline for console launch cost is approaching.

What makes predicting this generation even more difficult is the increased uncertainty surrounding global economies and the impact of coronavirus. How will it impact component availability and supply chain? Could it even delay the launch to 2021? I’m not calling for that just yet. We have to acknowledge it could happen.

The last question for now is: When will these companies reveal pricing? The Bloomberg piece suggests that Sony is somehow waiting for Microsoft to make the first move. Sony hasn’t even shown the form factor of PlayStation 5 yet. While Microsoft has even let certain media members see Xbox Series X in person and been extremely vocal about sharing details, it’s still quiet on the potential of another model. With the delay of various gaming events globally and the move to a digital format for many presentations, I expect a longer wait than usual for price announcements. Think closer to the summer.

I’m on record with my predictions of $399 for the PlayStation 5 and $499 for the Xbox Series X, while leaving the door open to moving up slightly if component scarcity hits or some other disruption. It’s too early to lock in officially. (Yes, I’m leaving myself an out. Wouldn’t you?)

Anyone confident enough to place bets even when we don’t have all the information and there’s plenty up in the air with current socioeconomic elements? What are your price expectations right now?

Pretty soon, we’ll all have to go on record.

I look forward to hearing here or on Twitter. Thanks for reading!

Note: All pricing discussed above is in US Dollars.

Sources: Bloomberg, Eurogamer, Digital Foundry, Microsoft, PlayStation Blog, Sony, Xbox Wire.

-Dom