Consumers in the U.S. spent a total of $13.13 billion on console and portable video game hardware and disc based software in 2015, this was exactly flat compared to spending from last year according to the NPD Group’s U.S. Games Industry Sales report that was released last week. The NPD Group report covers sales of new console and portable hardware, physical software and accessories at U.S. Retail, but it does not account for the growing digital market which accounts for around 1/3rd of the total software market. When including digital downloads and DLC the total revenue generated by the console and portable industry reached $15.6 billion, slightly up over last year. “2015 video game sales across physical software, hardware, and accessories were flat compared to 2014. Including physical PC games, overall physical sales decreased less than 1 per cent. Accessory spending, which rose by 12 percent from 2014, helped offset single digit declines in hardware and software spending,” said NPD analyst Liam Callahan.
Hardware sales declined by 4% in 2015, generating a total of $4.86 billion. The decline was primarily driven by lower sales of 7th generation consoles and 8th generation portable devices. Consoles such as the PlayStation 3 and Xbox 360 still hold on to their premium price points at this late point in their lifecycle and therefore there is little incentive to purchase a 7th generation console at this point whereas 8th generation handhelds such as the Nintendo 3DS and PlayStation Vita are seeing the majority of their audience move to mobile gaming. Even the release of the ‘New’ Nintendo 3DS this year could not stop both hardware and software declining for the system,it’s always best to check the reviews on websites to see if it’s worth you buying into a new generation console, to find more information have a look at TrustRadius.com. The decline was somewhat offset by the growth demonstrated by the PlayStation 4 and Xbox One with both consoles seeing an increase in unit sales this year compared to the last.
“After 26 months of sales, the combined cumulative sales of Xbox One and PS4 exceeds the 26 month total of the PS3 and Xbox 360 by 47 per cent,”NPD analyst Liam Callahan said. “The lead from the prior generation has expanded due to the strong PS4 and Xbox One 2015 holiday, going from 38 per cent by the end of October, growing to 47 per cent by the end of November, and maintaining 47 per cent higher sales by the end of December”. This puts the PlayStation 4 and Xbox One install base at more than 23 million in the US with the total 8th gen home console install base at over 28 million when you include the Wii U. The PlayStation 4, Xbox One and Nintendo Wii U also saw the biggest holiday season in 2015 beating combined sell through totals from prior years.
The PlayStation 4 was the best selling console in 2015 with an estimated 5.7 million units sold through to end users. Publicly available estimates place the Xbox One at around 5 million units in 2015 with the Wii U coming in at a much lower 1.4 million units.
New Physical Software
Console and Portable physical software sales at U.S. retail declined 2% year on year to $5.17 billion due to lower sales from 7th generation consoles and 8th generation portables. The decline was offset by a substantial increase in 8th generation console software thanks to the release of key established franchises such as Call of Duty, Madden, Fallout and Mortal Kombat. New IP’s this year such as Splatoon also helped booster sales with more than 1 million units (including digital) sold through to consumers. Liam Callahan said, “Portable software was down 34 per cent, with eighth generation software increasing by 52 per cent; this offset the decrease of seventh generation by 53 per cent, and led to a net increase of $73m in physical software sales.” The NPD Group also released a top 10 list of the best selling software in 2015 which can be seen below:
- Call of Duty: Black Ops III (Xbox One, PS4, 360, PS3, PC)
- Madden NFL 16 (PS4, Xbox One, 360, PS3)
- Fallout 4 (PS4, Xbox One, PC)
- Star Wars: Battlefront (Xbox One, PS4, PC)
- Grand Theft Auto V (PS4, Xbox One) 360, PS3, PC)
- NBA 2K16 (PS4, Xbox One, 360, PS3)
- Minecraft (360, Xbox One, PS3, PS4)
- FIFA 16 (PS4, Xbox One, 360, PS3)
- Mortal Kombat X (PS4, Xbox One)
- Call of Duty: Advanced Warfare (Xbox One, PS4, 360, PS3, PC)
Please note that the above top 10 list is for packaged software sell through at U.S. retail and includes complete editions, game of the year editions and software bundles but not those bundled with hardware.
Call of Duty was once again the top selling game of the year with sales up in 2015 over 2014 but what was even more surprising was that Advanced Warfare, the Call of Duty game from the prior year, made the top 10 list beating out many games that launched this year such as Metal Gear Solid 5, The Witcher 3 and Halo 5. Grand Theft Auto V continues to appear in the top 10 list along with Minecraft, these are the only two games to ever appear in the top 10 list for 3 consecutive years and are a testament to the popularity of each IP. Grand Theft Auto V on console has sold more than Grand Theft Auto: San Andreas and Vice City on PS2 combined which shows just how much the IP has grown has grown in the U.S. since Gen 6. The top 10 was also populated with the usual sports games such as Madden 16 & FIFA 16 from EA as well as NBA 2K16 from Take Two. Fallout 4 and Star Wars Battlefront also entered the chart at number 3 and 4 with more than 7 million unit sales between them.
Both Hardware and Software saw a decline but it was the Accessories segment that offset this decline with a 12% increase over last year to reach $3.1 billion. The accessories segment increase was primarily driven by Interactive Gaming Toys, Point Cards, Gamepads and Headsets/Headphones, which collectively increased sales by $351MM over 2014. Interactive Gaming Toys were the leading accessory in 2015 with a sales growth of 13 percent over 2014. Products like ‘Amiibo’ from Nintendo and ‘Skylanders’ from Activision along with Disney Infinity and Lego Dimensions helped the toys to life market grow considerably in 2015 with Nintendo having sold through more than 11 million figures and cards to date. For Gamepads, spending on eighth generation gamepads increased 44 percent over 2014, making up 76 percent of the market and spending on headsets was also driven by eighth generation consoles, which increased by 77 percent from 2014. Turtle Beach was the leading manufacturer of headsets for 2015.
Shift to Digital
Sales of new physical software continue to decrease but also continue to dominate overall sales representing 2/3rds of total spending on console and portable software. According to The NPD Group’s Games Market Dynamics report for the U.S. it’s estimated that $2.5 billion or 1/3rd of total spend was generated through full game downloads and DLC. This decline in new physical software sales, coupled with an increase in digital downloads, has hurt traditional brick and mortar retailers such as gamestop and as a result the company has been quick to take action this year, opting to bundle in physical games with hardware bundles and focusing more on their trade in promotions to increase customers and spending. GameStop noted that demand for new 7th generation software has declined drastically with sales down 67% YOY whilst 8th generation software has grown 49% YOY, not enough to offset the decline in total new software sales.
Game publishers continue to push digital sales as the option becomes easier for many consumers. High speed broadband along with lower pricing and additional extras have allowed digital editions to reach an average 15 to 20% attach rate and this percentage is set to continue growing in 2016 with many estimating that half of all console and portable games will be sold via digital download by the end of the generation. However physical retailers can benefit from the increase in digital downloads through offering download codes at retail via prepaid cards either for personal use or to gift to others. GameStop noted that their share of digital sales is around 5% and they aim to have 10% of their sales via digital download in the future. This report purely looks at the console and portable games market but it’s clear that the PC market, which has gone almost 100% digital, is impacting the console market with many finding digital download to be easier and more convenient than going to a store.
Retailers like GameStop are facing a number of challenges with the decline in new physical game software but they see a number of opportunities open them in being a specialist retailer of games software and hardware. Gamestop said in their recent investor briefing that they plan to leverage their ‘buy/sell trade ins’ in order to drive more customers in store, as well as this they plan to focus more on new gaming products such as the toys to life markets and VR headsets hoping that they can create a more curated experience for customers by allowing them to see and try out these products before purchasing them. On top of this Gamestop are also looking to address the growing digital segment by offering in store download cards and platform currency. Ultimately there is still a long way to go before digital becomes the overwhelming majority in the console industry and it really will come down to the platform holders, publishers and consumers to decide how fast that shift will take.
Outlook to 2016
The console video games industry is in its final year of transition as 7th generation consoles are set to be taken off the market soon. The 8th generation has done well to offset the declines but we have not seen a return to the peak years during gen 6 or 7. This is primarily due to the shift to digital, the decline of the portable console market and introduction of a new mobile market. Publisher confidence has been muted during the beginning of gen 8 but it is becoming increasingly clear that there are still consumers purchasing console hardware and software and there is enough demand for additional investment to be made. 2016 is set to see software revenue increase as the number of titles being released also increases, hardware should see an increase as well due to the PlayStation 4 and Xbox One achieving sub $300 price points to drive sales as well as the introduction of a new console from Nintendo. Accessories will continue to grow thanks to the toys to life segment and ultimately 2016 should be up over 2015, in terms of both unit sales and revenue. Virtual Reality is set to enter the console market in the form of PlayStation VR from Sony which should allow for additional software titles come to market in 2016. It’s not sure how big a part VR will play within consoles as this is the first VR product to hit the market but it should provide a big enough boost from early adopters to help the hardware, software and accessories market grow.
The PlayStation 4 continues to remain the cumulative sales leader in the USA with more than 12.4 million units sold to date according to publicly available estimates. We estimate that the PlayStation 4’s install base will reach 19 million in 2016 with the Xbox One not too far behind at just over 16 million. Below is a comparison of estimated PlayStation 4 & Xbox One sales compared to the prior gen. (Click to Enlarge)