Covid-19 & the video games industry – The good, the bad and the ugly
Out of nowhere, the coronavirus, Covid-19, turned the world upside down. Almost all the people in the world and almost all industries have been affected by the virus, the video game industry even more so. One only must read the Games Sales Data (GSD), produced by B2Boost, for the EMEA region to get an idea of the ferocity of change since the time Europe went into lockdown.
From the second week of March until the third week of April, Euro spending on European digital downloads (from PlayStation Store, Xbox Store, Steam and 3rd party games on the Nintendo eShop) on full games* increased by +113% compared to the same time in 2019. This increase in spending was not confined to digital downloads. During the same period physical full game spending increased by +4% (some countries did better than others, the UK experienced +37% growth in spending while spending in Italy contracted by -28%). The net effect from both these formats was to increase spending by €242 million. The release of high selling games like Final Fantasy VII Remake and Animal Crossing: New Horizons accounted for some of the uplift in spend, but the augmentation of spending was largely due to the lockdown. European consumers even took to buying more hardware consoles. During the lockdown so far EMEA hardware spending on the PS4, Xbox One and Switch consoles all increased with combined gain of +96% compared to the same time last year. This increase reversed months of declined spending as the PS4 and the Xbox One are coming to the end of their lifecycle.
This increase in purchasing of games and hardware was to be expected. With people stuck at home, the demand for online entertainment skyrocketed. Parents probably encouraged their children to play longer hours on video games to keep their minds occupied and to stay engaged with their friends. The BBC news ran an article on the 14th April with the headline Computer games: More than a lockdown distraction. When the need to stay in touch with loved ones has never been more important while at the same time trying to stay away and practice social distancing, video games have been an invaluable source to stay in contact, having fun together and conforming to social distancing all at the same time. Video games – we thank you.
All these spending stats are interesting, but they need to be taken into context as to what it means for the industry at large. Although it is not easy to engage the long-term impact of Covid-19 on the video games industry, we know that 2020 will be remarkably different to what we expected back just 3 months ago (February 2020).
In many ways the ability to game so much and so easily could not have been done without the convenience of online shopping (which accounted for the spike in physical spending) or, more importantly, digital downloads. The fact is the continued shift towards digital downloads was going to happen irrespective of Covid-19. All the virus did was to speed up the process and the magnitude of the change. To put that in perspective, before the lockdown direct downloads accounted for 51% of full game spending among GSD tracked publishers* , while during the lockdown this share increased to 75%. The question is - when gaming shops re-open, will gamers flock back to physical format or will they have got used to buying games from e-stores like the PlayStation Network? Some gamers will always prefer physical, but Covid-19 has shown them there is an alternative. How many will want to go back? There is no denying humans are a social animal and there is something special about going to a shop, seeing and mixing with other people in a retail environment, as well as the thrill from buying a physical product (this was discussed in a previous blog ), but social distancing, thanks to Covid-19, could put a damper on the whole experience of retail shopping. Some people may not want to go shopping until they feel completely safe. What will happen to the livelihoods of thousands of people who depend upon video game retail shopping if people opt for digital instead? The good news is that so far physical spending is showing resilience but the longer-term impact on consumer behaviour could be difficult to change back again after the convenience of digital distribution.
When talking about moving to digital, Covid-19 has already forced all trade shows and video game competition events for 2020 to move from physical attendance to an online presence. Furthermore, E3 and Gamescom and other trade shows have been cancelled. Some people seem to rejoice the fact that there will not be an E3 this year and go on to question the effectiveness of such trade shows given the ubiquitous nature of digital events. I say be careful what you wish for because records show E3 attendance in the last several years has gone up, not down. If E3 goes away the industry will have lost something that cannot be easily replaced. Nintendo, with its online video Nintendo Direct presentations, seemed to be one step ahead of the curve when the company decided back in 2011 the future of presentation is digital. Nintendo went down that path out of choice, not out of necessity. It is true that hype can be generated for forthcoming games and new hardware, but it is not the same; is it? When you can hear crowds whoop and cheer it could be at times cringe-worthy, but you cannot deny there is an atmosphere, a degree of excited apprehension. The Nintendo Direct videos, for all their efficiency in getting the message out there, cannot create that same degree of passion. People express their delight on Twitter and Facebook but that dilutes the urgency of the message or the intensity from a live audience.
Covid-19 has also done away with live crowds for eSports and that will hurt revenue for organisers and event hosting companies. Additionally, game developer meetings, that were once held in conference centres, will now be held on Zoom, Google Meet or Teams. Game journalists will have to get their news and buzz feeds online, not from physical meetings. All these new social norms will impact how gamers interact with the games and how industry news will be conveyed. The loss of personal interaction in an industry that strives on multiplayer interaction will be palpable.
Development times will also be affected. So far, all the big games slated for the Autumn and the Christmas holidays look like they will be met. That is because most of them are in the quality testing phase. The bulk of the code has already been written when publishers had large teams working physically in a building. Then, ideas could be easily exchanged, issues identified, and problems solved with a faster degree of productivity. Now everything must be done remotely. Everyone is working from home. That requires more time, more co-ordination. It is inevitable that some games will get delayed. Some titles, expected this year, have already been postponed. If remote working extends into 2021 than we should expect many more games to get delayed or worse, cancelled. Those are the lucky developers. In a recent European trade body survey, one in every six indie developer is facing bankruptcy and, if the lockdown is protracted, the number of developers that will go under will only increase. The sum effect of all these delays and cancellations will be fewer games. That is not great for an industry that thrives on new content, especially for the physical format market. Given 2020 will also see a new generation of consoles coming out, this situation is far from ideal.
Some industry analysts expect the new consoles, the PS5 and the Xbox Series X, to sell as expected in 2020 and not to be too adversely affected by the worldwide recession. Fans of the new systems are expected to buy on day 1 when the consoles launch. This may be so, but the machines are expected to cost more than $500 and in times when people need to tighten fiscal belts, that could be a heavy price for many casual consumers. Sony recently downgraded its forecast of sell through for the PS5 to 5 million units worldwide in 2020. That is down from the 7.5 million units it sold in 2013 when the PS4 launched. It could be argued that because people will shop less and travel less money that would otherwise be spent elsewhere could be spent on games and gaming machines. Who knows? It is next to impossible to forecast what will happen in late 2020. A lot depends on how fast the world economy bounces back when the markets enter a “new normal”. As we saw from the GSD statistics above, gaming so far has played a pivotal part in making the lockdown tolerable and consequently the business experienced a mini boom. This resurgence in demand during the Q4 holiday period could continue or it could face difficulty as people will have less money. The only thing we can be sure of is that Covid-19 is a market disrupter. We all know it. We are all experiencing it. The long-term ramifications for the video game industry are currently unknowable.
When a vaccine comes out and we all get inoculated, or if the virus magically goes away, will the games industry go back to the status it was in February 2020? Your guess is as good as mine.
Consultant and analyst at B2Boost
* From publishers sharing their data with GSD