E3 2018 Roundup Part One

 In Analysis, Console, Microsoft, Nintendo, PC, Sony

Another E3 has come and gone and it is time to assess where the video game industry is headed.  In a few weeks, DFC Intelligence will be releasing its latest industry forecasts as well as providing analysis of over 400 upcoming games for console and PC.  In the mean time we thought we would provide a two-part E3 2018 Roundup.

In our E3 2018 Roundup we are going to focus on several issues.

In part one, our major trends include:

  1. The strength of AAA games in a world of free-to-play products
  2. The controversial issue of loot boxes
  3. The top games for the second half of 2018 and early 2019

The second part of our E3 2018 Roundup will focus on:

  1. A look at each of the major game publishers
  2. Highlights from the major console manufacturers including key exclusives
  3. A look at the state of PC games
  4. A look at future issues such as game streaming services and new game hardware

E3 = The Show For AAA Product

In recent years, much of the focus in the video game industry has been around issues such as mobile games, microtransactions, casino games and loot boxes.  In many ways this represents a seamy side of the game business.  It appeals not so much to the joy of playing games as to the compulsion of gambling.  This is big business, but it is really a separate sector of the game industry.

The focus at E3 is squarely on the major AAA products.  Most of these products are using a pay-to-play as opposed to a games-as-service model.  Of course, in many cases these games will function somewhat as a service with online play, battle royale modes, DLC and eSports modes.  However, the bulk of money will be from getting the consumer to pay a major chunk upfront.

This is good news for much of the industry.  While free-to-play is popular and can be very profitable, it only works for a few games.  The concern is that consumers will start to expect games to be free, much like what occurred in the mobile game market.  This would be a problem for most of the big companies at E3.

What we are learning is that consumers do not mind spending big money on the right product.  That can be seen with the renewed investment in high-end game development.  The number of high quality products across the 4 major platforms (PlayStation 4, PC, Switch and Xbox One) is at a record high.  As mentioned, DFC is currently tracking over 400 titles scheduled to launch in the 2018/2019 timeframe.

Backing Away From Loot Boxes

Significantly, Electronic Arts backed away from loot boxes in its major upcoming AAA titles.  This was shortly after the company had widely been seen as promoting their continued use.  Whether or not they constitute gambling is really a separate issue.  However, it is clear that government regulators around the world are taking a harder look at the issue

Japan has had more years of regulating the type of product where the consumer is paying for a chance to win an item.  In Japan, this is called gacha and it is a huge monetization opportunity for many companies.   It has become a complicated issue, but Japan has put some regulations on gacha and the major Japanese publishers have also agreed to self-regulation.

The issue gets more complicated when you look at it on a global basis.  Each government can set their own regulation and they are likely to change over time.  Furthermore, it should be noted that Japan’s appetite for gacha and loot box style products has for years been much higher than the rest of the world.

In the core game market, many consumers take a purist view towards their games.  This is especially true in the increasing competitive eSports field.  The idea that consumers can buy their way to the top of a competition rankles many a gamer.

Electronic Arts has huge products that millions of consumers are paying $60 or more for.  Even if EA loses only 10% of these consumers in protest over loot boxes that is a big chunk to make up.  It takes selling a lot of loot boxes to make up for each loss of a $60+ consumer.

So, for big AAA games, loot boxes have become anathema.  Of course, that doesn’t mean they will go away.  For the right product there is big money in loot boxes.  It is all about finding the right balance.  For the companies at E3 the current message is they are still searching for that balance.

The Big Games of E3 2018

As mentioned there were a lot of big games at E3 this year.  Of course, many of them are tagged with the ambiguous release date of 2019.  In many cases that means they may not see the light of day until 2020 or beyond.  The biggest example is CD Projekt’s Cyberpunk 2077.  This game, which has been in development for over 5 years, garnered a great deal of attention.  However, it will be lucky to make a 2019 release.

Speaking of games that have been in development for a long time, there is Take-Two Interactive’s Red Dead Redemption 2.  This game finally has a firm launch date of October 26 and expectations are sky high.  No company has as much riding on a single game as Take-Two.  Over the past two years the stock has soared.  Currently it is looking rather volatile as investors try and determine if Red Dead redemption 2 will meet its lofty expectations.

In terms of products actually releasing in 2018, one of the biggest newer titles was Bethesda’s Fallout 76.  This will be an interesting game to watch because it will be entirely online.  Fallout 76 is a survival game set in a post-apocalyptic West Virginia.  This game is clearly looking to get on board the popularity of battle royale titles like Fortnite and Player’s Unknown Battleground.

Outside of some first-party exclusives, the really only other surprise for 2018 was Warner Bros Interactive Entertainment Hitman 2.  This franchise has a complicated track record.  Unlike the last release in the series Hitman 2 will not be episodic.

Most of the other 2018 games at E3 have been known about for a long time and just received final confirmation of a release date.  This includes October releases for heavy hitting shooters Call of Duty: Black Ops 4 and Battlefield 5.  Also in October is Ubisoft’s Assassin’s Creed Odyssey which took some observers by surprise with its enhancements on the franchise.

Other notable titles receiving a 2018 release date include Shadow of the Tomb Raider (September), Lego DC Super Villains (October), Mega Man 11 (again October), and Darksiders III, which still does not have a specific release date.

Going beyond 2018, the first quarter of 2019 is looking like a major one for new game releases.  This includes Anthem from Electronic Arts, Square Enix’s Kingdom Hearts 3, first person shooter Metro Exodus and Capcom’s Resident Evil 2 Remake.  Gaming is becoming more of a year-round business.

These are only the big third-party titles.  We will look at many of the platform exclusive titles in part 2.  DFC’s latest forecasts and assessment of all the upcoming video games will come out over the next month.  Overall, we feel confident in our latest forecasts and are looking to slightly raise our expectations for both 2018 and 2019.

Also be sure and check out some of our initial analysis of the Microsoft and Nintendo press conferences.

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