Video Game Industry Soars Under Stay-at-Home
DFC Intelligence just released its latest report on the state of the video game industry. The good news is that sales of video games are soaring. Of course, one of the unfortunate causes of this increase is the devastating spread of COVID-19.
In the past week major public video companies have reported earnings results that were better than expected. This included Activision Blizzard, Electronic Arts, Ubisoft, Zynga and Nintendo. These higher than anticipated results are the clearest indication we have seen of the impact of stay-at-home orders on consumer spending.
Nintendo has shown the strongest increase in sales. Switch consoles have been widely sold out. Nevertheless, Switch unit sales for the recent quarter ending 3/31/20 beat Nintendo’s forecast made only two months prior by 87%. The game Animal Crossing: New Horizons, which launched 10 days before the end of the quarter sold 11.7 million units in that period. For perspective, The Legend of Zelda: Breath of the Wild, Super Mario Odyssey and Pokemon Sword/Shield have each sold about 17 million since their release (2017 for the first two titles).
The impact of COVID-19 on the video game industry is ongoing and will be reassessed on a regular basis. Right now, the biggest beneficiaries are high-end products, hardware, and AAA games. Products that are expected to grow include PC gaming systems, high-end headsets, and subscription services. This could result in long-term growth for these areas as consumer realize the relative value of high-quality game products.
The biggest concern is whether current closures will impact product release schedules. Demand for the upcoming PlayStation 5 and Xbox Series X is expected to be greater than anticipated. However, it is unknown how many units will be shipped given the ongoing lock-down environment.
Of course, some of the growth in the video game industry is likely to be short-lived. In addition, some companies are clearly suffering negative impacts from the crisis. As society goes back to normal there will likely be pent-up sending on out-of-home entertainment. However, the good news is that some products and companies are likely to see a permanent increase in their consumer base.
The new report also looks at historic consumer spending trends in the U.S. going back to the Great Depression. The data clearly shows that even when money is tight consumers spend the same relative level of income on entertainment.
Compared with other forms of entertainment such as vacations, location-based entertainment and dining, video games are a relatively low cost and high value product. Furthermore, with stay-at-home orders, video games remain one of the only available options.
The new report is available now. DFC will be issuing regular updates as new information becomes available. All these updates will be included in the Executive Brief Series.
DFC Intelligence is participating in investor calls to look at how public video game companies are likely to be impacted by COVID-19. This includes public companies with open-world games that have growth potential. Contact us for more information or to schedule a consulting call and hear our current thinking on the video gaming and digital entertainment space.