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<\/p>\nWith the new game system launch for PlayStation 5 and Xbox Series S\/X many are arguing that this will be the last major console hardware cycle.\u00a0 However, the bigger issue is around software.\u00a0 In the emerging digital age can game software maintain a premium price or are games doomed to go the way of the music industry?<\/p>\n
DFC has long argued that the demand for high-end dedicated hardware is huge and growing.\u00a0 Ironically, this demand has only grown in the digital era where devices proliferate.\u00a0 Much of this is due to the amazing amount of low-cost software available for connected devices.<\/p>\n
With the new consoles, software prices for new titles have gone from $60 to $70.\u00a0 How is this sustainable in an age when so many high-end games are under $20 or even free?<\/p>\n
The answer goes directly to consumer psychology.\u00a0 People like shiny new things and are increasingly willing to pay top dollar for them.\u00a0 The game audience is huge, so a premium title only needs to reach a small fraction of consumers to be successful.<\/p>\n
It should be noted that the number of premium game releases is way down from what it was several years ago.\u00a0 Companies like Acclaim and THQ went out of business.\u00a0 Meanwhile the number of titles released by Activision Blizzard and Electronic Arts is way down as the focus is quality over quantity.<\/p>\n
The PlayStation 5 and Xbox Series S\/X launched with almost no exciting new software.\u00a0 Reviews tend to focus on the PS5 controller and the speed of loading.\u00a0 The reality is the games are not that exciting.<\/p>\n
In that environment a game like Call of Duty: Black Ops Cold War can easily command $70 ($90 for the Ultimate Edition).\u00a0 The question is will $70 be a feasible price a year or more from now when there is more competition.<\/p>\n
The likely answer is that there will be a wide range of prices.\u00a0 There are a small number of titles that command a premium launch price and can go through a longer lifecycle.\u00a0 As the products get older price comes down.\u00a0 Yes, a $70 price point is sustainable for the top games.\u00a0 Of course, only a fraction of games are in that top category.<\/p>\n
This lifecycle pricing is the benefit of video games having such a large audience.\u00a0 There is a significant number of consumers willing to pay top dollar to get a product as soon as it comes out.\u00a0 Another group will wait until prices come down.<\/p>\n
Many investors wonder if games will go the same way as the music industry or the toy industry.\u00a0 Both industries were devastated by the growth of digital products (of course including video games).<\/p>\n
However, the music industry and the toy industry were never as large as video games.\u00a0 The IFPI puts out detailed reports on music sales.\u00a0 The top selling global album for any given year is likely to sell around 3 million units.\u00a0 The top digital single is likely to hit 20 million of what the IFPI calls track equivalent units (a measure that combines audio streams, video streams and permanent downloads).<\/p>\n
Even at its peak, the music industry numbers are a fraction of today\u2019s video game sales.\u00a0 The best-selling albums of all times are measured in tens of millions of units but only after decades on the market.\u00a0 Furthermore, the movement to digital and services like Spotify have put a major dent in packaged music sales.<\/p>\n
One major exception in music has been the rise of vinyl and expensive boxsets.\u00a0 In the 1980s, consumers abandoned vinyl records for digital CD.\u00a0 Now retailers are finding space for vinyl records that sell at a premium price of $20+.\u00a0 This seems to make no sense in the digital age.<\/p>\n
The comeback of vinyl records is another example of the growing number of consumers demanding analog, physical products.\u00a0 Of course, most consumers are downloading digital music for free, but there is an audience for premium vinyl products.\u00a0 There is also an audience for remastering music and packaging in elaborate boxset formats, similar to coffee table books.<\/p>\n
The toy industry is seeing similar trends for going after a higher end-audience.\u00a0 Lego is a prime example of a company capitalizing on this trend.<\/p>\n
For holiday 2020, Lego is releasing a $120 set based on the children\u2019s show Sesame Street.\u00a0 The audience for this new set?\u00a0 Lego lists the suggested audience as age 18+.\u00a0 Yes, that is for a Sesame Street product.<\/p>\n
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