The console is dead. Long live the console.
While much of technology is in the process of eschewing hardware-based solutions – witness the growing embrace of cloud computing, online streaming of TV and movies, digital music downloads – you can’t escape the fact that the video-game console is still an integral, if not always necessary, part of its industry.
Witness, for example, the recent performance of shares of top game-maker Activision Blizzard. The stock recently hit an all-time high after the company posted better-than-expected fourth-quarter earnings, mostly on the strength of physical game sales of its Call of Duty series.1
Meanwhile, rival Electronic Arts posted disappointing results, partly because of the steep decline in sales of games for older consoles following the arrival of the next-generation Xbox One and PlayStation 4 last November.
And Take-Two Interactive said strong sales of its Grand Theft Auto game helped its latest quarterly profit double.
Analysts expect that spending on popular video games will continue in coming months as the new consoles become more widespread and publishers introduce fresh titles. One analyst sees 30 million consoles by the end of 2014 and 50 million in total by the end of 2015.
That’s not exactly an indication of an industry running away from hardware-based games.
What’s more, the holiday-quarter success of many gamemakers has been apparent to investors. The Online Gaming World motif is up 8.9% over the past month. The S&P has gained 0.2% in that same period.
For the last 12 months, the motif has risen 52.2%; the S&P 500 has returned 22.3%.
But wait — does that mean the online part of gaming isn’t delivering on its promised future?
Not exactly. Look a little closer at Electronic Arts supposedly disappointing numbers, which, to be fair, were definitely impacted by console-release cycles.
As analysts at Trefis recently noted, EA isn’t just relying on product sales but is also reaping gains from support streams like extra downloadable content.2
In 2009, EA released 60 PC/console titles, a year later it came out with 54. With little or no online support, the games each earned an average of $60 million per title.
In its fiscal 2013 year, Trefis said, the company launched 35 titles – 13 on consoles/PCs, and 22 on mobile and Internet platforms. The games this past year earned $108 million per title, while the downloadable content stream accounted for 41% of December revenue.
That’s not to mention that mobile phone games are EA’s second-biggest contributor to digital sales. It generated $125 million in sales for the quarter, up 26% from a year earlier, with more than 71 million game downloads on Apple and Android platforms.
One could argue the console is still king, but it is definitely no longer a one-man show.
1Trey Thoelcke, “Activision Soars to Multiyear High, but Industry Faces Headwinds,” 24/7 WallSt, Feb. 7, 2014, http://finance.yahoo.com/news/activision-soars-multiyear-high-industry-164548293.html.
2Trefis Team, “Electronic Arts Misses Revenue Guidance But Expands Margins Through Digital Growth, Forbes.com, Jan. 30, 2014, http://www.forbes.com/sites/greatspeculations/2014/01/30/electronic-arts-misses-revenue-guidance-but-expands-margins-through-digital-growth/?partner=yahootix, (accessed Feb. 11, 2014).