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Summary

Surrounded by hype regarding upcoming next-generation Xbox and PlayStation consoles, subscription game services, and cloud gaming, physical console game sales are defying the trend seen in other forms of entertainment media: Digital games are certainly displacing physical, but this is happening gradually, and nowhere near as fast as the collapse seen in CDs and DVDs. If console manufacturers are to ensure that their products remain popular, they need to maintain a focus on physical games.

Game consoles are moving to digital

Owing to the unique characteristics of the console gaming market, the sales of physical copies of video games have continued to defy expectations. The top factors contributing to this are the sheer size of content (some Xbox One X games optimized for UHD are now 110GB or bigger), strong retail channel partners (encouraging limited-edition physical versions), and the relatively high prices of games, which have sustained a significant secondhand market. Global revenue from digitally distributed games will exceed that from physical media only in 2022, from which point physical sales will continue to decline gracefully (Figure 1).

 

Figure 1: Global, console game revenue by category, 2016–23Global console game revenue by category 201623

Source: Ovum Video Game Revenue Forecast: 2018–23

  

As internet speeds and coverage improve globally, the convenience of downloading rather than physically purchasing grows larger. Nevertheless, there is still some pushback from consumers. Console manufacturers and game publishers are also encouraging users to move away from physical, as they much prefer the increased control and higher margins of digital sales. Publishers offer one-time downloadable content to discourage trade-in (an unpopular tactic in the eyes of some gamers) – meanwhile, the recent launch of the Xbox One S All-Digital console underlines console makers' future aspirations.

Despite speculations that upcoming ninth-generation PlayStation and Xbox consoles might drop disk drives altogether, Sony and Microsoft recently confirmed that they intend to support physical games, which is a smart decision – this is the only way to assure the global appeal for their upcoming consoles. Sony, Microsoft, and Nintendo fully acknowledge the enduring importance of physical media, but having struggled with their digital propositions early on – at least compared with PCs and Steam – all three console makers have transformed their offerings. They now offer ongoing promotions and discounts, with further offers linked to membership of their respective premium services: PlayStation Plus, Xbox Gold, and Switch Online. The future of gaming is certainly digital, but physical is here to stay for a bit longer.

Appendix

Further reading

Video Games Revenue Forecast: 2018–23, CES003-000226 (July 2018)

Author

George Jijiashvili, Senior Analyst, AR/VR and Video Gaming

george.jijiashvili@ovum.com

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