What is the extent of the decline of the gaming consoles market worldwide?

Techcrunch Online reported on March 09, 2014 that Sony (SNE) has sold a total of 6.0 million PlayStation 4 (PS4) gaming consoles during the last holiday season, while Microsoft’s (MSFT) equivalent of the Xbox One had sold around 4.0 million gaming consoles, which represents quite a significant shortfall on the part of MSFT in its bid to keep up its pace with SNE’s PS4. The 2013 holiday season looks to be quite a bumpy year for both of these top gaming console manufacturers as they are competing each other for the last buck from the consumers, especially those hard core gamers, who are spoilt for choice, and do not want to pay exorbitant prices for a new device, when their existing devices works fine when engaging in their gaming activities.

However, with the increase in interest among many gaming console enthusiasts, that has not been translated into actual units being purchased by these group of hard core gamers, which is precisely my earlier point on the reluctance by many consumers seeking for new product upgrades, unless there are compelling reasons to do so, or their gaming consoles are damaged, or have become obsolete, which could easily be four to five years before new technology is being implemented. A recent NPD Group published data shows the extent of the downturn in gaming console units being sold, and the published estimates are not showing massive demand for new gaming console devices for the past seven years since 2007. Some readers might be aware that the NPD Group is one of the globally renowned e-market research firms, specialising in collecting, analysing retail, and consumer electronics sales data.

A spreadsheet table showing the percentage growth for each gaming console device over the past seven years since January 2007 to January 2014 is as follows:

Chart showing the spreadsheet table breakdown of consoles by percentage changes - March 13 2014

Source: NPD Group; Techcrunch.com

Readers might note the January 2014 data is not the official NPD Group data, as disclosed by the Techcrunch journalist, Ms. Natasha Lomas who was covering this story, as the NPD Group frowns on disclosures of any leaked subscriber data. However, assuming that the data estimates for January 2014 is based on actual data, it shows that on the whole, the total number of gaming consoles being sold declined by approximately 13.0 percent over the last seven years, when the analysis was first being extrapolated in January 2007. The PlayStation (PS2) gaming console recorded one of the largest declines of close to 22.0 percent, while the smallest decline has been coming from Nintendo’s Wii device at approximately 7.0 percent.

However, Techcrunch.com journalist, Ms. Natasha Lomas pointed out in her article, entitled, “The Console Market Is In Crisis”, as saying that based on other data sources, it was noted that total industry sales (hardware and software) during the month of January 2014 were down by 1.0 percent year-on-year (yoy). The lacklustre sales volumes could have only be driven by the slowing sales coming from the latest PS 4 and Microsoft’s Xbox One, as there were no new product launches, other than these two major competitors, each vying for a small fraction of their market dominance in larger gaming console market. It is generally not highly impressive when one were to compare the latest figures against the historical benchmark highs. Also, with the PS4 launch in its home market of Japan did not take place until the month of February 2014. The latest gaming console sales figures have not been particularly robust, with the second week of the Feb 2014 launch, saw only 65,686 units. This is according to researcher, Media Centre. The 65,686 sold units are hardly comparable to the week-two sales of PS Vita (72,479), and far less than the second week sales performance of Nintendo’s Wii U devices at 130,653.

The decline in gaming console market sales does represent quite a significant setback of the entire industry as a whole, with prices being reduced, and margins were severely impacted by the level of competition. Gaming developers and animation studios are bracing for some of these volatilities surrounding the gaming console markets. Ms. Lomas pointed out that the decline of the sales has also impacted on gaming titles such as ‘Bioshock Infinite’ title which has sole approximately 4.0 million units, but was not able to keep up to the overall shifts in the application of consumer technology. Competition coming from mobile devices has increasingly been much of the mainstay faced by game developers, and developers. These latest mobile apps offer a wide variety of game titles, which beats having to purchase the gaming console device in order to allow the game titles to be uploaded. The latest mobile devices allow users to purchase the app directly via Google’s PlayStore, or Apple’s ITunes, download the games without having to go to a physical store and purchase the gaming console itself. Moreover, games played on the app works similarly as compared to the gaming console itself.

The recent declines of the gaming console market represent quite a significant shift in technology, especially with the proliferation of new, enhanced mobile devices, the highly competitive nature of the industry, and the variety of game titles being offered. Game developers do not seem to be impacted much by the significant shift in the market as they are still able to keep their jobs due to the demand for new game titles, but gaming console makers like Sony, Nintendo, and Microsoft might be facing various competitive challenges coming from the mobile devices, and unless there are ways for these gaming console makers to transition themselves to the mobile markets. Increasing competition will arise by not adapting to the latest market forces acting upon their respective turfs.

About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Hock Meng Tay, CAIA has written 181 post in this blog.

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc

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About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc

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