James Brown, consumer retail analyst at Kantar Worldpanel, examines the rising importance of consoles as media hubs and casts an eye toward the role they may one day play in the entertainment sector...
When the head of Xbox, Phil Spencer, admitted just ahead of this year's E3 that the company had made ‘wrong decisions' in the build-up to the release of the Xbox One, many people assumed that he was speaking about the positioning of the console as a media hub rather than as a gaming device.
Several commentators prior to launch of the next-generation consoles had criticised Microsoft for its focus on media rather than gaming, and saw this as one reason for it being outsold by its rival in the UK. Conversely, PlayStation's marketing campaign made its position abundantly clear – ‘This is for the players'.
While consoles are still primarily viewed as platforms for gaming, they are increasingly being used to play other forms of media. This is a trend which is only set to continue as media switches from physical CDs and DVDs to digital content. Since Christmas, one in six people in Britain have paid to view a video digitally, doubling from one in twelve people just one year before. Gamers are even more digitally active, with one in three shoppers who have bought a video game for themselves having paid to view a digital video in the past six months.
"Since Christmas, one in six people in Britain
have paid to view a video digitally, doubling
from one in twelve people just one year before.
Gamers are even more digitally active, with one
in three shoppers who have bought a video
game for themselves having paid to view a
digital video in the past six months."
James Brown -consumer retail analyst, Kantar Worldpanel
Over the past six months there has been a rapid rise in the use of consoles as media hubs. There has been a 61 per cent increase in the number of gamers buying digital video via their games consoles and the number of digital video occasions on an Xbox or PlayStation has doubled from 4.7 million to 9.5 million.
The subscription services of Netflix, Amazon Prime and Now TV are the main drivers of growth with one in four video subscription viewers watching content via their console since Christmas. It is worth noting, however, that while the number of people streaming subscription content on their consoles has increased over the past six months, the number using tablets and smart TVs has increased at a faster rate, which means that consoles' share of the market has dropped from 30 per cent to 22 per cent. This compares with the 12 per cent of content viewed on tablets (previously nine per cent).
Aside from streaming, the strength of consoles over the past year has been in the transactional digital video sectors of ‘buy to keep' and one-off rentals.
Consoles' share of occasions – the number of transactions made over the past six months – has more than doubled. Almost all of this gain (90 per cent) has been driven by one off rentals rather than buy to keep – with titles such as Frozen and Gravity performing particularly well in the first half of this year. Here, consoles have an advantage over their rivals, as content hosted on the PlayStation Store and Xbox Live Marketplace is extremely competitive – with prices 11 per cent lower than the industry average.
Which console is best placed to benefit from this upward trend of digital content? Your first assumption may be Xbox considering its focus on media capabilities during its launch. However, because PlayStation has outsold Xbox in Britain throughout 2014, it consequently has more direct sales through its store. The PlayStation Store accounts for 29 per cent of all one-off rentals made on consoles, compared with Xbox Live Marketplace's 18 per cent.
PlayStation benefits from having more consoles on the market, but also has an advantage in the profile of its owners. PS4 users tend to be older than those who own an Xbox One and these older shoppers generally have more disposable income to spend on digital video content.
The fact remains that the majority of one-off rentals made on consoles – worth some 5.5 million since Christmas – are through third-party services such as Amazon (14 per cent) and Blinkbox (28 per cent).
These established players have a number of advantages over the consoles' own stores. One of these is cross-platform accessibility. Content rented from third parties can generally be accessed on computer, tablet or mobile. Those purchased through the PlayStation Store, by contrast, can only be viewed on a PlayStation. Sony and Microsoft will have to address this if they want their store platforms to gain broader appeal.
"Over the past six months there has been a rapid
rise in the use of consoles as media hubs. There
has been a 61 per cent increase in the number of
gamers buying digital video via their games
consoles and the number of digital video
occasions on an Xbox or PlayStation has
doubled from 4.7 million to 9.5 million."
James Brown -consumer retail analyst, Kantar Worldpanel
Consoles are being used more and more as general media hubs rather than simply as gaming devices. This trend is set to continue as faster internet connections and more mainstream digital video services increase in popularity.
There are two ways in which consoles are set to benefit.
The first is that more people who aren't traditional gamers may choose to buy a console to use as a media hub. This trend could naturally benefit Xbox more due to its initial positioning as a hub – but either provider could use marketing to make these capabilities better known. Sony's PlayStation TV – hitting UK shelves in late 2014 – could be seen as a move in this direction. Both will benefit relative to Nintendo, which has been slower in adding media elements to its consoles.
The second is in selling content directly through their own stores. Both providers have quite a modest share of the transactional digital video market, PlayStation with 2.3 per cent and Xbox with 1.8 per cent, but they may look to expand these over time.
This will provide another stream of revenue outside of hardware and new games sales, which can be seasonal and unpredictable.
Ultimately, media capabilities give consoles a broader appeal, another source of revenue and a bright future.