Read the headlines at the end of 2016, MCV’s included, and you might think the games industry was having a tough time of it. A number of high-profile releases struggled at retail and then Black Friday swept in and prices tumbled just weeks after release. It didn’t look pretty, but at least we now know it wasn’t representative of games spending across the UK as a whole in 2016.
That’s thanks to Ukie’s consumer spend valuation, which tots up all games spending in the UK. In retrospect, with all the figures collated, we can now reveal that the UK industry grew once again last year, with total consumer spend up by 1.2 per cent to a pretty substantial £4.33bn across the software, hardware and ancillary categories.
That’s a big number, so to provide some comparison the Entertainment Retailers Association calculates that the home video spend (physical and digital) amounts to around £2.3bn, while record-breaking box office figures last year in the UK added £1.3bn on top of that, for a total of £3.6bn. In that light, the games industry has a healthy upper hand, even if mainstream press coverage of both industries suggests otherwise.
Let’s take a look at the various figures and see what they say about 2016 and where we’re headed in 2017.
Taking the lion’s share of spending, software sales pulled in a huge £3.1bn last year. Once again there was growth in the digital segment but losses in boxed software - no surprise there. However, in previous years we’ve seen the gains in digital outpace the losses in physical, but not in 2016.
There was a 4.1 per cent gap between buoyant digital sales - which includes DLC and in-game transactions, according to data from SuperData - and the losses in the boxed market - reported by GfK.That’s the first time we’ve seen a net loss between the two sets of figures to date.
Joost van Dreunen (pictured, top far right), CEO of SuperData comments: “We are currently in a pivotal moment in the history of the games industry where digital distribution, including micro-transactions and full game downloads, is gradually starting to replace the traditionally physical market. We’ve seen a comparable transition in music, film, television, and books, where over time the digital component has started to play a more significant role.”
At 11 per cent the growth of digital looks to be slowing, figures from 2014 and 2015 saw rises of 13.2 per cent and 17.6 per cent respectively. Over the longer term, though, Van Dreunen sees it speeding up, for now:
“We see it accelerating. Over the past five years the share of full game downloads as part of the total units sold has grown almost six-fold, indicating that a growing number of consumers are more comfortable obtaining games in that way. It is important to keep in mind, however, that while digitalisation benefits the market overall, it is not an infinite growth process and will eventually settle.”
It isn’t covered in Ukie’s figures, but just how many game sales last year were digital? Van Dreuenen answers: “For console, the split is around 25 per cent - 30 per cent digital vs physical, based on full game downloads.”
The software segment as a whole was up, too, thanks to a strong growth of 16.9 per cent from mobile. That may be little consolation for those selling or publishing console and PC titles, but there is crossover between the two segments, especially for strategy titles. Console brands, meanwhile, notably Nintendo, have seen greater success in the mobile space this year - and we’d expect to see more of the most highly-recognised gaming brands follow suit in 2017.
We wondered if the increased mobile spending is at the expense of more traditional gaming platforms, or if it’s coming from an expanded gaming demographic?
Van Dreunen comments: “Rather than cannibalising revenues from PC and console, mobile spending adds to the overall industry. Certainly, entertainment spending is part of a disposable budget, and instead of spending £60 on a console game, a number of mobile players will spend as much on a monthly basis. The result is not so much a decline of spending on PC and console, but the top titles claim more of overall revenues, leaving less for the mid-sized titles.”
GOOD AS NEW
While that small hole opening up between digital and physical sales may worry publishers, it looks like the pre-owned market is having its own inevitable shift - only this time it’s from last-gen to current-gen consoles.
Figures provided by Kantar show a 3.3 per cent dip overall in pre-owned spend - no doubt affected by the shift to digital - but that’s still considerably healthier than mint boxed games over 2016. It’s the move between generations that’s the story behind those numbers. Kantar’s consumer insight director for entertainment and telecoms, Oss Robertson (pictured, top right), explains:
“In 2016 we saw current gen consoles begin to dominate pre-owned. Current gen pre-owned games now account for 60 per cent of pre-owned value compared to 41 per cent last year – and there were an extra 200,000 pre-owned shoppers overall. Generally, pre-owned is seeing a more delayed benefit from the introduction of a new console generation.
He goes on to compare and contrast with the mint games market: “The challenges in the mint category are due to several factors. Mainly the increases in current-gen shoppers being offset by the decline in last-gen shoppers; and shoppers overall buying less frequently. However, in pre-owned, the increase in current-gen shoppers has been greater than the decrease seen in last-gen.
“Combine this with the more stable level of spend per shopper – pre-owned, current-gen spend per shopper has been steady at £43 per year, compared to a drop from £26 to £20 for last-gen – and pre-owned therefore doesn’t have the same extent of current-gen increases being offset by last-gen declines.”
It looks as though pre-owned purchasers are more dedicated gamers, too: “The average pre-owned shopper is a heavier games shopper than the average mint shopper. The average pre-owned shopper spends on average £20 more per year than the average mint shopper. Thus, the pre-owned category is arguably more resilient than the mint category, due to its naturally more engaged customer base.”
But surely the current pre-owned market is heading for choppy waters, with the shift to digital retail? Robertson agrees: “In future, we may see pre-owned overexposed to movements to digital games. 32 per cent of pre-owned shoppers also bought full digital games in 2016, compared to 27 per cent of mint shoppers. We also saw 12 per cent of 2015’s pre-owned shoppers just buying digital games this year.
“However, at the moment, direct movements of spend from pre-owned to digital are still small – around two per cent of 2016’s category value, which is the same level we see in mint. So it seems that there’s more potential for pre-owned shoppers to switch to digital games, although at the moment they are bought as part of a wider repertoire.
“More generally, it’s unlikely that pre-owned shoppers will completely switch to digital as there are obvious benefits that physical has over digital. The ability to gift, share or trade-in is something that digital can’t really compete with.
“And there is a significant part of the games market that just buys one or two titles per year - even among those buying for themselves. For these shoppers, the benefits of digital – such as convenience, immediate access on their consoles, and saving physical space in their homes – may not be enough to convince them into this newer format.”
The story behind the hardware figures is one of a maturing console market versus a rampantly growing PC space.
The console market in 2016 was getting saturated with hardware, and with both the PS4 and Xbox One proving to be highly reliable we’re not seeing the same hardware churn the Xbox 360 provided through its early to middle years. Even the new slim versions of the leading consoles weren’t popular enough to maintain sales from 2015.
The release of the PS4 Pro late last year wouldn’t have had much time to affect the figures, but a full year’s sales, combined with the launch of the Switch, plus the apparently high-end Project Scorpio later this year, should see this segment of the market perk up considerably in 2017.
Console accessories and peripherals look to have taken a hit last year, too, but the drop in the figures is partly down to splitting out the VR figure in this year’s report. While some of that £61m will be from Oculus and Vive, a significant segment will come from Sony’s PSVR headset, making it practically a reclassified peripherals category. The remaining fall is probably related to the drop in console sales having a knock-on effect on sales of controllers and other extras.
After many years of minor refinements, the PC graphics market had a breakthrough year with its well-overdue move to 16nm technology. That sparked a huge uplift in sales and was the main driver in the PC gaming hardware market gaining 64.3 per cent to hit £258m.
The popularity of eSports will have also contributed with plenty of marketing activity around peripherals such as mice, keyboards and headsets.
Despite all that, the segment is still only worth about a third of the total console hardware market - though the differentiation between products means margins are far healthier than in the cut-throat console space.
While some core gaming segments were struggling, gaming culture as a whole was on the rise. Sales of books and magazines, toys, films, soundtracks and spend on events were up across the board.
While this only amounts to a total spend of just over £100m, it looks to be a key area for further expansion in 2017 - as GAME’s investment in its Belong gaming arenas already shows. Books and magazines, while recovering to £18.4m, is still some way below its 2014 Minecraft-driven peak of £23m.
Overall, the gaming market in the UK is pretty solid. Console and PC software took a slight hit, while console hardware was significantly down, but both should bounce back this year with some huge launches already completed by March.
Of course, these figures only paint the industry in very broad strokes. With Brexit bound to hit harder in 2017 and with the weakened pound affecting the price of a wide variety of goods, the key this year may not lie with details of spending within the industry but rather how well consumer confidence holds up
as a whole.
Thankfully, gaming has traditionally proved to be highly resistant to the kind of fiscal fluctuations that can floor other, so- called, non-essential spending. Let’s hope it proves so again.