FALL 2013 CONSUMER VIDEO GAME SURVEY
We recently conducted a survey of over 1,000 gamers in an attempt to gauge awareness and purchase intentions for hardware, software, and peripherals through 2013 and into the release of next-gen consoles. If our previous surveys are any indication, the responses from our participants are a strong directional indicator of upcoming trends within the video game space. Whereas this report focuses on video game publishers and the positioning of software titles in the wake of E3, we also asked our respondents a series of bigger picture questions related to next-gen preferences, digital downloads, etc., the results of which we will publish at a later date. Consumer Awareness of Upcoming Software Titles
With the highly-anticipated launch of Grand Theft Auto V behind us, the stage is now set for the crowded holiday release slate and the long-awaited next gen console battle. Our consumer awareness survey gives an indication of the buzz surrounding games both soon to be released as well as those still months or potentially years away. Our first question was an attempt to gauge consumer awareness of more than 70 upcoming video games expected in 2013/2014. We simply asked consumers to identify which games they had previously heard of.
Top Twenty Upcoming Games – Consumer Awareness
Top Twenty Upcoming Games - Consumer Awareness 1
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0 4 Battlefield Flag Black IV: Creed Assassin's Origins Arkham Batman: Ghosts Duty: of Call Online Scrolls Elder II Souls Dark Dogs Watch 3 Rising Dead 2 Edge Mirror's III Hearts Kingdom Son Second Infamous: Battlefront Wars: Star gen) (next14 FIFA Truth Stick of The Park: South U Wii Bros. Smash Super 5 Halo 6 Turismo Gran Thief Fall Shadow Killzone: Titanfall
Topping our list of games from an awareness perspective are the latest iterations of four of the industry’s most successful and high-profile franchises: EA’s Battlefield 4, Ubisoft’s Assassin’s Creed IV: Black Flag, Warner Bros.’ Batman: Arkham Origins , and Activision’s Call of Duty: Ghosts , all registering between 92-95% awareness among our survey respondents . With its release imminent, Battlefield 4 (due out Oct. 29th) has reached the #1 spot in consumer awareness at 95%, outpacing rival Call of Duty: Ghosts , which came in at #4 with 92% awareness. The two blockbuster games placed at or near the top of our two most recent surveys, evidence of the level of marketing support that these two games bring to the table. As always, the responses underscore the importance of sequels in the video game market, with new IP only representing two of the top twenty. Ubisoft’s Watchdogs (#7 with 81% awareness) has reached an impressive rank, but it has been around far longer than other new IP and has even been the subject of an ongoing marketing campaign. Activision’s Destiny (#22 with 65% awareness) has fallen out of our top 20 (previously #16 with 71% awareness) whereas EA’s Titanfall (#20 with 66% awareness) has entered the list for the first time. Titanfall was officially announced for the first time at Microsoft’s E3 event (June 10th) whereas we got our first look at Destiny much earlier at the February 20 th unveiling of the PS4. Both games have won numerous awards during E3 in June and later at the European ‘gamescom’ video game trade show held in Germany this past August. Upcoming Software Purchase Intentions
Our second question asked consumers which of the same ~70 games they planned to own, on a scale of one (would most like to own) to five (would like to own, but lowest priority), respondents were also given the option of answering “N/A” if they were unaware of a game or had no interest in owning it. The chart below illustrates which games ranked highest based on our weighted scoring system, in which we awarded games five points for each response of “most like to own” and one fewer point for each progressively lower response (ie. four points for a response of “two,” three points for a response of “three,” etc.).
Top 20 Purchase Intentions
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0 Dogs Watch Origins Arkham Batman: Battlefront Wars: Star Destiny 4 Battlefield Flag Black IV: Creed Assassin's 2 Edge Mirror's III Hearts Kingdom Son Second Infamous: Phantom The V: Solid Pain Gear Metal Titanfall Division The Clancy's: Tom Truth Stick of The Park: South U Wii Bros. Smash Super Online Scrolls Elder 5 Halo 8 Kart Mario World 3D Mario Super Ghosts Duty: of Call II Souls Dark
Ubisoft’s Watch Dogs took the top spot on our list, which is an impressive feat for an all new IP. With many parallels being drawn to Grand Theft Auto , Watch Dogs is an open world action adventure game being developed by Ubisoft. It should be noted that Watch Dogs was in the news recently when developers announced the delay of the game’s release from mid-November until spring of next year. This is good news for EA and ATVI, who will release Battlefield 4 and Call of Duty: Ghosts respectively in the next few weeks, as the delay greatly reduces competition in the near term for consumer attention and dollars. Standing tough at #3 on our list was EA’s Star Wars Battlefront , the first game expected from the recently signed agreement with Disney for EA to develop a series of Star Wars games concurrent with (although not directly based on) the theatrical release of the next Star Wars trilogy. This remains a surprise given the fact that the only details available on the game are its name, one very brief trailer, and a general release timeframe of 2Q/3Q 2015 (the anticipated release timeframe of the first film in the series). Activision’s Destiny came in at #4 (effectively flat from our prior survey), which remains an impressive feat for a new IP, especially one (unlike Battlefront ) that has no name brand recognition and was only recognized by 65% of our respondent group. The other highly-touted new IP, EA’s Titanfall, moved up the ranks considerably from #20 in our previous survey to #11 this time around. Titanfall has been making up ground on Destiny in the last few months by virtue of the amount of time since it was announced as well as continued positive press and awards it has been earning. With regard to Titanfall it is important to note that it is a Microsoft (Xbox 360 and Xbox One) exclusive title (at least in the near term) and as such, it has reduced its potential audience dramatically. As shown below, amongst likely future owners of Xbox One in our survey, Titanfall is actually the second most desired game out of all titles. This represents a drastic increase from its #11 position when surveying a sample of the entire console gaming population. Destiny comes in a close second amongst likely Xbox One owners, however it falls to #6 most desired amongst likely owners of only PlayStation 4.
Titanfall is the Second Most Desired Game Amongst Likely Xbox One Owners
"Weighted Score" of Most Desired Games by Those Planning to Only Own Xbox One 700
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0 5 Halo Titanfall Destiny 4 Battlefield Battlefront Wars: Star Dogs Watch Origins Arkham Batman: Division The Clancy's: Tom 5 Motorsport Forza Flag Black IV: Creed Assassin's 3 Rising Dead Ghosts Duty: of Call Spark Project Rome of Son Ryse: Truth Stick of The Park: South Online Scrolls Elder 2 Edge Mirror's Break Quantum Warfare Garden Zombies vs. Plants Patriots 6: Rainbow
One of EA’s biggest missteps during the previous console transition was that it made the wrong bets with regard to the various consoles, aligning its efforts with the PS3, the Xbox 360, and the Wii, in that order, which proved to be the reverse order of hardware sales at least early on in the current generation. Titanfall appears to be a high- potential new IP, and we hope that this opportunity does not become squandered by the lack of relative interest in the Xbox One compared to the PS4. EA’s Battlefield 4 came in at #5 on the overall list, a notable 14 spots ahead of Call of Duty: Ghosts , the game against which Battlefield will be most closely compared. It is important to note that neither of these games is likely to finish outside of the top four, with Call of Duty the odds on favorite to outsell BF4. However, it is clear that Battlefield has overtaken Call of Duty among the avid gaming community, likely due at least in part to the annual release of Call of Duty . And while both games will rely heavily on mass-market gamers to reach their full potential (15+ million units each), Call of Duty ’s precipitous decline among these avid gamers (more on this in the Activision section) is nonetheless concerning. While many of the highly-anticipated games on our list aren’t expected out until 2014 (and in some instances 2015), we believe that this is arguably the most impressive holiday lineup ever. Following a string of annual sports titles ( NCAA Football in July, Madden in August, FIFA in September) an unprecedented holiday slate of blockbusters began with Grand Theft Auto V in September, and is now followed by Battlefield 4 , Batman: Arkham Origins , and Assassin’s Creed IV: Black Flag in October, followed by Call of Duty: Ghosts in November. As mentioned above, the slate has become somewhat less crowded with the announced delay of Watch Dogs from November until next spring. Each of these games has aspirations of selling at least five million copies, with some ( Call of Duty and possibly even Battlefield ) having goals of topping 15 or even 20 million units sold. With the unprecedented early success of GTA V, the pressure is on these other franchises to compete for consumer attention and the presumably limited amount of aggregate video game dollars to be spent this holiday season. And while any publisher that has paid attention to seasonal trends over the past few years would have to be hesitant to put a major game out during the first (calendar) quarter of the year, the spring of 2014 promises to deliver some of the most highly anticipated games (so far) of the next generation including Titanfall and the recently delayed Watch Dogs . When we look at these results through the lens of the publishers, we believe there are (sometimes isolated) reasons for optimism for each of the publishers, although we believe the data is most positive for EA. While TTWO boasts massive revenue opportunities with ongoing sales of Grand Theft Auto V, follow-on DLC and GTA Online microtransactions, Electronic Arts has four of the top fifteen wanted games on the list.
Consumer Survey Results: Most Desired Upcoming Games by Publisher Release Plans to Buy Rank Publisher Title Date % Aware (out of 70 titles) Activision Destiny 6/30/2014 65% 4 Activision Call of Duty: Ghosts 11/5/2013 92% 20 Activision StarCraft II: Legacy of the Void TBA 36% 40 Electronic Arts Star Wars: Battlefront TBA 72% 3 Electronic Arts Battlefield 4 10/29/2014 95% 5 Electronic Arts Mirror's Edge 2 TBA 75% 7 Electronic Arts Titanfall Spring 2014 66% 11 Electronic Arts Dragon Age: Inquisition Fall 2013 54% 27 Electronic Arts Plants vs. Zombies Garden Warfare Spring 2014 60% 35 Electronic Arts The Sims 4 Winter 2014 55% 39 Electronic Arts Need for Speed: Rivals 11/19/2013 48% 43 Electronic Arts FIFA 14 (next gen) 11/15/2013 72% 46 Electronic Arts Madden NFL 25 (next gen) 11/15/2013 59% 53 Electronic Arts UFC 14 Spring 2014 28% 62 Electronic Arts NBA Live 14 11/19/2014 41% 63 Take-Two NBA 2K14 (next gen) 11/15/2013 53% 57 Take-Two Agent TBA 20% 60 Take-Two WWE 2K14 10/29/2013 30% 61 Take-Two Interactive
For the first time in the nine iterations (spanning five years) of our video game consumer survey, Take-Two failed to place an upcoming game in the top ten of our most wanted list. This is because Grand Theft Auto , the game that held down the top spot in each of the past three surveys, was released last month, smashing every launch record in its path. As our survey showed with highly successful titles Bioshock: Infinite (#2 in plans to buy in each of the two surveys survey ahead of its March release) and Borderlands 2 (#4 in our Summer-12 survey ahead of its September release) GTA V’s success was well foreshadowed by its rank as the #1 most-desired game in three straight surveys leading up to its release. Day one sales of GTA V exceeded $800M, the biggest single-day sales haul for not only any video game but, for that matter, any entertainment franchise. Based on our estimates, it beat the day one total for Call of Duty : Modern Warfare 3 (the previous video game record-holder) by an astounding 60% and was nearly 3x the day-one box office for Harry Potter: The Deathly Hallows (the movie record holder).
If this weren’t enough, GTA surpassed the $1B sales mark in just three days, breaking yet another record, in that Call of Duty : Black Ops II (released last November) was previously the fastest game ever to $1B, doing so in 15 days. Not only did Black Ops II take 5x as long to surpass $1B, but the game also benefitted from Thanksgiving Weekend (Black Friday through Cyber Monday) being included in the 15 days. On a more comparable basis, Call of Duty : Modern Warfare 3 (Nov-11) surpassed $1B in 16 days, whereas Avatar, the record-holder for the fastest movie to reach $1B, did so in 17 days. Importantly, TTWO has yet to disclose any unit numbers on GTA. At the typical ASP of $60, $1B in sales would imply 16.7M units sold. However, we believe that the ASP is substantially higher than $60, not only due to the special edition versions of the game ($80 and $150), but more significantly due to favorable exchange rates, making copies sold in Europe much more pricey when converted to U.S. dollars. As shown below, the U.K. selling price of £41.99 equates to $68 when converted to U.S. dollars and the Euro price of €59.99 equates to $83. We estimate that the weighted average ASP on the standard version of the game alone (not including special editions) is about $69, and that the ASP on the $1B of sales through three days was about $72, which would equate to unit sales of about 14M.
Currency Providing Nice ASP Benefit For GTA V
ASP Currency Conversion USD Weight $60 USD 1 $60 35% £41.99 GBP 1.62 $68 26% € 59.90 EUR 1.38 $83 30% ¥6,345.00 JPY 0.01 $63 3% $63 Rest of World 1 $63 7%
Weighted Average ASP: $69
This is an important distinction, in that if GTA V has been able to blow away sales expectations in part due to exceedingly large ASP’s, this means that there is plenty of room yet for upside, as there likely remains a large audience for the game that has yet to purchase it, and is likely to do so this holiday and beyond. For a company the size of TTWO, the success of Grand Theft Auto cannot be underestimated. While we need to be careful not to confuse earlier sales with greater lifetime sales potential, we believe that the early sales statistics suggest we will likely see a combination of both. Additionally, we believe that the digital/add-on opportunities for GTA V should single-handedly make FY15 a nicely profitable year for TTWO. In an effort to quantify this opportunity, we ask those among our respondent group that currently own GTA V (more than 400 gamers) about their likelihood of purchasing DLC for GTA V . As shown below, the responses were overwhelmingly positive, with 41% saying they were “most likely” to purchase DLC (#1) and another 20% rating the probability as the second most likely. GTA V Owners Extremely Likely to Purchase DLC
GTA V Owners Likelihood of Purchasing DLC for GTA V 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1 (most 2 3 4 5 (least N/A likely) likely)
As shown, a full 60% of GTA V owners rated the likelihood of purchasing additional DLC as #1 or #2, with only 12% rating it #5 (“least likely”). Admittedly, our respondent group skews fairly hardcore (as evidenced by the fact that about 40% have already purchased GTA V ), and so we are conservatively assuming that about 40% of GTA V owners at some point purchase some form of DLC. The big wildcard, as we see it, comes in the form of Grand Theft Auto Online. GTA Online features a truly massive, ever-evolving world in which up to 16 players can complete missions (jobs) individually or in conjunction with a team (crew), as well as (eventually) build user-created content. GTA Online comes free with a purchase of the single-player disc, and so for some time, investors have wondered exactly how TTWO plans to monetize what is clearly of sizeable value to its customers. This was answered at least in part when it became evident that users would be able to buy in-game money with real-world money. In-game “cash cards” will be purchasable, ranging from $100,000 of in-game currency for $3 to $1.25M for $20. That being said, the in-game currency program got off to an extremely rocky start, as did GTA Online as a whole, with servers buckling under the initial weight of millions of players logging on to play on October 1 st . In response to these issues, TTWO will be providing Online players with $500,000 of in-game cash (the equivalent of $10). While the GTA Online experiment has been disappointing thus far, and may have contributed to the lackluster performance of TTWO shares despite colossal sales numbers for the game itself, we do not believe that any monetization from GTA Online has ever been factored into estimates for the company. While timing remains uncertain, we believe that the microtransaction system will eventually work, and could provide some nice upside to numbers. In an effort to quantify this opportunity, we asked our respondent group of GTA V owners whether they have or plan to play GTA Online . As shown below, an overwhelming majority (86%) said that they do play to play the Online mode. Vast Majority of GTA Players Expect to Play Online
Proportion of GTA V Owners, who have Played or Plan to Play GTA Online
No 14%
Yes 86%
It is important to understand that in-game currency purchases are not a required aspect of the game, and instead just provide a way for players to accelerate their progress. As such, the vast majority of GTA Online players will likely opt to acquire in-game currency the old fashioned way (stealing it). Electronic Arts
Of our covered publishers, Electronic Arts has far and away the broadest and most compelling slate of upcoming releases, four of which made the top fifteen of our most wanted list: Star Wars Battlefront , Battlefield 4 , Mirror’s Edge 2 , and Titanfall . One of the more surprising results of the survey is the fact that EA’s Star Wars Battlefront has managed to retain the third spot on our most wanted list. It could be expected that several months removed from E3 and in absence of any additional details on the game that excitement may start to fade, but that is certainly not the case. The sole information available about the 2015 game remains a 29 second trailer (the vast majority of which was just snow) that teased the title. Battlefront will be the first game from the recently signed agreement with Disney for EA to develop a series of Star Wars games concurrent with (although not directly based on) the theatrical release of the next Star Wars trilogy. Being developed by EA’s Dice studio (the makers of Battlefield ), EA appears to be putting its best talent on this deal, which also includes games being developed by Visceral ( Dead Space ) and Bioware ( Mass Effect , Star Wars the Old Republic ). Although we do not yet have much of a timeline with regard to when the first of these games should be released, the first of the new Star Wars movies is expected in the Summer of 2015, although EA could certainly use some help during holiday 2014 given the difficult comp that will be created by this year’s Battlefield release, assuming EA does not opt to convert Battlefield into an annualized title. Coming in at #5 on the survey is Battlefield 4 , up one spot from its #6 placement on our summer survey (GTA V no longer on the list accounted for the move), but nonetheless fourteen spots ahead of its closest competitor, Call of Duty: Ghosts . Though unlikely at this point, it is possible that Battlefield 4 could give Call of Duty a run for its money this holiday. The game launches Tuesday, October 29th to what should be a great deal of excitement and we’ll know more about its prospects when early sales figures start to roll in. Two years ago, Battlefield 3 proved to be one of the most successful titles in EA history, selling a combined total of ~15M units during FY12, shattering all expectations. Although historical patterns are never any guarantee of the future, it is worth noting that the release of Battlefield 3 in October-2011 was the primary driver behind the best holiday quarter that EA has ever had and a nice run in EA shares. We believe that the organic growth expected for Battlefield 4 will outweigh the effect of strong competition and the console transition. Ultimately, annualized titles that are more susceptible to gamer fatigue such as Call of Duty: Ghosts and Assassin’s Creed IV: Black Flag, which fell from #1 in the Fall 2012 survey to #6 in our most recent survey, may be impacted the most. Coming in at #7 on our plans to buy list was Mirror’s Edge 2 , a sequel to the 2007 game that was a cult favorite but never really achieved much commercial success. In our opinion, it is unlikely that this game will ever compared to the company it finds itself amidst on our survey, even assuming a material increase relative to the disappointing 2.5M units sold by the original game. Given the surprisingly high finish in our survey, however, this is a title that we will continue to watch closely. Rising nine spots to #11 on our most wanted games on our list is Titanfall , the long-awaited game from Respawn Entertainment (a studio run by departed heads of Infinity Ward, who spearheaded the Call of Duty: Modern Warfare series). The steep rise in desirability of the game is very encouraging for EA and can generally be attributed to both the amount of time elapsed since its unveiling and more importantly to the long list of awards it has continued to acquire in recent months. Along with the unveiling of Titanfall , EA announced at E3 that the game would be a Microsoft exclusive (both Xbox 360 and Xbox One) at launch with other platform availability likely to follow after a set amount of time. While going this route would seem to have been a safe bet just a few short weeks prior to E3, gamers and investors can’t help but question this decision in the wake of the severe negligence with which the Xbox One reveal was handled. Our survey shows, however, that the anti-Microsoft sentiment has subsided somewhat in recent months and amongst likely owners of only Xbox One, Titanfall climbs all the way to #2 on the most-desired list, behind only the traditional powerhouse from Microsoft, Halo 5 . Following an exceptionally strong showing at E3 in which Titanfall won twenty total awards (fives times that of any other game), the title has continued to garner positive press and awards. For instance, at the annual gamescom European video game trade show held in Germany this past August, Titanfall won both Best Console Game Xbox, and Best Next Generation Game. Activision
In what appears to be a sustained trend, Call of Duty continues to fall further and further down our list of most wanted games after holding an untouchable grip on the #1 spot for three straight years. This time, Call of Duty came in at #19, one spot worse than the #18 spot during our summer survey, the #9 spot in our Fall-12 survey, and the #11 spot in our Summer-12 survey. In each of the four surveys prior to that, Call of Duty (Modern Warfare 2 , Black Ops , and Modern Warfare 3 twice) held the top spot, usually by a comfortable margin. This is in spite of the fact that the game is just weeks away, set to hit store shelves November 5th. To be clear, there is no chance that this year’s iteration of Call of Duty will be the 19th best selling title this year. In fact, we would be shocked if the game was not among the best selling games of the year (although both GTA V has set the bar exceptionally high). However, given a fall from #1 in most previous surveys to #19 in this survey is likely an indication of some level of Call of Duty fatigue, making it increasingly difficult for this year’s game to set all-time opening-day and opening-week records. Now that we’ve seen GTA V smash just about every entertainment sales record there is, it seems extremely unlikely CoD sells at that level particularly in the short term. This is especially true given a particularly challenging slate of competitive releases this year. The release of new consoles could prove to be a challenge for this franchise and others as they balance targeting the large installed base of current-gen consoles while not forgetting about next-gen console early adopters expecting a superior version of the game. More importantly, in 2012 Call of Duty: Black Ops II went up against Halo IV and Assassin’s Creed III , but was spared having to face a truly competitive military FPS as it saw in 2011’s Battlefield 3. This year’s competition could prove to be its most difficult to date with Battlefield 4 set to be released, not to mention the massively popular Grand Theft Auto V, Assassin’s Creed IV: Black Flag and next-gen titles such as Watch Dogs and ATVI’s own Destiny .
Historical Purchase Intentions for Call of Duty Games
Most-Wanted Rank Most-Wanted Rank Out Top of 20
Modern Black Modern Modern Black Ops Black Ops Ghosts, #11Ghosts, #18Ghosts, #19 Warfare Ops, #1 Warfare Warfare 2, #11 2, #9 2, #1 3, #1 3, #1
Fall 2009 Fall 2010 Spring 2011 Fall 2011 Summer Fall 2012 Spring 2013 Summer Fall 2013 2012 2013
Destiny may have maintained the most impressive result among ATVI’s titles, placing fourth on the plans to buy list after landing at #5 on our prior survey (GTA V now off the upcoming list accounted for the one spot bump). This is even more impressive when we put it in the context of the game’s awareness, which fell to #22 overall with just 65% awareness from #16 in our prior survey when 71% of our respondents were aware of the game. This implies that of those that do know about the game, an exceedingly high portion of them have interest in owning the game. Once awareness of the title grows the game would seem to have the potential to climb the list even further. This should be no surprise as it is being developed as the first installment of a trilogy by Bungie, the development team behind all but the most recent Halo titles. If the success of the Xbox-exclusive Halo is anything to go by, a multi-platform trilogy from the same developers has huge potential. Earlier this month, ATVI released the latest iteration of its popular Skylanders franchise called SWAP Force, which for the first time faces direct competition in the form of Disney’s Infinity . Not only is Skylanders contending with the nearly identical game supported by the more recognizable Disney characters, there has also been controversy surrounding this year’s Skylanders game as it is not compatible with the portals (the peripheral required to read data from the figurines) of the previous two installments, requiring players to buy the more expensive ($15 more) starter pack. Through the first two months of Disney Infinity sales, the new game is tracking just slightly ahead of the first Skylanders iteration in terms of game units sold (~500k units for each), but well behind the second installment, Skylanders: Giants (~850k units sold). Disney Infinity’s accessory sales also fall between the two Skylanders titles through their first two months. It is still too early to get an effective read on the Skylanders: Swap Force vs. Disney Infinity battle as the real test will come during the critical holiday months. Both games have received substantial support at the retail level, but Skylanders has received better reviews and benefits from its existing base of players. Overall, the most positive results coming out of our survey for Activision is with regard to Destiny , and so we will continue to closely watch the progress of this game with the hopes that it can provide ATVI with the type of contribution needed to plug the gap coming from accelerating declines in its World of Warcraft business. While the Call of Duty juggernaut has shown no signs of slowing year to date, the growing enthusiasm gap among avid gamers in our survey is at best a yellow flag and at worst a sign that this game’s dominance is waning.
GAMER SURVEY RESULTS – PS4 WINNING FIRST BATTLE OF 10-YEAR WAR The next generation of console video gaming officially kicks off Friday (November 15th) with the highly-anticipated North American launch of Sony’s PlayStation 4 soon to be followed by the release of Microsoft’s Xbox One due out November 22nd. While we would expect the current-generation consoles to account for a significant portion of industry sales for years to come, this sets the stage for what could be a decade-long competition for the hearts and minds (and disposable income) of global consumers. PlayStation 4 Maintains Lead; Xbox One Closing Gap in Months after E3 While Xbox 360 dominated the U.S. market over the past 7-8 years (~40 million units sold vs. PS3’s ~25 million), the consoles are currently neck and neck in global lifetime unit sales (~80 million units each) and Sony seems poised to potentially win the U.S. and global markets in the next generation cycle. We asked our survey respondents a series of questions with regards to the next generation console cycle both in the wake of E3 this past July and again last month in the weeks following the launch of Grand Theft Auto V. As our covered publishers have a lot at stake in the next few years based on how well each console sells and how excited consumers are about the next generation software, we sought to get an early read on potential console sales, the factors driving those decisions, initial excitement for next gen games, and the economics behind those consumers’ purchases. In the immediate wake of E3, PlayStation 4 got off to a big lead in popularity as Microsoft scrambled to play damage control. Microsoft’s widely publicized missteps with regard to players’ ability to buy, sell, borrow, and play used games struck a chord with avid and casual gamers alike. As a result, Sony was able to capitalize on gamers’ outrage and make assurances that there would be no restrictions on used games on their console. This fact, coupled with the substantially cheaper price point ($400 for PS4 vs. $500 for Xbox One), gave Sony a huge lead in purchase intentions, particularly among avid gamers which our survey captures more heavily. In the weeks following Microsoft’s E3 announcement and the subsequent outrage from gamers, the company was forced to backtrack on its policies restricting the sale and use of used games. For many gaming consumers, the damage had been done and their minds made up that they would be purchasing PlayStation 4 even if it meant giving up on the popular Halo franchise and the up-and-coming Titanfall title, which will both be Xbox exclusives. That said, as months have passed since the initial furor over the Xbox One policies, our survey shows that gamers have cooled off to some extent and purchase intentions for Xbox One have risen substantially. As shown below, among gamers who currently own both PlayStation 3 and Xbox 360 (and who are therefore likely avid gamers), purchase intentions for the Xbox One have effectively doubled based on a net weighted score of responses just three months removed from E3. That said, PlayStation 4 leads by a wide margin based on the same metric, which is not surprising since Sony has been able to position the new offering as the pure gamer’s console in contrast to the feature heavy Xbox One. Avid Gamers Widely Favor PS4 to Xbox One; Microsoft Making up Ground Since E3
Net Weighted Score of Owners of Both X360 and PS3 Next Gen Purchase Intentions 200
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NetWeightedScore 0 Summer 2013 Fall 2013 Summer 2013 Fall 2013 -50 PlayStation 4 Xbox One Next Gen Console Purchase Intention
Our survey has repeatedly shown that the console a respondent currently owns greatly influences their preferences for a next generation console. The following two tables show what console purchase preferences looked like among gamers who currently own either just a PS3 or just an Xbox 360.
Xbox 360 Owners Coming Around to Xbox One; PS3 Owners Unwavering in their Resolve to buy PS4
Net Weighted Score of Xbox 360 Only Owners Net Weighted Score of PlayStation 3 Only Owners Next Gen Purchase Intentions Next Gen Purchase Intentions 60 200 50 150 40 100 30 50 20 0 10 -50 Summer 2013 Fall 2013 Summer 2013 Fall 2013 NetWeightedScore 0 -100 PlayStation 4 Xbox One NetWeightedScore -10 Summer 2013 Fall 2013 Summer 2013 Fall 2013 -150 -200 PlayStation 4 Xbox One -250 Next Gen Console Purchase Intention Next Gen Console Purchase Intention
Among Xbox 360 owners, an overwhelming majority was prepared to flock to PlayStation 4 in the immediate aftermath of E3. Three months later, while PS4 is still the preference among these gamers, there has been a substantial change of heart among many. Conversely, among those that are exclusively PS3 owners, the resolve to purchase a PS4 has not changed much in recent months. The good news for Microsoft is that at least in the U.S., it holds a sizeable lead with regards to the current- generation installed base, and so if it can continue to convince more and more existing Xbox 360 owners to migrate to the Xbox One, it can wind up with a sizeable installed base during the next generation. That said, based on what we currently know, it is likely that the two console makers switch spots in the next gen, with PS4 getting out to an early lead among avid gamers (who are also the most likely to be early adopters of the next gen consoles). The resurgence of Xbox One in our survey is encouraging news for Electronic Arts, who staked the success of upcoming IP Titanfall on an exclusive deal with Microsoft. As the dust settled from E3, that exclusivity decision seemed like a potentially bad call (even assuming a sizeable payment from Microsoft to be exclusive). With the fate of the new franchise dependent on a successful console cycle for Xbox One, EA needs Microsoft to succeed in convincing consumers that Xbox is worth the premium price tag. Used Game Freedom, Price, Exclusive Titles, and Online Capability Drive Purchase Decisions The next series of questions asked respondents how a range of factors influenced their next generation console buying decision. Their answers shed quite a bit of light on the console preferences spelled out above, and also help us glean insight on playing behavior well into the next generation. Despite Microsoft going to great lengths to explain that there will be no used game restrictions on Xbox One, the damage has clearly been done. Consumers continue to rank “restrictions on used games” as the most important factor in their decision and this fact is reflected in the purchase intention responses regardless of the fact that Xbox One and PlayStation 4 are essentially now on equal footing with regard to used game policies. Another uphill battle for Xbox One is with regard to the price point on the competing consoles. Respondents in the survey ranked “price” as the second most important factor in their purchase decision and Xbox One costs $100 more than PS4. Microsoft would argue that the bundling of the next generation Kinect hardware in conjunction with the television/web-based entertainment offerings more than makes up for the extra hundred dollars, but pure gamers are unlikely to see it that way. The success of the Xbox One may largely depend on how well Microsoft is able to convince consumers that the console can truly become the “ultimate all-in-one home entertainment system.” According to our survey (which disproportionately captures serious gamers relative to casual gaming consumers), television/media control features are the third to last most important factor in a buying decision. We would imagine, however, that more casual gamers would be more appreciative of these types of features, although it remains to be seen how many casual gamers will actually buy a next-gen console during the foreseeable future, given a bevy of alternatives with regards to both gaming (smartphones, tablets, social networks) and media (Google, Apple, etc.) The third most important factor to consumers in choosing a next generation console is the particular exclusive titles touted by each. In this regard, Xbox One may have a slight edge due to the highly anticipated launch of Titanfall as well as the yet to be announced next installment of the iconic Halo franchise, which is certain to remain an Xbox One exclusive. PlayStation4 has several answers to Xbox One’s exclusives, including Killzone: Shadow Fall and Infamous: Second Son , but none of their exclusives come close to matching the excitement surrounding the release of Titanfall (due out 3/11/14). The fourth and fifth most important factors in purchasing a new console deal directly with the digital aspect of the next generation cycle: “quality / range of online services” and “large selection of downloadable games.” As discussed in detail below, consumers’ increasing use of online capabilities to download games has staggering implications for both publishers and retailers. The ranking of these two aspects as fourth and fifth most important suggests that gamers are likely to employ these technologies to an even greater extent on the next generation consoles. Despite Xbox One Backtrack on Used Games, Restrictions Still #1 Factor in Purchases
"Weighted Score" of Factors Influencing Next-Gen Console Decision 450 400 350 300 250 200 (points) 150 100 50 0
Transition to Next Generation Will be Unhurried as Current Generation Importance Persists While the launch of the next generation consoles is an important catalyst for publishers and retailers alike, it is important to remember that in the near term the installed base of new consoles will be miniscule compared with the global combined base of Xbox 360 and PlayStation 3. When asked how the strength of the fall release slate influences next generation console purchasing decisions, only 23% of respondents said they were “eager to upgrade to next gen to play new titles in short term” versus 45% of respondents who were “content to stay on current gen to play new titles in the short term.” Minority of Gamers Driven to Upgrade Based on Title Release Slate
How does fall title release slate influence next-gen purchase decision?
Eager to upgrade to next gen to play new titles in short term 23% Content to stay on current gen to play new titles in short term 45%
No effect 32%
For comparison sake, the global lifetime sales of Xbox 360 and PlayStation 3 is approximately 160 million units and the next generation consoles are expected to ship about 10 million units into retail globally by the end of March 2014. This would suggest that demand is likely to be well ahead of supply for the foreseeable future. To a large degree, we believe this has a lot to do with the lack of excitement with regards to the launch titles available for both platforms. With few exceptions, the highly-sought after launch titles are sequels that are also available on the current-gen console. Consumer perception is that the most exciting “next generation” titles (although most of these will also be available on current-gen consoles) will not launch until next year. In our most recent ranking of video game purchase intentions, Ubisoft’s Watch Dogs (Spring-14) was the most desired game, EA’s Star Wars Battlefront (release unknown) was #3, ATVI’s Destiny was #4, and EA’s Titanfall (3/11/14) was #11. At the same time, publishers and retailers would be remiss to focus all of their attention on the next generation users, in that an even bigger opportunity exists among current generation console owners for some time. When asked how they planned to fund their next generation purchases, the vast majority (67%) of respondents said they would be spending cash or credit, where as 11% said they would trade in old games/consoles for store credit and 10% said they would sell old games and consoles for cash. This implies that a vast portion of the existing installed base of the prior generation consoles will continue to persist in consumers’ homes. Many consumers who spend the majority of their gaming in online multiplayer platforms (such as Call of Duty and Grand Theft Auto Online ) may be slow to migrate to the next generation as peer groups and broader gaming communities lag behind. Gamers Expected to Hang On to Current Gen Consoles
80% How do you plan to fund next-gen puchases? 70%
60%
50%
40%
30%
20%
10%
0% Trade in old Sell old Cash / Credit Will receive as gift games/consoles for games/consoles for store credit cash
As the next generation consoles make their way into homes this holiday season and beyond, it is important to understand what consumers are cutting back on to make those purchases. When asked which purchases would be scaled back to buy next generation hardware and software, the most popular response (behind “no need to scale back”) was “music/movies/other entertainment” followed by “other tech devices” and then “computers.” Each of these options are for most consumers the direct replacement for the allocation of entertainment dollars and are likely to take at least a small hit in the face of this competition.
Movies/Music Primary Losers as Gamers Save Up For Next-Gen Purchases
45% What purchases will you be scaling back on in order to purchase next 40% gen consoles/games in short term? 35% 30% 25% 20% 15% 10% 5% 0%
NEXT-GEN LAUNCH ALSO WATERSHED EVENT FOR DIGITAL DOWNLOAD
The biggest long-term bear case against GameStop is the idea that console games will eventually be digitally downloaded as opposed to being sold in physical form, resulting in the disintermediation of the video game industry. Digital download of console games is far from a new concept, in that millions of games have been downloaded via Xbox Live, Playstation Network, and other online gaming platforms over recent years. For the most part, however, these games have either been of the casual variety or they are add-ons (DLC) to previously purchased packaged goods games. In both cases, they are typically much smaller in size than the frontline titles that garner the lion’s share of attention and sales. However, we need only look at the aforementioned Steam, Valve’s PC download platform, to see the immense and largely untapped potential of the digital video game market. Steam has now passed 65M users (a 30% increase y/y) as of October 30 th , which compares to 48M Xbox Live subscribers and 110M PlayStation Network users. While Sony’s PSN is well ahead of Steam and Xbox Live is not a great comparison as it’s the only of the three services that requires a subscription, it is nonetheless an impressive feat for a PC platform that has only been around since 2003. Valve also recently unveiled their plan to attack the living room and compete with traditional consoles with “Steam machines”, being produced by Valve and third party manufacturers, which are essentially small form factor PCs running Steam OS while connected to a TV. Whether or not it proves to be a worthy competitor for PS4 or Xbox One, having yet another competitor in the console wars so intently focused on digital downloads is nothing but bad news for physical video game retail. As download speeds have gotten faster, computer storage has gotten cheaper, consumers have become more accustomed to downloading media, and digital content has become increasingly ubiquitous, the pace of transition towards digital download has accelerated, a pace that we believe shifts into high gear in conjunction with the next generation console transition. The following table summarizes recent developments that we believe serve as puts and takes with regards to the adoption of console digital download.
Despite Puts and Takes, We Expect Accelerating Adoption of Digital Download
Recent Developments Affecting the Adoption of Console Digital Download Factors Accelerating Digital Download Factors Slowing Digital Download Adoption
Day-One Digital Availability Seeing Explosive Growth Next-Gen Titles on Avg. more than 2x Size of Current-Gen U.S. Broadband Speeds Up 32% y/y; 123% since '08 Increased Pervasiveness/Complexity of ISP Bandwidth Caps Gamers more willing to wait for downloads Perceived Risk of DRM Restrictions on Digital Games PSN Digital Store via Amazon.com 500 GB standard hard drives for PS4/XB1; 60/20 GB for XB360/PS4 replaceable/expandible hard drives for PS4/XB1 "Play As You Download" Functionality w/ XB1 and PS4 Remote Download Functionality on XB1 and PS4
‘Day-One Digital’ Programs Will Grow Exponentially in Next Gen While there is the perception that a widespread adoption of digital download is merely a function of download speeds and pricing, console makers, publishers, and retailers have, thus far, actively prevented consumers from even having the digital download option on day one. Sony was the first to buck this trend in 2011 by starting a ‘Day One Digital’ program, in which some major titles were made available simultaneously with their retail releases. Since then, while day one availability has generally been more the exception than the rule, over 90 digital titles have launched on day one. This trend is clearly accelerating, with the most notable release being that of GTA V back in September. With this as a backdrop, Sony appears to be even more aggressive with regards to the Day One Digital program for the PS4. Microsoft has resisted this temptation thus during the current generation, and while it is unclear whether or not this policy will change with regards to the Xbox 360 anytime soon (GTA V was not available as a digital download for a full month after the retail release), the company has been fairly outspoken with its intentions of having digital downloads available on the same day as their retail releases. The following two tables show the amount of time between the retail release of games and their release as digital downloads on Xbox Live and Playstation Network, respectively. We Expect Smaller Next-Gen Installed Bases
Source: Gamasutra
As shown, with few exceptions, even once digital downloads of full games became more prevalent on both consoles, the waiting time times following the retail release were quite large. Early on, the digitally available games were 3-4 years old. For both consoles, these waiting times have contracted, but whereas few games have ever been made available on day one for the Xbox 360, an increasing portion of PS3 games are being made available on day one. If the launch title availability is any indication, virtually all major titles may ultimately be available as digital downloads on the next generation consoles. As shown, each of the launch titles for both the Xbox One and the Playstation 4 are immediately available as digital downloads. Every Single Next-Gen Launch Title Available as a Digital Download Launch Games by Console Available for Available for PlayStation 4 Download Xbox One Download Assassin's Creed: Black Flag Assassin's Creed: Black Flag Battlefield 4 Battlefield 4 Call of Duty: Ghosts Call of Duty: Ghosts FIFA 14 FIFA 14 Just Dance 2014 Just Dance 2014 Day 1 Multiplatform Games Lego Marvel Super Heroes Lego Marvel Super Heroes Madden NFL 25 Madden NFL 25 NBA 2K14 NBA 2K14 NBA Live 14 NBA Live 14 Need for Speed Rivals Need for Speed Rivals Skylanders: Swap Force Skylanders: Swap Force Killzone: Shadow Fall Dead Rising 3 Knack Fighter Within Forza Motorsport 5 Day 1 Console Exclusives Ryse: Son of Rome Zoo Tycoon Zumba Fitness World Party DriveClub Kinect Sports: Rivals Launch Window Exclusives Infamous: Second Son Titanfall Source: IGN
To be fair, most of these are not technically ‘Day One Digital’ type launches, in that most have already launched on current generation platforms. That said, the writing is clearly on the wall, and whether or not 100% of games will be available on day one as a digital download from here forward, we believe such a day is fast approaching. Broadband Speeds Continue to Improve Over the years, as we have attempted to handicap the rate of adoption, our analysis has centered around just how convenient such a download would be, which we have seen as a product of (1) broadband speeds, (2) game sizes, (3) willingness of gamers to wait. As shown below, since we started to analyze broadband trends in late 2008, the average U.S. broadband speed has increased from about 4.0 Mbps to 8.7 Mbps. The most recent rate (2Q13) shows a 32% increase y/y and a 123% increase vs. 4Q08. U.S. Broadband Speeds Not Only Improving But Accelerating
10.0 Mbps 9.0 Mbps 8.0 Mbps 7.0 Mbps 6.0 Mbps 5.0 Mbps 4.0 Mbps 3.0 Mbps 2.0 Mbps 1.0 Mbps 0.0 Mbps (avg. download(avg. speed, Mbps)
Avg. U.S. speed (Mbps) Avg. Global speed (Mbps)
Not only have broadband speeds gotten faster and faster over the past few years, but the pace of improvement has actually accelerated over this time, from mid-teen to low-twenties type y/y growth in 2011 and 2012, to ~30% y/y growth in each of the past few quarters. Larger Next-Gen File Sizes Offsetting Improved Broadband Speeds The combination of more available disc space and improved game mechanics and graphics (increasing texture sizes, etc.) has resulted in a huge increase the size of next-gen games. A typical frontline game on the Xbox 360 takes up just over 6 Gigabytes (GB) of disk space, whereas a comparable game on the PS3 takes up just over 8 GB. The first table below shows a range of current-gen game sizes, including the aforementioned current-gen console averages, and the varying amounts of time required to download them at different speeds. The second table shows the sizes and download speeds for next-gen launch titles, which are on average 2-3x bigger than their current-gen counterparts. Current-Gen and Next-Gen Full Game Download – How Long Does it Take To Download a Top-Tier Video Game?
Country - Avg. download speed Current-Gen S. Korea Japan U.S. U.K. France Global Title 13.3 Mbps 12.0 Mbps 8.7 Mbps 8.4 Mbps 5.7 Mbps 3.3 Mbps Battlefield 4 (11.2 GB) 1.9 hours 2.1 hours 2.8 hours 2.9 hours 4.3 hours 7.5 hours Call of Duty: Ghosts (9.2 GB) 1.5 hours 1.7 hours 2.4 hours 2.4 hours 3.6 hours 6.2 hours Assassin's Creed IV: Black Flag (8.8 GB) 1.5 hours 1.6 hours 2.2 hours 2.3 hours 3.4 hours 5.9 hours NBA 2K14 (8.3 GB) 1.4 hours 1.5 hours 2.1 hours 2.2 hours 3.2 hours 5.6 hours PlayStation 3 Average (8.1 GB) 1.4 hours 1.5 hours 2.1 hours 2.1 hours 3.2 hours 5.5 hours Madden NFL 25 (7.2 GB) 1.2 hours 1.3 hours 1.8 hours 1.9 hours 2.8 hours 4.8 hours FIFA 14 (6.8 GB) 1.1 hours 1.3 hours 1.7 hours 1.8 hours 2.6 hours 4.6 hours Xbox 360 Average (6.3 GB) 1.0 hours 1.2 hours 1.6 hours 1.7 hours 2.4 hours 4.2 hours
Country - Avg. download speed Next-Gen S. Korea Japan U.S. U.K. France Global Title 13.3 Mbps 12.0 Mbps 8.7 Mbps 8.4 Mbps 5.7 Mbps 3.3 Mbps NBA 2K14 (42.4 GB) 7.1 hours 7.9 hours 10.8 hours 11.2 hours 16.5 hours 28.6 hours Call of Duty: Ghosts (35.1 GB) 5.9 hours 6.5 hours 9.0 hours 9.3 hours 13.7 hours 23.6 hours Battlefield 4 (33.5 GB) 5.6 hours 6.2 hours 8.5 hours 8.8 hours 13.0 hours 22.5 hours Assassin's Creed IV: Black Flag (20.6 GB) 3.4 hours 3.8 hours 5.3 hours 5.4 hours 8.0 hours 13.9 hours Xbox One Average (18.0 GB) 3.0 hours 3.3 hours 4.6 hours 4.8 hours 7.0 hours 12.1 hours PlayStation 4 Average (15.2 GB) 2.5 hours 2.8 hours 3.9 hours 4.0 hours 5.9 hours 10.2 hours Madden NFL 25 (12.6 GB) 2.1 hours 2.3 hours 3.2 hours 3.3 hours 4.9 hours 8.5 hours FIFA 14 (8.5 GB) 1.4 hours 1.6 hours 2.2 hours 2.2 hours 3.3 hours 5.7 hours Source: OECD, Akamai, Industry Sources
As shown based on the early data that we have gotten with regards to file sizes for launch-title digital downloads, we arrive at a file sizes for the Xbox One that is nearly 3x as large as those on the Xbox 360, and files sizes for the PS4 that are nearly 2x as large as those on the PS3. When we translate this into download times, we can see that the average Xbox 360 game will take between 4 and 5 hours to download using an average U.S. broadband connection (8.7 Mbps) whereas the average PS4 games will take about 4 hours. Interestingly enough, this is about how long the prior-gen games would have taken back in 2008, when broadband speeds were slower and game sizes were smaller. It is worth noting, that neither of these numbers are static by any stretch of the imagination. Clearly, if history is any indication, we will continue to see the steady improvement in broadband speeds in coming years. Cisco calling for an incremental doubling of broadband speeds by 2015 and an FCC 2020 goal of 100 Mbps downloads for 100M U.S. households (at which point even the largest games could be downloaded in less than an hour). At the same time, as developers begin to utilize the tools at their disposal on next gen consoles, we would expect file sizes to continue to grow. In fact, Sony has talked about the possibility of 300GB optical disks to support 4K resolution (the ‘Ultra High Definition’ standard that will be 4x the resolution of current 1080p displays). While this standard looks to be years away (assuming it ever catches on) the next gen consoles have prepared for this eventuality. Preference/Willingness to Wait for Digital Downloads Has Expanded In order to better understand consumer preferences and tolerances around full-game digital downloads, we periodically query gamers with respect to their purchase intentions and preferences for game play and game acquisition. We first asked about general preferences surrounding owning a physical copy of the disk versus owning a digital (downloaded) copy of the game. Assuming comparable pricing and instantaneous download speeds, 55% said they still preferred to own the hard copy, down considerably from 76% in January 2011. To get a sense of why respondents preferred discs or downloads, we then asked them to rank certain factors in order of importance to them. The number one factor for those who prefer a physical disc was the ability to buy used games, with 60% of respondents listing that as their #1 reason, surely a great sign for GameStop. The second and third factors for physical disc preference were having a physical library of games to display (55% of respondents) and the risk of losing access to installed games (53%). The top reasons of those who preferred to download were better prices than retail stores (61%), instant/day-one availability (60%) and not needing to leave home to purchase the game (54%).
Top Factors Determining Video Game Disc or Download Preference
Prefer Physical Copy 1 (most) 2 3 4 5 (none) Ability to buy used games 60% 18% 12% 4% 6% To have physical library of games for display 55% 21% 11% 5% 9% Risk of losing access to installed games 53% 22% 11% 8% 6% Ability to share game / play at friends house 51% 23% 12% 7% 8% Instant gratification of buying game and playing 45% 22% 15% 7% 11% Ability to trade-in or resell game 41% 19% 15% 11% 14% Don't have to use hard drive space 36% 18% 19% 9% 19% Cheaper than digital download 36% 26% 17% 10% 12% Special edition versions / bundles 28% 21% 17% 14% 20% Launch events / interaction at stores 14% 11% 17% 16% 41%
Prefer Digital Download 1 (most) 2 3 4 5 (none) Better prices than retail stores 61% 21% 9% 5% 3% Instant/Day One availability 60% 21% 9% 6% 4% Not needing to leave home 54% 21% 10% 6% 8% Not having to put in disk 51% 19% 12% 8% 10% More organized library 46% 24% 13% 9% 8% No risk of losing disks 45% 20% 16% 8% 12% No risk of faulty disk 44% 21% 15% 9% 11% Faster than going to store/ordering online 40% 23% 16% 10% 10% Subscription service (i.e. PlayStation Plus) 37% 23% 20% 9% 11% Bonus/bundled content for digital copies 35% 26% 19% 8% 11%
The biggest barrier, however, to the download of full-size video games (as opposed to the wide-spread practice of downloading DLC) is in our view the length of time currently required to download large games. In an effort to determine what the tipping point will be in terms of the broadband speeds required to prompt a more pervasive adoption of full-game downloads, we asked consumers how long they would be willing to wait to download a full-length console title. The following chart illustrates the distribution of users willing to download a full-sized video game based on various download times for both the current survey as well as the last two times we asked the same question (Jan- 11 and Jul-12). Willingness to Wait for Console Digital Downloads
80% 70% At U.S. avg 8.7 Mbps, current-gen games take 1.6-2.1 hrs and next- 60%
CURRENT-GEN gen games take 3.9-4.6 hrs
50% EXT-GENN 40% 30% (% respondents) (% 20% 10% 0% <1 hour 1-2 hrs. 2-5 hrs. 5-10 hrs. 10-15 hrs. 15+ hrs.
Jan-11 Jul-12 Jul-13
As shown, 73% of consumers would be willing to download a full-sized video game if they could do so in under an hour, compared to just under 70% in both previous surveys. This number drops to 66% if the download could be completed in less than two hours (vs. 60% in Jul-12 and just over half of respondents in Jan-11). Interestingly, over time we have seen an increase in the number of respondents willing to wait longer periods of time for a download. In our January 2011 survey, 41% of the respondents would only download a game if it took less than 2 hours, while just 20% fell in the 2-5 hour window. As of the July 2013 survey this had shifted rather significantly, with 26% of respondents only willing to download if it took less than 2 hours and an impressive 35% of people willing to wait 2-5 hours. We believe this to be a function of a growing level of comfort with digital downloads in general (after all, one does not actually have to wait in front of the screen while the game downloads). That said, there continues to be certain thresholds of time that most consumers would be willing to wait, which points to a technological barrier to the more widespread adoption of full-game digital download. ‘Play as You Download’ & Remote Download Functionality Change Entire Digital Paradigm As previously outlined, as we have attempted to handicap the rate of adoption, our analysis has centered around just how convenient such a download would be, which we have seen as a product of (1) broadband speeds, (2) game sizes, (3) willingness of gamers to wait. However, recent advances in how the games are being downloaded could change the entire calculus of how we think about the digital download paradigm. Both Sony and Microsoft have touted ‘Play as you Download’ functionality on their next generation consoles. The idea here is that only a small percentage of the game is required to actually begin game play, and so once this portion of the game is downloaded, gamers can jump in and start while the remainder of the game continues to download in the background. This is significant not only with respect to the ability to download games, but also to play disc-based games, in that one of the biggest points of frustration among gamers is that they are constantly being forced to wait for installation, updates and patches even once they bring home their long-awaited favorite game. We had the opportunity to test out this functionality on the PS4, and while the waiting time was somewhat more than advertised, it was nonetheless a compelling option that we see as much easier than making the trip to retail. While downloading Call of Duty: Ghosts , a 31 GB game that would have taken ~6 hours to download using our 11 Mbps broadband connection, we were able to start playing in about 45 minutes. Before the download began, the PS4 first asked whether we planned to start playing the single player or the multi- player aspect of the game, and presumably prioritized that portion of the download. Call of Duty is towards the high-end of file sizes, and so we would expect the waiting time to play to be much shorter on the average PS4 game, although the 45 minute waiting time is well within the tolerable limit for most gamers. Along these lines, another major advancement in next gen technology will also dramatically ease the digital download process, which is that of remote downloading. For both the Xbox One and the PS4, the manufacturers have said that once you order a game from their respective stores (whether it be from the console itself or from a remote location using a PC, tablet, or smartphone) the console has the ability to turn on and begin downloading the game. We tested out this functionality by purchasing a digital download from the Playstation Store using our PC. Our PS4, which was in standby mode, very quickly received the request to begin the download, and when we subsequently turned the console on, the game was downloaded and ready to play. The utility of these two technologies should not be understated. Rather than waiting hours to play a game that is being downloaded digitally, these two next-generation advances in technology will allow gamers to start playing in a fraction of the time (and in some instances, instantaneously). We believe this could go a long way towards accelerating the adoption of digital download, in that waiting time has historically been cited as one of the biggest barriers preventing more widespread adoption.
Amazon PSN Store Adds Fuel to the Digital Download Fire In the current generation of consoles only PS3 had an extensive offering of digital games available on the day of release (and only within the last couple years), while both the PS4 and Xbox One will feature day one digital availability of nearly every title. In yet another development that we believe will accelerate the march towards digital distribution, this week Sony announced a partnership with Amazon, wherein there is now a PlayStation storefront for digital games on Amazon.com. We believe this is a significant benefit to the consumer for various reasons. First, it gives customers additional ways to pay for games (Amazon accounts/gift cards). Secondly, it gives consumers what is likely added peace of mind by dealing with a trusted e-commerce giant in Amazon rather than the previously compromised PlayStation Network. Most importantly, however, this partnership creates an interesting competitive marketplace for digital content. While Sony runs periodic promotions and discounts in its PSN store, for the most part, pricing is fairly static, and is slow to react to the changing supply/demand balance. Conversely, prices for games sold on Amazon.com are extremely dynamic, and often represent significant discounts relative to brick and mortar retailers, most notably those of GameStop. As shown below, the Amazon Playstation Digital store appears to be matching the disc prices for games on Amazon.com, although these prices represent some nice discounts relative to both the published PSN prices as well as the prices shown on GameStop.com.
Amazon PS Store Prices Showing Discount vs. PSN, GME
GameStop Δ Amazon Digital Δ Amazon Digital Title Amazon Digital Amazon Disc PSN New vs. PSN vs. GME Call of Duty: Ghosts $60 $60 $60 $60 $0 $0 Battlefield 4 $58 $58 $60 $60 ($2) ($2) Assassin's Creed IV: Black Flag $53 $53 $60 $60 ($7) ($7) Batman: Arkham Origins $56 $56 $60 $60 ($4) ($4) The Last of Us $59 $59 $60 $60 ($1) ($1) Saints Row IV $40 $40 $60 $40 ($20) $0 Splinter Cell: Blacklist $50 $47 $60 $60 ($10) ($10) FIFA 14 $49 $49 $60 $60 ($11) ($11) Army of Two: The Devil's Cartel $28 $28 $30 $30 ($2) ($2) Average $50 $50 $57 $54 -$6 -$4 % -11% -8%
With discounts of 11% and 8% relative to PSN and GameStop.com, we believe that the Amazon Playstaton Store will not only become a major player in the digital download landscape, but will likely serve to accelerate the adoption of digital downloads. What’s more, to the extent that Amazon has even a modicum of success with this initial foray into console digital download, we would be surprised if they didn’t follow suit with an Xbox storefront in fairly short order.