A Drastic Boost and Surge of Competition in the Gaming Industry- Article Analysis

‘PlayStation 5 v Xbox Series X’

‘New consoles and cloud gaming will shake up an industry turbocharged by the pandemic’- Nov 6th 2020, The Economist

The Pandemic’s Effect on the Gaming Industry:

Through a year made up of lockdowns, many people working from home, it was predicted that covid-19 would undoubtedly boost the video gaming industry. However, the extent of the surge in demand and consequently revenues for video game businesses was certainly a surprise. Tom Wijman, working for Newzoo (a games-industry analytics firm), had predicted about a $2bn boost in revenues, on top of the existing speculations. The real figure was around $17bn. The extent of the pandemic’s impact on the gaming industry was further shown through Newzoo’s prediction of total revenues reaching $175bn, a rise of 20%, rather than the industry growing 9% annually.

When Sony, a remarkably dominant Japanese electronics company, reported their most recent quarterly results on October 28th, the most profitable division was video gaming, despite the fact that the ps4, their current model, would only remain the newest console until November 12th, with the release of the PS5. The surge of demand, causing an 11.5% increase in their gaming revenue, was similar for many other companies as well, including Sony’s largest gaming competitors, Microsoft, with an increase of 30% in revenues for the Xbox console. The pandemic enhanced other indoor entertainment industries, but the huge extent of its effect on the gaming superpowers’ revenues is shown through the graph:

Enhanced Competition

With a bitter, locked in winter ahead, many more competitors, including Amazon, Google and Facebook, have the chance to try their luck in the gaming industry, with demand for new forms of indoor entertainment being as high as it will ever be. Furthermore, the competition between Sony and Microsoft is only continuing to strengthen, with the release of the ps5 and Xbox series X in November. Prior to the release dates, Sony certainly captivated the largest audience, selling approximately 100 million ps5 consoles, and about 1bn games, whilst most analysts reckon Microsoft barely sold half as many consoles. Although usually, as the two consoles are substitute goods, the most important factors would be price and quality, another vital factor for these specific consumers is brand loyalty. Michael Pachter (an analyst at Wedbush Securities), says that there’s a ‘very much a cult following when it comes to consoles.’ This would mean that it is most likely for Sony to continue to outsell its rivals, throughout the winter ahead, even if Microsoft’s new Xbox was at a slightly lower price or slightly greater quality.

The relatively new idea of game-streaming has further developed the gaming industry and competition. Streaming would allow gamers to be able to play practically everywhere, as long as they had access to internet and a controller, by running games in the nearest datacentres. This would enhance the videogaming market even further as it would allow many younger or poorer individuals to have access to the games, rather than simply watching influencer’s play the games or following the characters, consequently increasing the effective demand for video games. Game-streaming, the beginning of a new era for video games, has already provoked a surge in competition. Many analysts reckon Microsoft’s Azure Cloud business has a strong advantage, already the world’s second business. However, with Amazon announcing the release of ‘Luna’ service in September, Google creating the streaming service ‘Stadia,’ in 2019 and Sony exploring the game-streaming business, anything could happen.

Overall, the pandemic has certainly turbocharged the video-gaming industry, with the locked-in population perpetually searching for cures to the boredom that comes with constantly being indoors. Alongside this, the new game-streaming services have created further competition within the industry. However, currently, the battle between Sony and Microsoft will continue to take place, with the simultaneous release of the two consoles. Who will gain the upper hand?