The fourth calendar quarter of the video game industry has always been about big product releases. However, as the final results from 2022 are being released through the month of February, it continues to become clear that new hit titles are only one portion of what has become a massive business. Going forward, DFC Intelligence is redefining its forecast to closely align with tracking the live services segment. The good news is the video game industry is primed for growth after a tough year.
Holiday 2022 Sales Were OK
Going into the holiday season, it was clear the video game industry was going to have a rough time. Not only were there concerns about the general economy but many products were being delayed or rushed to market. Nevertheless, despite some earnings disappointment, holiday sales were OK. Furthermore, concerns about the macro economy proved overblown.
Of course, companies that underperformed tended to blame the economy and/or COVID for product delays. However, the highlights show that if quality product could be delivered consumers were definitely biting.
Fourth Quarter Highlights
Looking at some of the statistics there were some solid records and notable benchmarks in fourth quarter 2022:
- The new Call of Duty: Modern Warfare II broke records with Activision Blizzard claiming its $800 million sell-through in the first three days was not only a franchise record but the “highest grossing entertainment opening of 2022.”
- The new Pokemon titles (Scarlett/Violet) sold over 20 million units. Including 10 million units in the first three days. Nintendo says this is a record for any software on any Nintendo platform.
- Splatoon 3, basically a live services game from Nintendo, sold over 10 million units with a staggering 60% in Japan.
- Sony announced sales of 7.1 million PlayStation 5 units in the fourth quarter and is forecasting that for its fiscal Q4 ending it would ship more units than ever for a console system in the first three months of the year.
- Despite a brutal year for graphics cards a new generation of GPUs launched in late 2022. Nvidia pointed out to analysts how its new generation of $1,500+ graphics cards are showing up in Steam surveys, even though they are not expected to hit mass consumers until this year.
More Granular Forecasting = Greater Clarity
Going into 2023, DFC Intelligence is optimistic that sales will outperform expectations. However, we have found it is increasingly hard for investors to understand the complex market segments that not only have resulted in new metrics but the inconsistency of metrics across companies and segments.
At the end of February and into March, DFC will be rolling out its new forecasts that will provide increasing granularity for industry analysis. The focus will be on metrics that can be used for BOTH classic packaged product sales and newer live service business models.
This means that forecasts will continue to move beyond a focus on unit sales and look in more detail at users and revenue per users. For many products and companies, unit sales have increasingly become a square peg in a round hole. They are still used but only as one of many metrics.
One of the best examples of the need for a more detailed forecast model is the Call of Duty franchise. Call of Duty Mobile received downloads in the hundreds of millions, while the core Call of Duty products have unit sales in the tens of millions. However, revenue from the core Call of Duty is significantly higher because of the revenue per user. The new forecast system will allow for better-analyzing franchises like Call of Duty.
Video Game Forecasting Segments
DFC Intelligence forecasts will include the following categories:
- Full Game Packed: This means there is a physical package that can be sold in a retail store
- Only Physical: This is a small portion of products but includes products like Nintendo’s Ring Fit Adventure or collector’s editions where the product must be delivered in a physical packaged format.
- Delivered Online and Package: Products where the game can be either downloaded online or bought in a physical package.
- Full Game Digital Only: Games that are only available for online download. They are not available in a physical package. This includes almost all smartphone and tablet games, most PC games, and a major portion of console games.
- Add-On Content: Products that are sold as an addition to an existing product. This includes virtual items, expansions, and extra downloadable content.
- Subscriptions: Users pay a fee for access to a product for a period of time (usually monthly, quarterly, or annual)
- Multi-Publisher Bundled Subscription: This includes services like Microsoft Game Pass, Nvidia GeForce Now, Sony PlayStation+, and others that have games in multiple genres from multiple publishers
- Individual Game/Publisher Subscriptions: Subscriptions available for individual games and/or individual publishers fall into this category. A product like Electronic Arts’ EA Sports Season Ticket and EA Play fall into this category even though they provide access to multiple products.
As with all segmentations, there can be an overlap between categories. However, this segmentation is designed to keep the categories as clear as possible and also open the opportunity for a deeper dive into individual segments. For example, add-on content can be broken into multiple sub-segments such as currency, cosmetic items, avatars, collectibles, power items, expansion packs, extra levels, and much more.
The new DFC Intelligence forecasts will be rolled out starting at the end of February through March. Based on current market trends, DFC Intelligence is actually bullish on market growth potential. This is a pleasant change after two years of adverse market conditions.
