Hardcore gamers not looking to abandon physical product
A Wedbush Securities report tackles the declines that have been seen in retail over the past few years
According to a Wedbush Securities report, casual players may be leaving for mobile and social titles, but "hardcore" users will stick with packaged products. Everyone is betting on digital for the future, with rumors that the next generation Xbox will ditch discs as a delivery mechanism for its titles. The Wedbush report states that all consumers moving toward digital is a "commonly held misperception".
"Many investors believe that consumers are abandoning packaged products in favor of mobile and social games, and think that the publishers who have lost share will never recover. We think that this thesis is only partly true; in our view, casual gamers are likely to shift their playing time from packaged products to mobile and social games, but hard core gamers are far less likely to do so," the report says.
"If we are right, the packaged goods business should be viewed as consisting of hard core games (the vast majority of sales on the Xbox 360 and PS3) and more casual games (the vast majority of sales on the Wii and DS). Our thesis has been borne out by the 2011 figures (according to the NPD Group), with Xbox 360 software sales up 12%, PS3 software sales up 4%, DS software sales down 21% and Wii software sales down 31%."
The report goes on to explain that the audience of many Wii and DS titles tends to overlap with the audience for mobile and social games: women and older consumers.
"We note that there is a large overlap of social gamers among the older and female demographics, and we believe that declines in Wii software sales are largely correlated to growth in free-to-play social games. Similarly, the game mechanic of many mobile phone and tablet games is similar to the DS game mechanic, and the price points of most mobile games (coupled with the ubiquity of smart phones) makes a mobile game purchase a compelling value proposition when compared to most DS games."
Wedbush also explains that hardcore users have gotten pickier as their game catalogs have grown, leading to purchases being concentrated mostly in the larger AAA releases. This has lead to a decline in software sales overall, but growth for top-tier titles. The report expects software sales to decline in the summer, but grow as we head into the holidays, with 3DS and Vita software making up for lost sales on other systems.
"We expect sales to once again decline in June - August, but expect another rebound in September - November, when the release slate is once again very strong. On balance, we think that a return to software sales growth overall in 2012 is likely, notwithstanding a disastrous first two months of the year, as we think that contribution from the recently released PS Vita and from last year's 3DS will help to mitigate declines in sales of the handheld category overall," the report reads.
"Later this year, we think that the launch of the Wii U will help mitigate the continued deterioration of Wii software sales, although we think that the casual segment of the games industry will forever favor free-to-play mobile and social games over relatively expensive packaged products."
The report lists three publishers as "OUTPERFORM" in the stock market this year: EA, Activision, and Take-Two.
[Image care of GameSpot]
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