Nobody needs to hear again about how the crisis in component costs is causing havoc on the hardware side of the games industry. That particular bell has been tolling for some months now, and we’re resigned to not being able to do anything much about it. This is an event to be weathered, not one that is within the industry’s power to prevent.
What’s still worth trying to understand, however, is how this will affect the shape of the games business in the longer term. Just as the pandemic era skewed the industry for years afterwards – to some degree, we’re still feeling its influence today – so too will the era of brutally unaffordable gaming hardware create ripple effects that persist long after prices reach some kind of tolerable equilibrium.
This week’s forecast from S&P Global Market Intelligence gives us a bit of a starting point for thinking about those long term effects. Focused solely on the console market, it predicts overall sales slumping to around 27 million units next year, down from highs of over 45 million in the first half of this decade. From 2028, the forecast is for a slow recovery, although by the end of the decade, S&P anticipates unit sales still being well shy of the 40 million mark.
There’s a certain degree of crystal ball gazing involved in any forecast this long-term, of course, and no forecast can anticipate a black swan – the crisis in RAM and storage costs being precisely one such black swan. All the same, I don’t think anyone would disagree with the broad thesis that attempting to sell increasingly geriatric consoles at wildly inflated prices isn’t going to do anything good to sales figures in the coming years.
If anything, S&P’s estimate may be rather optimistic, as it’s built on the assumption that the component pricing situation will ease off in time for next-generation hardware to launch in the $600 to $800 price range by 2028. That’s not impossible, but it also doesn’t seem to be the most likely of all possible futures. Almost all RAM production is in the hands of three companies that are currently enjoying unprecedented pricing power and are consequently very motivated to draw out this situation for as long as they possibly can.
“What this forecast comes down to is 25 to 30 million ‘missing’ console sales over the course of five years”
Even so, let’s accept the optimistic forecast for the sake of argument. In this scenario, the final years of the PS5 era are a whimper rather than a bang, and while the launch of PS6 (and of Microsoft’s next-gen Xbox) would turn things around, it will do so slowly, with the new systems’ installed base growth being muted compared to the past couple of generations. Switch 2, having managed to get in under the wire and launch before things got really bad, essentially holds up the console market through those years – although here too, S&P seems a tad optimistic, as the forecast might assume that Nintendo is willing and able to continue soaking up much of the component price increase in the name of keeping its hardware reasonably priced.
What this forecast comes down to is, effectively, somewhere in the region of 25 to 30 million “missing” console sales over the course of five years. That’s the stone tossed into the pond from which the ripples spread out. Even if the recovery continues apace from 2030 onwards, tens of millions of missing units – new consoles that would normally have been in the installed base, representing consumers who have either stuck with old hardware, dropped out of the console market entirely, or simply never become a console consumer at all – is a major gap in the addressable audience. This absence would be felt for years.
Those ripples might extend well past a single console generation, because all of this is happening at a precarious moment for the console business. A topic that comes up fairly regularly in industry conversations, but is all too often hand-waved away, is the question of market stagnation. We all know that consoles have been robustly healthy for the past decade or so, defying the doomsayers who predicted that smart devices would be a deathblow to the category. Yet underneath that commercial success lies the troubling fact that the actual installed base has grown relatively slowly, if at all, since the start of this century.
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The PlayStation 2, launched over 25 years ago, remains the best-selling console of all time at around 160 million units. While the PS2 was the undisputed king of the home console market in that era, in the handheld market, both the Nintendo DS (lifetime sales of over 150 million) and the PlayStation Portable (somewhere in the ballpark of 80 million) were its contemporaries. Compare that to today’s systems: the Nintendo Switch with about 155 million sales, the PS5 at over 93 million, and the Xbox Series consoles at somewhere short of 30 million. Decades on from the PS2 era, those total unit numbers across home and handheld devices are in the same range, if not a bit lower.
This isn’t to knock the success of contemporary systems. They genuinely are commercially very successful, but a great deal of that success has come in spite of the actual audience remaining basically the same size for the past 20 years.
“The last major push to continue that expansion came around the Wii era”
The PS1 and PS2 generations both saw massive expansion of the audience for video games; this was the era when the games business boasted of being “recession-proof”, with the steady widening of its demographic reach creating strong underlying growth that outweighed any temporary economic hiccups. Yet arguably the last major push to continue that expansion came around the Wii era, when the industry actively courted women and older consumers with software that spread out the medium’s net to cover exercise programs, dancing and singing games, and a brief flourishing of a whole host of non-traditional titles designed to serve as a welcoming entry point for new consumers dipping their toes in the waters.
For a while, it worked; the Wii genuinely moved the demographic needle, at least for a moment, with Nielsen reporting back in 2009 that almost half of Wii owners were women, with a significant portion being women aged over 35, a market the industry had never made much headway with before. Yet the momentum faded almost as fast as it started.
Blame the arrival of smartphones; blame the fact that bringing in this new demographic turned out to be easier than holding on to them; blame the building backlash to the expansion of the medium’s horizons that a few years later would culminate in the ugly misogyny of Gamergate. Wherever the blame lies, the outcome is the same: the newcomers didn’t stick around, and there hasn’t been a significant expansion of the console demographic since then, with console installed bases remaining roughly static despite global population and income growth.
To be clear, this isn’t just about women – they’re a demographic that’s well-studied and reported on by market research firms, but can be considered broadly indicative of a wider failure of console platforms to reach new audiences. Console owners are skewing older simply because the generations who grew up with them keep playing as they grow older, but at the other end of the demographic pyramid, the picture is more complex. Consoles do still reach a solidly sized audience of kids and teens, but they’re battling with mobile devices for attention – and it’s a battle in which they’re steadily losing ground.
Consequently, while Millennials and Gen X gamers are still engaged with their consoles, creating growth among consumers in their 40s and 50s, there’s a much bigger question mark around the replenishment of the demographic pyramid and the next generation of game consumers. Germany’s long-running JIM-Studie, an annual survey of youth media usage trends, shows the console as a minority device among teenagers, and slipping year on year; a similar study by Japan’s INTAGE shows an even clearer slide, with game engagement steadily falling among under-30s, remaining steady among 30 to 50 year olds, and only showing significant growth in the 50+ demographic. Japan is a few years ahead of the curve here, given the relative timing of its console and mobile gaming booms, but the pattern will probably repeat in other markets too.
“The next generation of consoles is going to be make-or-break”
That brings us back to the slump the S&P data predicts: that potential 30 million hole in the console installed base as the industry approaches 2030. The timing could not be worse. The next generation of consoles is going to be make-or-break in terms of proving that these platforms can still engage younger audiences who have increasingly turned to smart devices for their entertainment.
If those consoles instead limp out into a market that’s in a slump due to spiralling costs, it will make it exceptionally hard to hold on to the current audience, let alone make an appealing pitch to a new market of young people with an unprecedented set of other platforms vying for their attention. The ripples would spread widely – if the next generation of consoles can’t engage a young audience, the uphill struggle for the one after that will be all the steeper, and a steadily ageing console audience puts a distant but nonetheless looming expiry date on the market segment overall.
Over a decade of focusing on more aggressively monetising the existing audience rather than working to broaden the market may slowly but surely have painted the console into a corner. It’s a corner that’s been profitable and successful thus far, but one that suddenly looks very narrow in the face of soaring prices that threaten to be a tipping point for faltering engagement from young consumers. If the pricing crisis crushes console engagement for a whole generation of potential gamers, the people who predicted the end of consoles when smartphones appeared may turn out to have been right after all – even if they were off by a few decades.
