You can read Part 1 before starting with this research. Here, we will analyze the revenue model of Console, and how businesses in this field maintain market share.
Revenue Model of the Game Market
The traditional game market is divided into many different segments, each of which will have its own revenue model. Here, we divide the game industry by current gaming vehicles, into 4 segments: Console, Mobile/PC, VR/AR, and Cloud.
The console has been developed since the 1960s of the last century. Through the console, people began to know the concept of video games, which are different from folk games. The console was the first hardware device for video games.
When the entertainment needs of users are increasing, the console is also constantly evolving, from the “Gameboy” handheld device that we used to play when we were young, now it has become a big brand like Playstation 5, Xbox 4, and Switch.
As a result, the game industry also went up, becoming one of the industries with strong growth rates, even accelerating during the recent Covid pandemic. Many large corporations also see this potential and have developed their own game segment and have achieved certain successes such as Microsoft, Sony, and Google.
Types of games on Console
With a development history of more than 60 years, tens of thousands of games have been developed on Consoles. Here is a summary of the most played games on the 3 main console types today: XBOX, Playstation, and Switch.
The genre of favourite games on Playstation and XBOX is quite similar, favouring the “Battle Royal”, and “Survival” genres. In addition, TOP games on XBOX and Playstation are games that can be played on multiple platforms, in addition to Consoles that can be played on PC, Mobile, Tablet…
The most played game genre on Switch is “Adventure”, with long-loved characters like Mario, Zelda, and Pokemon. Games on Switch are 100% developed by Nintendo and are only played on Switch. Nintendo’s Switch can be understood as creating a brand of its own and having a separate customer base compared to the XBOX and Playstation, although on the Switch it is still possible to play the games available on the XBOX and Playstation.
Why are console games so popular?
The ultimate purpose of the game is to have fun, to help people have moments of relaxation. Game companies also focus on a single factor: “Fun”. According to a study ” MDA: A Formal Approach to Game Design and Game Research ” from Northwestern University, there are 8 factors that make up the success of a game, helping the game attract players. That is:
The more elements mentioned above, the better the game. Most games will focus on certain elements.
Console gaming first comes to users with the “Sensation” element. Eye-catching design, bold gamer and still very cool. Just holding the console in hand, players have begun to feel the game world. That’s why many games can be played on computers like FIFA 22, Fortnite, and GTA V… but many people still use consoles to play.
In the above list of games, the games on XBOX and Playstation focus on “Expression”, in most games, players fight against each other for the first place.
The game on Switch focuses more on the “Narrative” element. people who are passionate about the stories that game publishers tell, and love those characters. From there, creating icons in the game industry such as Pokemon, Mario, Zelda …
Creating a compelling story is not easy, but once successful, they can continue to tell those stories by selling new products.
The revenue model of games game companies sell consoles
To learn about the revenue model of the game company selling Console, the writer chooses to study the financial statements of the Nintendo company. The revenue model Nintendo is using is called the “one-time-purchase fee”, users only need to pay the initial one-time cost for hardware products, and software … to be able to use them forever.
In 2017 Nintendo released a new console called “Switch”, and revenue quickly skyrocketed from $4.4 billion in 2016 to $16.5 billion in 2020. However, from 2017 to now, Nintendo has not released any more products. Console product, so from 2021 revenue has started to decline and is expected to continue to decline in 2022.
This shows that Console is a cyclical product, every time a new Console is launched, revenue will skyrocket but only to a certain extent and will gradually decrease.
It is a difficult problem, requiring companies selling Consoles to continuously improve their hardware (hardware) to continuously develop in this market.
Going into Nintendo’s revenue, Nintendo’s revenue now comes from selling the following 4 products:
- Mobile, IP related
- Playing Cards
It is easy to see that hardware and software always account for a high percentage of total revenue. Revenue usually increases very strongly in the fourth quarter of each year, this is the year-end period with holidays such as Christmas, New Year…
Game products are chosen by people as gifts or as self-rewards, leading to a spike in demand. This shows that Game revenue is also a 1-year cyclical variable.
In terms of revenue share from 2017-2021, right after the Switch’s launch, more than 60% of Nintendo’s revenue came from hardware sales, software sales only accounted for 30% of revenue.
As time goes on, the share from selling hardware tends to decrease, only 53%, while the share from selling software increases, accounting for 45%. This is how Nintendo maintains revenue for a long time.
After studying Nintendo’s revenue model, we can come to a rather subjective conclusion about Nintendo or other game companies, which is: The console game industry is a cyclical industry.
Every hardware, software or related product has a certain development cycle and is difficult to last forever. Therefore, game publishers are required to develop continuously.
Joy is like a dish, eating a lot is also boring, but can’t eat. Selling “fun” is completely learned and developed, as evidenced by Nintendo’s continuous hot games over the past few decades.
For console companies, most of their revenue comes from selling “hardware”, which requires them to keep improving the hardware over time. During the period when hardware product sales begin to mature, attractive software products will be launched to maintain revenue.
Besides, in order not to be left behind market trends, we see that current publishers often support online play in games and add in-game purchases to increase revenue.
In the next research, we will break down the revenue model of Mobile/PC, VR/AR, and Cloud games.
If you have any questions, comments, suggestions, or ideas about the project, please email [email protected].
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your research before investing.
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