Games console industry tries to adapt to rise of free-to-play titles

Virtual goods such as Fortnite weapons and subscription services such as Microsoft’s Game Pass have become as important to the console industry as its traditional money spinner of high-priced standalone games, marking a turning point for the $60bn business.

Console players are set to splash out $21bn on in-game items and subscription services this year — about the same as they will spend on game downloads and discs, according to research group Ampere Analysis.

Such expenditure has risen sharply since the popular free title Fortnite debuted in 2017. Gamers that year spent three times more on console software than on subscriptions and virtual items.

Cost-of-living pressures are dissuading consumers from paying as much as $70 for a game they might not like and encouraging them to opt for alternatives, such as Fortnite and Apex Legends, that are free to download.

Players are then nudged into spending their pounds and dollars — or virtual currencies developed for particular titles, such as Fortnite’s V-bucks — on in-game outfits and guns. They can also pay for access to new levels, storylines and multiplayer arenas. A small minority of gamers typically account for the majority of free-to-play titles’ revenues.

Andrew Wilson, chief executive of Electronic Arts, told analysts on an earnings call this month that he expected so-called live services to be a “strong tailwind” for the publisher.

Global revenues from console games are set to tick up 1.3 per cent to $42bn this year, recovering from a decline in 2022, according to Ampere. The total market, including hardware, is predicted to expand by about 5 per cent to $61.5bn.

Despite the opportunity, gamers’ changing tastes are adding complexity for console makers, developers and publishers. The shift presents a particular challenge for Sony, which is more reliant than rivals on exclusive premium titles through its PlayStation 5 console.

“Live services titles absorb all the engagement” among gamers, said Piers Harding-Rolls, head of games research at Ampere. “That makes it a different and harder environment [for games publishers and developers] to compete within.”

He contrasts the enduring appeal of games such as Fortnite — which remains the world’s most popular console game by monthly active users — with blockbuster releases such as Hogwarts Legacy. While the Harry Potter spin-off received a lot of attention at its launch this year and generated $1bn in sales within its first three months, player attention tapered off soon after, according to Ampere’s tracking data.

The shift to what are known in the industry as “live service games” — notable examples include Roblox and Apex Legends, as well as Fortnite — is making the console market more akin to mobile gaming. Phone releases have long been dominated by free-to-play apps, with optional purchases of extra lives, cosmetic avatar enhancements or power-ups.

Traditional console publishers including Activision Blizzard, Take-Two Interactive and EA have scrambled to reinvent themselves for this new era, turning franchises such as Call of Duty and Grand Theft Auto into live games that buyers will continue to play — and spend money in — for years.

Players continue to flock to GTA V a decade after it was first released, thanks to a steady stream of new content and add-ons from its developer, Rockstar.

Microsoft’s planned $75bn acquisition of Activision Blizzard, which is still awaiting approval from regulators, is motivated in large part by the Big Tech company’s desire to add more content to its Xbox Game Pass subscription service. Like other subscription games services including Ubisoft+ and EA Play, Game Pass gives players unlimited access to a catalogue of titles for a fixed monthly fee.

Sony has its own subscription service, PlayStation Plus, but depends more on exclusive premium titles. If players continue to gravitate to free games, such as Fortnite, that do not require the latest hardware, Sony will find it more difficult to sell its PS5 to all but the most dedicated of players, some analysts have argued.

That could cast doubt on the company’s target to shift more units of the PS5 than its predecessor, the PS4, which sold 100mn in six years. Sony has recently begun discounting its $499 console in several markets.

“The world has moved on from the console model that Sony is offering,” said Gareth Sutcliffe of Enders Analysis, adding that the PlayStation maker had “rigidly stuck” to a model of high costs of hardware and content.

Soaring development costs have pushed up the prices of premium games, such as Final Fantasy XVI and Nintendo’s latest Legend of Zelda, to as much as $70 upfront.

For Sony, some of that investment can be recouped through its TV and movie studios: the recent hit series The Last of Us began life as a PlayStation game.

Big new game launches are still helping the console market return to growth.

Driven by improved availability of the PS5, which was held back by severe supply shortages until late last year, and strong sales of Nintendo’s Switch, revenues from US gaming hardware rose 23 per cent to $2.6bn in the first half of the year compared with the same period a year ago, according to market researchers Circana.

As of late July, Sony had sold 40mn units of the PS5, according to the company.

However, the console has lost momentum in recent months as gamers grapple with the rising cost of living.

Sony’s chief operating officer Hiroki Totoki said this month that PS5 sales were showing “somewhat less than the expected progress” towards the group’s target to sell 25mn units in the current fiscal year, despite 38 per cent year-on-year growth in its first quarter.

Totoki said “accelerated penetration of PS5 hardware” was “one of the highest priorities” for the company.

In the short term, its strategy of promotions and price discounts in several markets is showing signs of success. In the UK, PS5 sales volumes rose 73 per cent in the first 31 weeks of this year compared with the same period in 2022, according to market researcher GfK.

However, the run-up to Christmas will be key. While the pipeline of content — including PlayStation exclusive Spider-Man 2 — looks strong, and while Totoki said he expected the industry to be “be greatly energised”, Harding-Rolls said paid-for releases across the industry would need to be compelling to lure players away from the likes of Fortnite.

“There’s a whole new dynamic to the market,” he added.