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COVID-19 pandemic turns console gamers to digital sales in record numbers

Console sales reached the digital tipping point this summer

E3 2014 - PlayStation/Xbox hallway
In a year unlike any other — no E3, for starters — console gaming crossed a significant threshold early.
Photo: Samit Sarkar/Polygon
Owen S. Good is a longtime veteran of video games writing, well known for his coverage of sports and racing games.

Console video game sales will be a majority-digital marketplace when the next generation launches in a few months, and the novel coronavirus carried them over that threshold.

That’s the inescapable feeling after video gaming’s major publishers touted huge surges in their installation bases and online sales — full-copy games as well as microtransactions — during the first full quarter of the lockdown lifestyle that the COVID-19 pandemic has imposed on much of the world.

The implication is clear: Video game fans, stuck at home, with the ability to make one-click purchases for entertainment to pass time, will do so in amounts up to the price of a full game. And although the transition to online storefronts and digital purchases has been the expectation and the trend for years now, it’s still a milestone worth pointing out, as Daniel Ahmad, a senior analyst for the games research firm Niko Partners, did on Aug. 3.

“The digital split at the beginning of the PS4/XB1 generation was approximately 5-10%,” Ahmad said in an email to Polygon last week. “We’ve seen this ratio grow by approximately 5 percentage points each year, and now it has become clear that we are past the 50 percent market.

“It is why Microsoft has had confidence to launch a digital version of its Xbox One S console (in 2018) and why Sony will have a digital-only version of its PlayStation 5 console at launch,” Ahmad added.

In its July 30 call with investors, Electronic Arts reported that 52% of its full game sales, on consoles, came from online purchases over the preceding 12 months. EA was probably the largest publisher, with the deepest back catalog, to join the 50%-or-greater club, making this as close to a bellwether for a full transition to digital sales as you could find.

Take-Two Interactive, the parent company of 2K Games and Rockstar Games, told investors on Aug. 3 that that 77% of current generation console game sales were delivered online, which was up from the same quarter last year — and that was 75 percent. Take-Two projects that 63% of next quarter’s sales will also come digitally, surpassing the 51% figure it saw in the same quarter of 2019.

Sony followed up in its call on Aug. 4 to report 74 percent of software unit sales for PlayStation 4 were digital for the preceding quarter, well above the 53 percent figure of the same quarter in 2019. Plainly, that can be attributed to new consumer behavior influenced by the pandemic.

Sony also controls the largest digital marketplace for its console’s games (as Microsoft does with Xbox), so the fact it makes such a large portion of its sales online probably shouldn’t come as a surprise. Three days later, Nintendo reported yet another quarterly record for digital revenue, driven by full-game sales.

“What is notable is that packaged software,” among all publishers, Ahmad told Polygon, “despite making up a lower percentage of sales, did not decline and accounted for 23.7 million units this quarter, compared to 23.4 million last year. We agree that the pandemic has sped up the inevitable shift to digital, but this has not yet come at the expense of packaged software, which has held well.”

For now. “As you’ve seen for many years now, as consumers buy media digitally, they tend not to go back to physical purchases because of the conveniences and the advantages of buying digital,” Daniel Alegre, Activision Blizzard’s chief operating officer, said in that company’s earnings call on Aug. 4.

Activision’s chief financial officer, Dennis Durkin, added that he expected that digital trend to continue. “Interactive entertainment, given its low cost per hour relative to other forms of entertainment, is a very compelling value for consumers,” he added. That makes it an even more attractive buy in lockdown conditions.

Naturally, publishers want consumers buying digitally, not only because there’s no resale market, but because they can expect a 70 percent gross margin for the online sale of a $60 game, compared to 55 percent on a packaged sale, said Ahmad.

A skeptical but accepting public

Video gamers themselves seem to have made their peace with digital ownership, too, even if console gaming’s two marketplaces — Xbox Live and the PlayStation Store — lack some of the full refund policies, or gifting options, that storefronts like Valve offer. Barriers to acceptance — such as download time, or the risk that something that exists in the cloud is de-listed or removed — have resolved either by improvements in service, or the consumer’s rationalization that 40 GB of data must be installed to a hard drive, physical disc or no.

“Consumers have shown that they are OK with how digital works today and believe that the convenience of digital outweighs any negatives,” Ahmad said, adding that his firm believes packaged software will still be a key part at the beginning of the next console generation.

“We do believe that digital adoption could accelerate if platform holders adopt certain features, such as digital gifting or digital refunds,” Ahmad said. “But it is unlikely that platform holders provide the same rights for digital games that physical games currently have, simply because they don’t have to when consumers are shifting to digital anyway.”