Newzoo has lowered its estimate for 2019. The dynamics of the video game market turned out to be lower than predicted

The video game market is growing slower than a year earlier, and slower than analysts expected.

Main figures:

• in 2019, the video game market will earn $148.8 billion;
• China will remain the largest market in the gaming industry;
• 46% of the video game market will be mobile games, in 2018 the share was more;
• mobile is growing now primarily at the expense of developing countries;
• the pace of the console games market is falling, the main reason is that users are waiting for a new generation of consoles.

General situation

The expected revenue of the entire market will be $148.8 billion. According to Newzoo experts, this is 7.2% more than a year earlier. However, even this summer they expected a 9.6% growth (a year earlier the growth was 10.9%).

The main reason they had to adjust the forecast was the low sales rates of console games. They expected that he would be able to grow by 13.4%, and he, according to the new estimate, will grow only by 7.3%.

However, mobile analysts were also disappointed. Not only its dynamics have fallen, but also its share in the total revenue of the industry. If a year earlier, mobile games accounted for 51% of the total revenue of the video game market, then this will account for 46%.

Revenue from mobile games is expected to reach $68.2 billion by the end of the year. This is an annual growth of 9.7%. For comparison, in 2018, the segment’s growth was 12.8%, and in 2017 – 23.3%.

The situation is explained by the fact that mobile revenue in Japan, South Korea and the USA has reached peak values. The market is no longer growing at the expense of these countries. Today, the main driver is the Middle East, Latin America and Southeast Asia, where the penetration of the mobile Internet continues, and the spread of affordable smartphones brings new mobile players to the market.

The problem with growing markets is that people don’t pay here, including in free-play games. It is much more difficult to convert them into paying ones than in developed countries. In this regard, the market is growing slower in the long term than before.

Console sales

Last year was very successful for the console segment. There were three reasons for the rapid growth from $33.3 billion in 2017 to $38.3 billion in 2018:

• the rise of the popularity of “royal battles” (primarily Fortnite);
• several significant “generational” game releases (which ones, Newzoo does not specify);
• the continued success of the Nintendo Switch.

Initially, analysts assumed that these factors would be relevant for the first half of 2019. As for the second one, it seemed to them that just here the decline in pace would begin due to the upcoming appearance of a new generation of consoles on the market.

However, a significant drop began already in the first half of the year, when both Sony and Microsoft officially confirmed work on new consoles. This, according to analysts, has reduced user spending on console novelties. Two other factors were also superimposed on this:

• the natural decline in sales of “royal battles”;
• the beginning of the market transition to the subscription model.

The distribution of subscriptions, according to Newzoo, negatively affected the performance of several key releases. The games were not made, because players had an alternative: to pay monthly for access to an extensive library, instead of purchasing expensive new items.

Revenue from console games of public companies grew significantly slower in the first and second quarters of this year than in the past. If in 2018 their annual growth was 21% and 24%, respectively, then in 2019 – 7% and 4%.

Analysts say that the decline in growth rates should by no means be considered as an alarming trend for the industry. Although it will take place, but only until the release of a new generation of consoles in the second half of 2020.

Remark: while working on the material, we found that the figures from the new report do not converge with the figures from the Newzoo reports for previous years. For example, in November 2018, the company claimed that the growth of the console games market would total 15.2%, and this year it reports that it reached 26.6%. Although he could not have grown so much, because in this case he would have turned out to be one and a half times larger than he is now. There are few such large discrepancies, but there are enough small ones (by several percent/billions), so we urge you to treat Newzoo estimates with caution. On the other hand, Newzoo itself notes that it overestimates and corrects its data every quarter.