New research published on 22 May revealed that video games continued to see strong retail value sales growth in 2016, with sales up by 7% globally at fixed exchange rates. 2016 was marked by a slew of new VR headset launches, including the Oculus Rift, HTC Vive, and PlayStation VR, promising to bring virtual reality to mainstream gamers. Mid-cycle refreshes of static consoles like the Xbox One S, PlayStation 4 Slim, and PlayStation 4 Pro were also seen in 2016. But the year saw its share of major exits as well, with Disney Interactive ceasing production of its toys-to-life line, Disney Infinity, as the popularity of toys-to-life has started to decline. While AR/VR gaming remains a top prospect for video games long term, mobile games remained the category’s bread and butter. Globally, mobile games revenue grew by 25% in 2016 to total USD36.8 billion.
Source: Euromonitor International
Toys-to-life running out of STEAM
Disney Infinity was discontinued in 2016, while Activision Blizzard announced that there would be no new major game for Skylanders in 2017. Combined with declining amiibo sales, our research points to declining consumer interest in toys-to-life. However, interactive toys with educational benefits continued to be a growing force in traditional toys and games in 2016. STEAM (science, technology, engineering, arts, and mathematics) toys have become increasingly important to parents over the years, and many STEAM toy makers have added interactive features their products, such as Spin Master’s Meccano MeccaNoid G15. These toys can increasingly offer the interactive element children enjoyed with toys-to-life products, combined with real-world playability and educational features parents are looking for.
Consoles break the cycle
Historically, consoles have had long replacement cycles, with several years between new console launches. But since the current console cycle started in 2014, manufacturers have adopted a new strategy of putting out new iterations of their consoles more frequently, similar to the product lifecycles of consumer electronics products like smartphones, televisions, and computers. These new iterations offer small improvements over older models and are used to keep pace with rapid technological advancements in consumer electronics like 4K televisions and AR/VR headsets. This new model of introduction is expected to both stimulate install base growth, with more frequent major product launches, like the Nintendo Switch, as well as shorten the replacement cycle for consoles as a whole. In the major US static console market, install bases are expected to rise by 6% in constant terms over 2016-2021.
AR/VR: Slow start with long-term opportunities
High-end consumer VR headsets entered the market in 2016, with the launch of the Oculus Rift, HTC Vive, and Sony PlayStation VR. These devices entered a market dominated by low-cost mobile-based VR devices. While high-end consumer VR has been viewed by game developers and hardware producers as having the potential to massively upend how we consume media content, initial sales of the three new high-end consumer VR headsets were relatively low due to their prohibitively high prices. In 2016, only roughly one million units were sold by Oculus, HTC, and Sony collectively, the clear majority coming from the PlayStation VR due to the high market penetration of the PlayStation 4. Despite the slow start, consumer adoption is expected to pick up as headset pricing begins to drop, and by 2021 major markets like the US and UK are expected to see nearly 20% household penetration rates for AR/VR headsets.