Video Game Consoles Prepare for a Competitive Black Friday

At first glance, the video game console market has experienced significant growth this year. Overall sales have increased in major markets, with the PS5 seeing a remarkable surge of over 100% in some European countries. The Nintendo Switch has also seen impressive year-on-year growth, despite being close to its seventh anniversary. However, beneath the surface, there are concerning trends that suggest the market may not be as strong as it seems. The growth in the global console market is largely driven by the PlayStation 5, which has experienced exponential growth due to severe stock shortages last year. While the PS5 is currently delivering record-breaking numbers, this is partially due to pent-up demand from the previous year. The success of the Switch is notable, but its growth is mostly limited to Japan and other export territories. In the US, Switch sales have dropped by 21% this year, while sales have declined by 7% across Europe. The Xbox has had a tough year, with sales declining in most major markets during its third year on sale. According to GfK, the PS5 has a 43% share of all console sales in the UK over the last 12 months, which has risen to 51% over the last six months. Recent PS5 sales have been driven by unrestricted sales of the standard PS5 hardware model, aggressive price promotions, and the EA Sports FC 24 bundle. In contrast, the Xbox Series consoles have seen a decline in market share from 26% to 23% over the same period, while the Switch has dropped from 34% to 25%. This Holiday sales period, particularly Black Friday, will be an interesting one as it is the first time all three current consoles are in full supply. Nintendo Switch has largely had Black Friday to itself over the past three years due to stock shortages of its competitors. We are already seeing planned activity from the platform holders, with Nintendo focusing on the Standard and Lite Switch models in Europe and offering a bundle deal. PlayStation is launching a new, smaller model of the PS5, along with Spider-Man, Call of Duty, and FIFA bundles. With a high target for PS5 sales this year, Sony is expected to be aggressive during the sales window. The Black Friday and Holiday period will be crucial for all three platforms, but platform holders may be mindful of eroding margins too heavily due to the high cost of living. GfK warns that consumer confidence is low, and consumers are being cautious with their spending, which may impact sales of higher-priced items like consoles. The Q4 period traditionally accounts for around 50-55% of hardware units, so there is still a lot to play for. However, the entertainment sector should be aware of the economic uncertainty, with the consumer confidence index falling by nine points in October and the major purchase index falling 14 points. The cost-of-living crisis is exerting pressure on many consumers, and they may look at major purchases carefully, including consoles.