Analysts suggest that, in as little as six years, digital game sales could entirely dominate the video game market. It's a shift that’s been brewing throughout the PlayStation 4 and Xbox One console generation; but now, the PlayStation 5 and Xbox Series X generation could become the turning point where physical media becomes all-but obsolete.
Unlike other entertainment industries, video game fans have clung on to the nostalgic draw of boxes, discs, and cartridges — so, why is this acceleration happening now, after years of healthy physical game sales?
For collectors who love adding the latest releases to their shelf, this shift might be frightening to consider. But does digital's dominance necessarily spell the end of physical games, or will collectors show enough interest and spend enough money to keep physical media alive, albeit in a new, more specialized form? And will digital change game ownership, standard pricing, and collecting as a whole?
IGN spoke with several video game industry analysts to get their thoughts on this rapidly evolving marketplace.
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Digital Game Sales Are On the Rise
Overall sales of digital versions of video games have slowly been catching up to physical game sales over the last few years. Now, the scale is tipping towards digital more than ever — partially due to the trends set throughout the last few years, and partially due to the ongoing COVID-19 pandemic keeping consumers from shopping in-person — and pushing them towards digital storefronts.
Digital games have hit big milestones over the last few years. Cyberpunk 2077 reportedly saw the biggest digital game launch of all time. Elsewhere, developers are seeing digital sales outpace physical sales numbers, with Capcom reporting approximately 80% of its game sales are from digital downloads.
Reflecting that shift, Sony and Microsoft have now both released digital-only consoles that eliminate the option of using physical media entirely, but offer enticingly cheaper prices. If you have a more expensive PS5 or Xbox Series X with a physical disc drive, you're still given complete freedom when choosing how to buy your games. See a sale online you can't pass up? Go ahead and order the game with 2-day shipping. Want to make an impulse grab you see in a second-hand bargain bin? No problem.
For years, gamers have been offered that freedom as par for the course. Now, the reality of digital-only consoles effectively funnels consumers down a digital pipeline to PlayStation or Xbox’s more controlled stores. But the reason for that is simple — more gamers than ever prize the ensured convenience of digital over the potential freedom of physical.
Taking a deeper look at sales numbers globally supports the idea that more gamers are starting to favor digital downloads. Instead of lining up at GameStop for the latest release, players are waiting for their digital downloads to unlock at the strike of midnight. In Sony's recent Q3 FY2020 results, we saw digital sales outnumber physical sales throughout the entire current fiscal year.
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Even when we exclude games that are typically digital exclusives, digital sales still have the upper hand. In Sony's "Full Game Software" results for the three quarters of the current fiscal year, digital sales accounted for 74%, 59%, and 53% of overall sales, respectively.
This means, when given the choice between retail and downloads, the majority of players on PlayStation consistently choose digital over physical.
It's not just Sony seeing this shift in numbers. In Nintendo's recent earnings report, the company said digital sales made up 40.9% of all software sales, which is a sizable 12.3% increase year-on-year. Nintendo's digital sales also saw an increase of 104.9% when compared to 2019.
Of course, the COVID-19 pandemic has to be taken into account. Sony's 2020 fiscal year began on April 1, 2020, when lockdowns across the world were reaching their peak. Customers who suddenly found themselves housebound could explain the huge 74% statistic in Sony's first quarter, which ran from April 1 to June 30.
"It's very straightforward: in a pandemic, downloads are the safest and most convenient option for concerned gamers," says industry analyst Dr. Serkan Toto of Kantan Games Inc.
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But as we look at 2020, analysts noted that the COVID-19 pandemic was not an instigator for the rise of digital media, but simply an accelerator of a trend we've seen take shape throughout the last console generation.
"The game industry, as well as consumers, have been gradually shifting towards digital sales before the pandemic already," says Dr. Toto. "COVID-19 has of course been a strong accelerant for that trend, as some physical locations were simply forced to shut down or people generally were not eager to go out anymore."
In 2018, digital games accounted for 43% of Sony’s Full Game Software download, and in 2019 it was 55%. Both are large year-over-year increases from even before the pandemic hit.
The acceleration is significant compared to the start of the PlayStation 4 and Xbox One generation. Daniel Ahmad, a Senior Analyst at Niko Partners, said on Twitter that we entered the last generation of consoles in 2013 with digital downloads accounting for 5-10% of total sales. Now, we enter the PlayStation 5/Xbox Series X generation, and digital downloads account for half of the sales.
It's worth noting that we entered the current console generation (2013) with digital downloads accounting for around 5-10% of unit sales.
Now we're entering next gen with 50%+ as standard. Packaged sales are still strong, especially during COVID-19, digital is additive overall — Daniel Ahmad (@ZhugeEX) July 30, 2020
A Rising Tide Lifts All Boats
Websites like Amazon, Best Buy, and GameStop have helped keep physical game sales alive during a time when people aren't making purchases in person as often. While you may be hesitant about going out to a store right now, it's easier than ever to go online, add a game to your cart, and checkout within seconds.
In 2020, two-thirds of games sold in the UK were purchased digitally. That's a 20% year-over-year increase from 2019. However, last year also proved players still love cracking open a new game case as 18.2 million games were sold in boxes in the UK — a 2% increase from 2019.
This means digital and physical sales both jumped, but digital increased significantly more. In this case, digital sales numbers rising is more of a reflection of video game sales numbers as a whole going up, not the immediate death of physical media.
"Packaged software sales have been on a decline for the past few years, but this year has been slightly different," Ahmad said. "The impact from COVID-19 expanded the games market as a whole. It led to a sharp increase in digital game sales and helped stem the decline in packaged software sales."
Mat Piscatella, an analyst for the NPD group, says rising digital numbers do not necessarily spell doom for physical games.
"Growth in digital premium game sales is not being offset by matching declines in physical," Piscatella said. "Changes in physical and digital spending are also often not significantly correlated."
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For now, it seems there's a place at the table for both physical and digital sales.
"Recent numbers indicate that physical sales are surprisingly holding up well, as lockdowns don't go on forever and people can still order physical games online even during a pandemic," Dr. Toto said. "At the moment, it looks like the pie has grown overall, without physical imploding."
Analysts believe that digital sales will continue to ascend, but not as quickly as we saw during the unprecedented events of the last year.
"We expect the digital sales ratio to continue increasing, but not at the same rate as 2020," Ahmad tells IGN. "That being said, we are at a point where the overwhelming majority of games sold are via digital download already."