As indicated by the typical company data, the demand for in-store interactive games products has been declining in the past three years. The decreased demand can be attributable to slowing down traffic of retail industry and also shifting of products to digitalized media.

Sector’s Current, Trend, Causes behind trend, and Future

Current and Trend

1. It seems that, while new game release time (console games especially) has impacts on performance of game companies, generally the demand for interactive gaming has been strong and gradually growing in the past three years.

2. Sales’ shifting from physical retail channel to digital retail channel and online service has been apparent as indicated by the fact that there is a more apparent decrease in sales of console software in games stores but in sales of consoles.

3. Demand based on console platform has continued strong and grown and demand based on PC platform has declined (it is more apparent in China market).

4. Demand based on mobile phone has increased quickly. However, mobile game companies have to share growth with their mobile network partners and thus have not been able to fully capitalize the quick growth in mobile game players.

5. The sales’ shifting to digital sales channels, which have usually higher margin, help, to some extent, improve companies’ profitability in the past three years.

6. Demand from emerging market has grown fast driven by the quick increase in demand for mobile products. However, shorter cycle of life in mobile games (thus higher relative costs and lower margin) increases risk for companies’ development failure of mobile games.

Causes behind the trend

1. Generally, the demand for gaming entertainment has been growing driven by macro-economy and income factors. This is particularly true in developing countries.

2. Shifting of sales to digital channels may be consistent with and influenced by the same factors as those behind unfavourable retail industry climate.

3. Increasing popularity of mobile phone gaming may help expand players’ segmentation and bring absolute increase in number of players.

4. The decrease in playing of PC games may be because of users’ shifting to mobile games.

Industry Future

1. As upward trend in this industry continues, companies may be able to continue to see growth in their revenue as macro economy recovers gradually and mobile game increases popular. However, they will also have to facing shrinking players of PC based games.

General Financial Performance of Companies In the Sector

It seems that the demand, excluding the effect of timing of new release, for software (console) products of games of physical stores in this sector has been largely shrinking in the past several years as indicated by decrease in the same store software products sales of typical retailers. Hardware products of games, while seem to have gained strong support by release of new version console and new games, have also presented weak demand. Demand for digital products has continuingly increasing.

The typical gross margin is about 33% presenting an improvement due to shifting of sale to digital products, SG&A is about 28% presenting an increase due to deleveraging of shrinking sales, and operating margin is about 5% in 2018. The typical enterprise cash flow/EBI ratio is 8. The average annual decrease in EBI/share is more than 10% in the past three years.

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