Video game software will disappear from retail store shelves in about six years, investment bank Piper Jaffray predicts, as 100% of console video games to be purchased as digital downloads around 2023.
This year, about 40% of console video games will be purchased as digital downloads, Piper Jaffray analyst Michael Olson said in a report Monday.
The shift to digital downloads of full games and add-on content is already boosting the bottom lines of major video game publishers such as Activision Blizzard (ATVI), Electronic Arts (EA) and Take-Two Interactive Software (TTWO). By selling direct to consumers, publishers skip the retail middlemen and pocket a higher profit margin.
“It’s possible the market reaches ‘critical mass’ at 70% to 80% full-game downloads in a few years and spikes to 100% more rapidly,” Olson said. “Also, streaming games from the cloud, while still in very early stages, could drive more rapid digital shift. In any case, the major publicly traded video game publishers will see margin expansion and (earnings) growth as the industry approaches 100% digital.”
The shift to digital downloads has weighed on specialty retailer GameStop (GME), which has been diversifying into mobile phones, consumer electronics and pop-culture products to offset declining game sales.
Digital sales are expected to make up 80% of revenue this year for Activision Blizzard, including full-game downloads, add-on content and subscription services. Meanwhile, digital is expected to account for 65% of revenue this year for EA and 66% for Take-Two, Olson said.
Olson rates shares of Activision, EA and Take-Two as overweight. He has a price target on Activision stock of 69, with EA at 128 and Take-Two at 100.
In morning trading on the stock market today, Activision was up 1.1%, near 62.50. EA was up 1.2%, near 118.30, and Take-Two was up 1%, near 92.90.
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