The decline of traditional gaming hardware will not impact revenue. The peak of hardware sales for the latest generation of consoles is likely to be between 2017 and 2018, followed by a decline regardless of whether new consoles arrive. However, traditional gaming revenue will continue to grow globally at a 4.9% CAGR to US$65.91bn, thanks to increases in more stable subscription services along with digital distribution to more and more devices.
The shift to digital is well under way, but physical persists. By 2019, global digital distribution of traditional games will generate revenue of US$12.89bn, or 19.6% of traditional gaming revenue. But in the console market in particular, the ability to trade in physical games, frequently higher digital pricing and a lack of network infrastructure will keep physical distribution relevant.
Social/casual gaming revenue will exceed traditional gaming revenue in nine markets by 2019. While markets with long-established traditional console and PC game offerings continue to be dominated by this type of revenue, globally the growth of social/casual gaming revenue will create a US$22.52bn market by 2019. The single biggest shift in total video games revenue will come as countries such as India and South Africa see social/casual gaming revenue overtake traditional gaming revenue by 2019.
Advertising reaches critical mass—but only in a handful of markets. Video games advertising revenue remains the smallest contributor to total video games revenue, but is the fastest-growing sub-segment, moving from just US$2.84bn in 2014 to US$4.75bn in 2019 at a CAGR of 10.8%. However, advertising will only take off in a few select countries—the US, the UK, Japan and China are the only markets where advertising tops US$300mn by 2019—driven by either a sophisticated local advertising ecosystem or a massive potential audience.
Cloud gaming will become an increasingly viable proposition. The next five years will see vast increases in device connectivity, with global smartphone connections forecast to nearly double to 3.85bn by 2019, by which point there will be more than 1bn extra tablet active devices. This connectivity means that, as with video and music streaming services, cloud streaming gaming services can begin delivering on their potential, but two things are needed: the right pricing model to both drive adoption and generate sufficient returns for platforms and publishers; and continuing investment in broadband and mobile Internet infrastructures to support the required response times for interactivity.