Parks: Virtual Reality (VR) Headsets Remain Niche Video Game Product

Virtual reality (VR) has often been suggested as home entertainment’s future technology. New research from Parks Associates, however, finds that the video game industry remains the primary use case for VR headsets.

Parks found that while 25% of domestic broadband households are familiar with VR technology, just 8% of households use it. Among consumers who own or are familiar with VR, 54% use their headset or would use it for gaming.

“Sixty-two percent of U.S. broadband households play video games, and while gamers are a passionate market segment, they can be limited in scope, which has stalled adoption of VR to a wider audience,” analyst Billy Nayden said in a statement. “There has been some notable video content developed for VR, such as Alejandro G. Iñárritu’s short video experience Carne y Arena, which won an Oscar, but overall lack of quality, non-gaming content is inhibiting broader adoption.”

Parks Associates: Expected Virtual Reality Use Cases

 

 

 

 

 

 

 

 

Parks said 15% of domestic broadband households have tried VR, while 52% of headset owners report owning a smartphone-based system. PC-based systems and game console-based systems are the next most popular systems, with effectively the same adoption rate.

Another 28% of game console owners are familiar with VR headsets, and familiarity is even higher among owners of newer consoles.

Content quality remains a challenge for VR headset owners, with 55% of VR headset owners feeling that content for their device has remained the same since they bought their headset and 3% believe it has gotten worse. The report notes the main barriers for VR content development are costs, the demand for interactivity, and limits on content length.

Mobile headsets are capable of playing most non-gaming content in VR but often cannot play premium games and have much lower NPS scores than other headset types. For gamers, PC-based and game console-based systems are the primary VR headset option, though standalone VR headsets are promoted as a cost saver.

“The aim of standalone VR headsets is to offer much of the same premium content as game console or PC-based headsets, without the need for additional hardware like a gaming console or high-powered PC,” Nayden said. “This technology drastically reduces the cost for consumers, while providing a more premium experience than smartphone-based systems.”

 

GameStop Widens Q4, Fiscal Year Losses Due to Impairment Charges

GameStop April 2 reported fourth-quarter (ended Feb. 2) loss of $187.7 million, up 77% from a loss of $105.9 million during the previous-year period. Revenue dipped 7.7% to $3 billion from $3.3 billion last year.

The world’s largest video game retailer attributed the loss to asset impairment charges and other items of $334.5 million. Without the charges, adjusted net income from continuing operations decreased 16.2% to $148.5 million, compared to adjusted net income from continuing operations of $177.2 million in the prior- year quarter.

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For the fiscal year, the net loss topped $673 million compared to net income of $34.7 million in fiscal 2017. The loss included asset impairment charges and other items of $964.2 million primarily related to impairment of goodwill. Excluding asset impairment charges and other items, GameStop’s adjusted net income from continuing operations for fiscal 2018 decreased 22.9% to $218.4 million

“This past year was a pivotal one for GameStop, capped by retail industry veteran George Sherman’s appointment as CEO beginning April 15,” Dan DeMatteo, executive chairman, said in a statement.

DeMatteo said the sale of Spring Mobile better positioned the retailer to drive shareholder value with an “intense focus” on leveraging the company’s global gaming and collectibles business – in addition to the announced paydown of $350 million of outstanding notes. The executive said GameStop is upbeat with the pending arrival of new CEO George Sherman

“We are excited to move forward under George’s leadership as we refine our strategic direction and implement several initiatives under development to strengthen the company for the future and drive sustainable growth and profitability,” DeMatteo said.

New hardware sales decreased 9.8%, with an increase in Nintendo Switch sales offset by a decline in Xbox One X sales due to its strong launch in the prior year and the impact of the 53rd week in fiscal 2017.

New software sales decreased 7.8%, driven by key titles launching earlier in the year compared to last year and the impact of the 53rd week in fiscal 2017. Accessories sales increased 18.8% on the continued strength of controller and headset sales.

Pre-owned sales declined 21.3% reflecting declines in hardware and software. Digital receipts increased 4.7% to $432.5 million, primarily driven by strength in sales of digital currency. Collectibles sales increased 3.1% to $268.8 million, with continued growth in both domestic and international stores.

Based on initial estimates, GameStop said it is working to achieve annualized operating profit improvements of approximately $100 million in fiscal 2019.

 

Trans World Entertainment Eyes Q4 Retail Rebound, Digital Decline

In a reversal of industry trends, Trans World Entertainment Corp. March 28 reported a 2.8% increase in fourth-quarter (ended Feb. 2) same-store sales in its f.y.e. (For Your Entertainment) mall-based packaged media retail stores.

At the same time, Etailz.com, the online retail subsidiary TWMC acquired in 2016 for $75 million, reported a $62 million loss from operations, which involved a $57 million impairment charge related to company restructuring and 30% workforce reduction – including some senior management.

“This [2.8%] marked the second consecutive quarter of positive [f.y.e.] comp sales,” CEO Mike Feurer said in a statement. “Our customers continue to respond positively to the changes in our merchandise assortment and presentation that were made to counter declining mall traffic and the ongoing declines in physical media.”

Indeed, f.y.e., which operates more than 200 stores nationwide, has been pushing trend items, including collectibles, action figures, posters, T-shirts and related merchandise.

Regardless, store revenue dropped 15% to $78.8 million from $92.4 million from the previous-year period. Operating loss narrowed to $1 million from a loss of $2.4 million during the previous-year period.

Fiscal-year store revenue declined 14% to $231.2 million from $268.3 million during the previous-year period.

Meanwhile, Spokane, Wash.-based Etailz, which helps third parties monetize online sales through platforms such as Amazon, Walmart.com and eBay, posted revenue of $48.6 million, down almost 9% from revenue of $53 million last year.

For the year, revenue increased 7% to $186.9 million from $174.4 million.

“In response to the decline in operating results, we’ve engaged outside support and initiated certain strategic changes to create operational efficiencies directed towards improving [Etailz’s] performance and cash flow,” said Feurer. “We remain confident in the underlying opportunity afforded by etailz as a top marketplace retailer and service provider.”

Trans World Entertainment shares closed up 5.5% at 47 cents per share on March 27.

 

 

Sony Stopping Retailers from Selling Digital Video Game Codes

In another blow to packaged-media retail, Sony Interactive Entertainment is taking steps to stop retailers such as GameStop, Amazon and Best Buy from selling digital codes to its video games.

The move would hinder consumers from bypassing the credit card payment option at Sony’s PlayStation Network and purchasing codes to PS4 titles at physical and online retail.

“We can confirm that as of April 1, Sony will no longer offer full games through SIE’s Global Digital at Retail program,” the company told The Verge in a statement. “This decision was made in order to continue to align key businesses globally. To support full games and premium editions, SIE will introduce increased denominations at select retailers.”

The move will reportedly not affect pending releases of Days Gone and Mortal Kombat 11.

Sony said the new policy would not affect downloadable content, add-ons, virtual currency, gift cards and season passes. The publisher will also continue to offer third-party PSN credit options at select retailers.

Sony’s action mirrors efforts by Disney to stop Redbox from selling digital codes to its movies. That move resulted in litigation with a federal judge last summer granting Disney’s request for a preliminary injunction against Redbox.

That injunction only applies to newer “combo pack” releases with a revised disclaimer on the package. Redbox said it would continue selling digital codes to earlier Disney releases such as Frozen and older “Star Wars” movies.

GameStop Names New CEO

GameStop March 21 announced the appointment of George Sherman as CEO and member of the board of directors, effective April 15.

Sherman succeeds Shane Kim, who has served as interim CEO since May 2018 and as a director since July 2011.  Most recently, Sherman served as CEO of Victra, a retailer for Verizon Wireless products and services.

George Sherman

“[George’s] extensive retail leadership at several top brands, including Advance Auto Parts, Best Buy, Target and Home Depot positions him as the right choice to lead GameStop for the years ahead,” Dan DeMatteo, GameStop’s executive chairman, said in a statement.

DeMatteo said after a thorough review of strategic and financial alternatives, the nation’s largest video game retailer is at a critical juncture.

While the board recently announced the initial steps of capital allocation and shareholder return program, DeMatteo said senior management expects Sherman to accelerate the next steps in that plan.

“As George and our team finalize the blueprint for GameStop, we will continue to leverage our leadership position in the video game industry to discover new ways to support our loyal customers, while attracting new customers and serving their entertainment needs,” he said.

Sherman comes on board GameStop as the retail brand is in transition due to changing consumer habits surrounding video games – notably online gaming and subscription services.

Google just announced it is launching a cloud-based game platform that would enable gamers to play high-profile games on most connected devices with a proprietary control.

In January, GameStop’s board announced it was canceling efforts to sell the world’s largest video game retailer.The chain reported a 5% decline in global 2018 winter holiday revenue to $2.63 billion, compared to the nine-week holiday period ended Dec. 30, 2017.

 

Google Unveils ‘Stadia’ Video Game Service

As expected, Google is entering the $140 billion video game business with hopes its cloud-based Stadia service will rival industry benchmarks Xbox (Microsoft), PlayStation (Sony) and Switch (Nintendo) among consumers.

Google announced the new service March 19 at the Game Developers Conference in San Francisco. The search behemoth, which plans to roll out the service and cost details later this year, says Stadia would enable users to play games from major developers on most devices via YouTube.

Google Stadia video game controller

“Our ambition is far beyond a single game,” Phil Harrison, VP and GM at Google, told attendees. “The power of instant access is magical, and it’s already transformed the music and movie industries.”

Harrison, who previously held executive positions at Xbox and PlayStation, said Google tested the service (Project Stream) last fall with Ubisoft’s Assassin’s Creed: Odyssey that enabled users to play/stream the triple-A game via Google’s Chrome browser on any applicable device – including smart TV.

“We finally get to share Google’s vision of games,” Harrison said. “Our vision for Stadia is simple. One place for all the games you play.”

In a statement, Yves Guillemot, the co-founder/CEO of Ubisoft, said Google’s global expanse would give “billions” unprecedented opportunities to play video games.

“We are proud to partner with Google on Stadia, building on what we’ve learned with Project Stream via Assassin’s Creed Odyssey,” Guillemot said. “This is only the beginning, and we can’t wait to continue collaborating closely with Google on what’s next for Stadia.”

 

Purdue University Bans Netflix, Other Streaming Use in Classrooms

Purdue University has begun banning students from accessing streaming video services such as Netflix, Hulu, Amazon Prime Video and YouTube in classrooms.

The reason: Burgeoning streaming video and music service use during classes had slowed the school’s Wi-Fi speed to a crawl and was distracting students.

What began as an experiment in the fall expanded across the West Lafayette, Ind., campus March 18 as students returned from spring break.

“There’s a finite amount of bandwidth available,” Mark Sonstein, executive director of IT infrastructure at Purdue, told the Chicago Tribune. “If you have people who are streaming a movie, then they are consuming all of the available bandwidth.”

While many high schools and middle schools routinely collect cellphones from students before classes, Purdue reportedly is one of the first universities to erect a tech barrier.

“I heard about the bandwidth problem, but when the solution was implemented, I heard crickets,” said chemical engineering professor Steve Beaudoin.

Indeed, student reaction to the ban has been scant as most aren’t streaming episodes of “True Detective” or “Game of Thrones” during Chem 101, despite sitting in a lecture hall that seats 100.

Nineteen-year-old computer science sophomore Nick Pappas told the Tribune he doesn’t believe SVOD use in classrooms is as common as school officials contend. But he has seen some students engage – especially if they have wireless earbuds.

“People can get away with it so easily,” he said.

“If the bulk of the students participate, either because they agree with the purpose of the program, or because they aren’t inclined to take the steps necessary to circumvent it, then the purpose — freeing up bandwidth for academics — will be achieved,” Sonstein said.

 

 

Video Game Industry Eyes Direct-to-Consumer Rewards — and Risks

Taking a cue from the subscription streaming video-on-demand ecosystem, the video game industry has quietly begun offering content to consumers online rather than solely through packaged-media retailers such as GameStop, Best Buy and Target.

Last May game publisher Electronic Arts acquired the cloud gaming technology assets and personnel of a wholly owned subsidiary of GameFly — the online packaged-media rental service that also offers movies and TV shows.

Specifically, EA aims to distribute its games to consumers online without paying license fees to third-party game platforms such as Xbox, PlayStation and Nintendo. At last year’s at annual E3 gaming confab, EA bowed a prototype subscription online gaming platforms EA Access and Origin Access.

“Cloud gaming is an exciting frontier that will help us to give even more players the ability to experience games on any device from anywhere,” Ken Moss, chief technology officer at Electronic Arts, said at the time.

Sony, whose five-year-old subscription gaming service – PlayStation Now – features hundreds of catalog games for $99 annual fee, is reportedly considering direct-to-access for new releases following its purchases of online platforms Gaikai and OnLive.

“The greatest disruption of entertainment is the combination of streaming and subscription,” Andrew Wilson, CEO of Electronic Arts, told Fortune. “More people are engaging, with less friction, through cloud-driven services.”

At the same time, offering consumers online access to hundreds of games for annual or monthly fees (the latter without contract) threatens an established retail market where game publishers often charge and get more than $50 for a single game.

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“I do believe that some subscribers might cancel after finishing the newest game they wanted to play, but the vast majority will keep their subscription because of the online multiplayer component of those same games,” said Greg Potter, an analyst with Kagan, a media research group within S&P Global Market Intelligence. “Publishers are okay with this model because hit games often have multiple revenue streams other than the purchase at the point-of-sale.”

Indeed, the gaming industry saw revenue reach record $43.8 billion in 2018, up 18% from 2017. That figure dwarfed the global box and SVOD markets.

The latter has Netflix CEO Reed Hastings worried.

In the SVOD pioneer’s recent shareholder letter, Hastings said Netflix controlled about 10% of domestic TV screen time – a tally he said is under threat more from online gaming than other SVOD competitors.

“We compete with and lose to [online gaming service] ​Fortnite ​more than HBO Now,” Hastings wrote. “When YouTube went down globally for a few minutes in October, our viewing and signups spiked for that time. Hulu is small compared to YouTube for viewing time. Our focus is not on Disney+, Amazon [Prime Video] or others, but on how we can improve our experience for our members.”

 

 

Disruptive Gaming Market Undermines Hasbro Q4 Entertainment & Licensing Profit

Hasbro Feb. 8 reported fiscal-year 2018 (ended Dec. 31, 2018) entertainment and licensing operating profit of $17.3 million – down 82% from operating profit of $96.4 million during the previous-year period. Revenue increased 5% to $298.5 million from $285.6 million last year.

Overall net earnings topped $220.4 million from $397 million last year. Revenue reached $4.6 billion, down from revenue of $5.2 billion during the previous-year period.

The entertainment and licensing segment includes TV shows and movies for theatrical, home entertainment and over-the-top video distribution. Notable theatrical release included “Transformers” spinoff, Bumblebee, starring Hailee Steinfeld (True Grit) and John Cena (Blockers).

The movie has generated $456.5 million at the global box office, including $124.8 million domestically since its Dec. 21 release.

Hasbro attributed the entertainment and licensing segment decline to a one-time goodwill impairment charge of $86.3 million relating to the company’s acquisition of Boulder, Colo.-based video game developer Backflip Studios.

Hasbro said “the rapidly changing” mobile gaming industry resulted in a modification to its long-term plans for Backflip. The modifications included organizational actions and related personnel changes (i.e. layoffs), the extension of launch dates for games currently in development and the addition of partners for the development of future game releases.

“2018 was a very disruptive year … driven by a rapidly shifting consumer and retail landscape,” CEO Brian Goldner said in a statement.

CFO Deborah Thomas said the ongoing changes resulted in “our global teams focusing] on identifying incremental opportunities to deliver top and bottom line returns.

“Investments include the acquisition of the Power Rangers brand, [box office launch of] Bumblebee and new growth drivers, including Magic: The Gathering Arena and the associated Magic e-sports initiatives,” said Thomas.

 

GameStop Calls Off Company Sale, Stock Plummets

Shares of GameStop were down more than 23% in early trading Jan. 29 after the company announced it was canceling efforts to sell the world’s largest video game retailer.

The Grapevine, Texas company, which operates more than 5,800 retail locations in 14 countries, said is continuing the search process to appoint a permanent CEO and is working with an executive search firm.

In June 2018, GameStop’s board began discussions with third parties regarding a potential sale of the company. The board terminated sale efforts due to the lack of available financing on terms that would be commercially acceptable to a prospective acquirer.

GameStop earlier this year sold its Spring Mobile business generating about $735 million in cash. It plans to use the funds pay down outstanding debt, fund share repurchases, and reinvest in core video game and collectibles businesses.

As of Nov. 3, 2018, GameStop had $820 million of outstanding debt, $350 million of which carries a 5.50% interest rate and is due on Oct. 1, 2019. The elimination of that debt will represent annualized savings of roughly 14 cents per share, according to Wedbush Securities digital media analyst Michael Pachter.

“GameStop should be a primary beneficiary from the console refresh in 2020 or 2021, and it remains the dominant force in the video game industry’s pre-owned segment,” Pachter wrote in a Jan. 29 note.

Earlier this month, GameStop reported a 5% decline in global 2018 winter holiday revenue to $2.63 billion, compared to the nine-week holiday period ended Dec. 30, 2017.