Price rise, consoles shift, and AI, Bernstein take on video games industry

Bernstein forecasts a return to growth for the global video gaming industry in 2025, projecting a near 5% increase to $215 billion after a 2.7% decline in 2024, driven by Nintendo's Switch 2 launch, PlayStation's first-party titles, and mobile gains. The report highlights a shift towards $80 standard pricing for games and a potential margin boost from developers experimenting with alternate payment paths following a U.S. court ruling limiting Apple's cut of off-platform purchases. Additionally, the report notes Microsoft's pivot away from Xbox hardware and the accelerating impact of AI on game development.

Analysis

The global video gaming industry is poised for a significant rebound in 2025, with Bernstein forecasting nearly 5% revenue growth to $215 billion, following an estimated 2.7% decline to $205 billion in 2024. This recovery is anticipated to be spearheaded by major catalysts including the launch of Nintendo’s Switch 2, a renewed content focus from PlayStation with strong first-party titles, and continued modest gains in the mobile segment, which remained the largest at $108 billion in 2024 despite an overall console revenue drop of 15% due to late-cycle dynamics and a lack of new flagship games, while PC gaming grew 3.6% to $42.8 billion. A pivotal shift is occurring in game pricing, with $80 becoming the emerging standard for new titles, as demonstrated by Nintendo and followed by Microsoft (MSFT), a move Bernstein justifies by gaming's high engagement value per dollar. Furthermore, a U.S. court ruling limiting Apple's (AAPL) commission on off-platform purchases presents a potential margin uplift for mobile developers exploring alternative payment avenues, contributing to a negative sentiment for Apple. The console market is also witnessing a strategic realignment, with Microsoft pivoting its Xbox strategy away from hardware dominance, suggesting a consolidation around Sony (SONY) and Nintendo, both of which show positive sentiment. Concurrently, AI is revolutionizing game development, enabling faster asset creation and more sophisticated non-player characters, which Bernstein views as a collective driver for enhanced revenue, margins, and a positive long-term industry outlook, underscored by a strongly positive overall industry sentiment.

Key Decisions for Investors

• Investors should consider re-evaluating exposure to the video game sector in anticipation of the projected 2025 revenue growth, focusing on companies like Nintendo and Sony (SONY) that are well-positioned to benefit from new console cycles, strong first-party content, and market consolidation.
• Monitor mobile game developers for potential margin expansion resulting from experimentation with alternate payment paths following the U.S. court ruling that negatively impacts Apple's (AAPL) traditional App Store fee structure, and assess the sustainability of the new $80 standard game pricing across the industry.
• Evaluate companies, including Microsoft (MSFT) with its evolving gaming strategy beyond hardware, that are effectively integrating AI into game development, as this technology is identified as a key catalyst for improved development efficiencies, enhanced user experiences, and long-term revenue and margin growth across the gaming ecosystem.