game consoles

The video game industry is gearing up for a major transition this holiday season as Microsoft (Msft) and Sony (SNE) both release next-generation game consoles. The new consoles, which come seven years after the two companies released their current-generation machines, are likely to be in short supply at first.

At stake for Microsoft and Sony is leadership in the high end of the console games market. Research firm Newzoo expects console game software sales to rise 6.8% to $45.2 billion worldwide in 2020.

Microsoft will hit the market first with its Xbox Series X console on Nov. 10. Sony will follow two days later with its PlayStation 5 console on Nov. 12. Both game consoles cost $499 for their standard configurations. Sony started taking pre-orders on Sept. 16 and Microsoft followed on Sept. 22.

Both quickly sold out of their initial supply, which analysts took as a sign of strong demand. But consumers should prepare to be disappointed this holiday season when shopping for the new consoles, said David Cole, an analyst with DFC Intelligence.

Video Game Sales Shake Off Recession Worries

Demand continues to look strong, with the sales mix favoring the premium versions of both consoles,” Sebastian said in a note to clients, citing preorders throughout the interactive entertainment sector.

That includes video game publishers Activision Blizzard (ATVI), Electronics Arts (EA) and Take-Two Interactive Software (TTWO). He rates all three video game stocks as outperform.

“In North America, we expect roughly 1.5 million units of each (game console) platform to sell before the end of the year, with supplies likely to be sold out quickly around the launch window, with some replenishments expected during the (Black Friday through Cyber Monday) period and as production continues through the quarter,” Sebastian said.

Pedro Palandrani, a research analyst at Global X ETFs, said the new game consoles will be a “significant event for the video game industry as a whole.”

“Even though the economy might be in a recession, we continue to see strong momentum” in the video game business, Palandrani told IBD.

During the Covid-19 pandemic, consumers have been spending more on home entertainment, including streaming video services and video games. And the behaviors acquired during this stay-at-home era likely will stick after the health crisis has passed, Palandrani said.

Both New Game Consoles Have AMD Chips

The main selling point for both new game consoles is more realistic graphics and smoother gameplay.

Both new consoles feature central and graphics processors from Advanced Micro Devices (AMD). Xbox Series X boasts slightly faster raw processing and graphics performance than PS5 and has more data storage capacity. However, Sony’s PS5 has faster data throughput for quicker game loading.

Where Sony truly leads is in game selection for its new console, said DFC’s Cole. Sony’s in-house launch titles for the PS5 include “Marvel’s Spider-Man: Miles Morales” and “Demon’s Souls.”

In August, Microsoft delayed its big launch title “Halo Infinite” until 2021. That is likely to diminish early enthusiasm for the Xbox Series X, Cole said.

Third-party game publishers are preparing for the new game consoles as well. Activision will sell “Call of Duty: Black Ops Cold War” for both platforms. The same goes for EA with “Madden NFL 21” and Take-Two with “NBA 2K21.”

Top games will sell for $70 on the next-gen game consoles, a $10 increase over the current generation. The increase is designed to recoup steeper development costs.

Expect Shortages Of Next-Gen Game Consoles

For cost-conscious consumers, Sony is selling a version of its PS5 console without an Ultra HD Blu-ray Disc drive. The so-called PS5 Digital Edition will cost $399.

Microsoft also is selling a lower-cost version of its next-generation console without an Ultra HD Blu-ray Disc drive. The Xbox Series S will cost $299. However, the Series S also has stepped-down technical specifications from the Series X.

Sony is likely to lead the next generation of game consoles, Cole said.

“The Sony PlayStation 5 is attracting way more interest than Microsoft’s new products,” he said. Microsoft muddied its marketing message by offering a second, less-powerful next-gen console, Cole said.

In the current console cycle, Sony’s PlayStation 4 has outsold Microsoft’s One by a roughly two-to-one margin, Cole said. A third console maker, Nintendo (NTDOY), doesn’t play in the high-end of the market. It sells the popular Nintendo Switch console.

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