Books, Music, Video, & Game Retailers
Date February 2020
- Free-to-play mobile, PC, and console games dominated the video game industry in 2019, as more traditional premium video game and console sales declined amidst weak game sales and the announcement of a new generation of consoles in 2020
- E-books continued to decline while audio books surged in popularity in 2019
- Online music sales and streaming services continue to put pressure on record stores, but vinyl sales continue to defy retail trends, offering brick-and-mortar stores a benefit
Approximate net recovery on cost
Free-to-play and digital gaming surge: According to SuperData, a Nielsen Company, free-to-play games, which are free to download but offer in-game purchasing of additional or cosmetic content, accounted for four out of every five dollars, or nearly 80 percent, of all digital games revenue in 2019 across all platforms. While the industry continues to trend toward higher digital over physical sales (e.g., Sony’s first quarter 2019 results saw its first ever digitally dominated performance, as 53 percent of all PlayStation 4 games were sold digitally), the growing trend of free-to-play games has revolutionized the gaming industry. Fortnite, the premier free-to-play game available in all three platforms, generated $1.8 billion in sales in 2019, helping digital gaming earn just over $120 billion in annual sales, representing a record year for the industry. This trend, along with continued increases in digital sales of tradition video games, has pushed physical game retailers like GameStop to the brink.
2020 is Pivotal Year for Gaming and Physical Retailers: With digital and mobile games gaining more and more industry market share, physical game and console revenue has taken a back seat. Still, industry revenue is projected to have increased 7.9 percent in 2019, according to IBISWorld. Growing consumer income, blockbuster game releases, and add-on/downloadable content have helped the industry grow over the past few of years. However, with few major releases in 2019 and the announcement of a new generation of consoles arriving in 2020, industry growth in 2019 was limited.
As a result, GameStop’s comparable-store sales fell 24.7 percent during the nine-week period ending January 5, 2020, ending a dreadful year for the brick-and-mortar video game retailer that lowered its guidance for fiscal 2019 between 19 and 21 percent. GameStop management asserted that the company’s decline was indicative of overall trends impacting the video game industry. As pay-to-play digital video games continue to dictate the market, retailers like GameStop will need to find alternatives to video games and consoles as their primary drivers of revenue. 2020 should see an increase in game and console sales, as Sony’s PlayStation 5 and Microsoft’s Xbox Series X are released; however, the format of new game purchases will likely continue to trend towards digital, according to research firm IBISWorld.
E-books fall while audiobooks climb: E-book sales were down 8.9 percent in October 2019 compared to 2018. While baby boomers continue to be the format’s primary customer base, as e-readers are convenient and their text can be enlarged, Millennial and Gen-Z consumers tend to favor physical books because the vast majority of their media is already consumed via screens.
Audiobook sales increased 15.1 percent in October 2019 compared to 2018, continuing the format’s double-digit growth every year since 2012 when the Association of American Publishers began tracking sales. Part of the success of audiobooks can be attributed to wider availability through digital media. Research firm Management Practice Inc. found that 91.4 percent of audiobook sales in 2018 came from entirely digital formats.
Print books remain top performer: Total print book sales increased in October 2019 by 3.6 percent year-over-year. Physical books accounted for approximately 80 percent of trade/consumer books, led by paperback books, which grew 11.0 percent in October, year-over-year. There was, however, a decline in units, largely attributed to a lack of blockbuster or political books that drove strong sales in 2018. However, bookstores continue to struggle as online sales grow. According to the Census Bureau, sales at all U.S. bookstores declined 5.3 percent for the January through October 2019 period compared to the same period in 2018. This has been a recurring trend of the last few years. According to IBISWorld, the number of bookstores in the United States decreased at an annualized 4.1 percent through 2019. However, indie bookstores saw a strong 2019 holiday shopping season, recording a 25-percent increase in sales between November 1 and December 31 compared to 2018 through the American Booksellers Association’s IndieCommerce and IndieLite e-commerce platforms. As a result, indie bookstores saw only a marginal decrease for 2019, with sales down only 0.31 percent as compared to 2018.
Streaming dominates but Vinyl Sales Rise: Music streaming services continued to dominate the music industry in 2019 as on-demand streams reached over one trillion for the first time, according to Alpha Data. Led by Spotify and Apple Music, the most popular streaming service in the United States, streaming accounted for 84.6 percent of total music consumption in the United States in 2019. As more and more content becomes available to streaming services, it continues to threaten brick-and-mortar music retailers. According to IBISWorld, record store revenue declined by an estimated 9 percent for the five years ending 2019, including a 5.2-percent decline in 2019 alone.
Despite this decline and digital streaming services’ stranglehold on the industry, record stores have seen a savior in vinyl record sales. The Recording Industry Association of America reported $16.8 million in revenue from vinyl record sales in 2019, the highest since 1988, making 2019 vinyl’s 13th consecutive year of growth. Vinyl record sales exceeded 1.24 million units during Christmas week in the United States, the largest sales volume since 1991 when Nielsen Music began tracing such statistics. Moreover, independent record stores account for a large portion of vinyl sales. Indie stores accrued 81.4 percent of all vinyl sales during Record Store Day week in 2019, a national vinyl promotion that includes new and limited pressings of popular artists. On average, vinyl offers higher profit margins for independent record stores as it can be promoted as a premium product. The format is also gaining steam with independent artists as an alternative form of revenue. According to Gold Rush Vinyl, independent artists need an average of over 2.5 million YouTube views or 380,000 Spotify streams to make the same profit level as selling only 200 vinyl records.
Inventory Mix Drives Value: Lenders should be sure that appraisals reflect any recent changes in mix and that discounts are reflective of current inventory categories. As would be expected, current best-selling titles are typically the highest recovering on a gross basis, with older, less mainstream titles requiring steeper discounts to sell through in liquidation. Stock-to-sales balancing and maintaining limits on aged inventory are critical factors to the success of gross recovery values in the books and printed media space.
Note: This publication is provided for informational marketing purposes only. The material contained herein should not be regarded as advice, nor relied upon to make financial, operational or other decisions; nor should it be used as a substitute for an asset appraisal. Actual recovery values may vary from transaction to transaction and the recovery values referenced herein are for representative transactions without regard to specific key factors. This material may be redistributed only in its entirety, including notice of copyright. All rights reserved. ©2020 Gordon Brothers, LLC.
Reference sources: retaildive, venture beat, the washington post, super data, newsroom.publishers.org, vox.com, goodreader.com, forbes, publishers weekly, bookweb.org, ibisworld, digital music news, rolling stone, U.s. Census Bureau, alpha data