Analysis from SuperData CEO, Joost van Dreunen, follows:

  • Legacy publishers beat market estimates with digital success
  • Mobile marketing around grows up, gets noticed
  • Valve doubles down on user-generated content
  • Heroes of the Storm is ready for prime time with 9 million users

Digital games reached $1.1 billion in sales in the month of January, driven by strong tailwinds of the end-of-year rush. Downloadable content on PC and consoles continued the market’s momentum, totaling $372 million in sales, up 18 percent from January a year ago. Capcom earned itself an important success with Resident Evil HD Remaster coming in third as top-selling full game download on console.

Legacy publishers beat market estimates with digital success
Digital revenue reigned supreme among legacy publishers during this quarter’s earnings calls. Electronic Arts reported $693 million in digital revenues over the last quarter, more than 25 percent above financial analyst expectations. Similarly, Activision benefited from a powerful digital combo of Call of Duty: Advanced Warfare, the release of its Warlords of Draenor expansion and a reported 16 million registered users for Destiny. Finally, Take-Two reported a 64 percent increase in net revenue from digital content to $217 million as earnings from virtual currency sales, DLC and online games grew.

Mobile marketing around grows up, gets noticed
Digital marketing in mobile games is growing up. The combination of a lower than expected cost-per-install around the holiday season and not one, but three titles advertising during the SuperBowl are signs that the industry has changed from a year ago. The combined spending of Ucool ($2.25 million), Machine Zone ($4.5 million) and Supercell ($9 million) on their ads triggered a flurry of buzz both in the industry and among consumers. Following a record $405 million in mobile game spending in December, the segment slightly declined in January.

Valve doubles down on user-generated content
Valve launches the Steam Inventory Service beta and expands Steam Workshop. Steam Inventory Service will help developers create virtual items that can be unlocked or purchased and can then be sold or traded in the Steam Marketplace. Virtual items form the bulk of downloadable content revenue for digital PC, which earned $94 million in January and grew by 13% year-over-year. Steam has also expanded the Steam Workshop, a tool for user-generated content (UGC), to include third-party games Chivalry: Medieval Warfare and Dungeon Defenders: Eternity. Since its 2011 debut, 1,500 Steam Workshop contributors have earned $57 million by selling virtual items for Valve titles like Dota 2 and Counter-Strike: Global Offensive. Moreover, MMOs like Everquest Next, City of Heroes and Star Trek Online have since adopted similar UGC tools and markets.

Heroes of the Storm is ready for prime time
After a month of beta testing, Activision/Blizzard’s Heroes of the Storm has garnered 9 million players, positioning it to become the second or third highest grossing game of its kind at launch. The upcoming free-to-play title resembles MOBAs like League of Legends and DotA 2, and could debut with estimated monthly revenues between $5 and $10 million. While the publisher’s subscription-based World of Warcraft is still going strong with 10 million current subscribers, the decision to launch another free-to-play title suggests even Blizzard is reluctant to pursue paid subscribers anymore. Free-to-play MMOs in the US grossed $137.2 million this January, a 13 percent increase from the same time last year. On the other hand, MMOs with paid subscriptions remain stagnant with only $53 million in US.

[a]listdaily Analysis
The relentless march of digital revenue shows up clearly, as EA transitions to making more money from digital than retail, and Activision looks poised to make that transition sometime this year. TakeTwo is behind the curve, but no doubt they’ll get there eventually as well. It’s still going to be a difficult transition to navigate for these traditional publisher, as van Dreunen points out in his open letter to EA’s CFO Blake Jorgenson.

While traditional publishers will still work hard to maintain good relations with traditional retailers, they will be aggressively pushing the digital part of their business. It just makes good sense, as Activision’s success with Heroes of the Storm shows very well. That title also shows the power of a well-established brand and IP, as the characters in Heroes of the Storm are popular because of Blizzard’s long history and huge audience. While the game is certainly a good one, it’s also much farther along than it would be if all of the characters in the game were brand-new ones. The popularity of Blizzard’s IP and characters from Warcraft and Starcraft and Diablo are paying off for the company in a big way. That’s one advantage that EA lacks, since the company’s longest-running franchises are either based on licenses (like Madden and FIFA) or they aren’t really character-based (Battlefield hasn’t developed iconic characters).