Mobile gaming is set for strong growth over the next few years, driven by augmented reality and location based gaming, according to a new analysis by Frost & Sullivan.

The research firm expects to see a continued decline in console sales but says this will be offset by growing demand for smartphone supported games and new products such as connected toys.

Marc Einstein, research director for Frost & Sullivan in Japan, explained:

“There will still be significant growth in the mobile gaming market. The recent release of Pokémon Go has provided a proof of concept for augmented reality and location based gaming. The partnership with the game and McDonald’s in Japan also opens the door for new revenue streams for gaming companies.

“There are also many new interesting areas such as connected toys which will further bridge the gap between digital and physical products so we expect continued growth in the gaming market.”

The global market for console hardware and software is expected to slowly decline from $23bn (£17.6bn) in 2015 to $16bn (£12.3bn) in 2020, at a negative compound annual growth rate (CAGR) of 6.6%.

Cris Duy Tran, Frost & Sullivan consulting analyst for digital transformation in the Asia Pacific region, noted that the massive uptake of mobile games has limited prospects for the console market in emerging markets and impacted sales in developed markets.

“Moving forward, console makers will need to continue to explore new areas to drive business in such as augmented and virtual reality,” he added.

Total gaming hardware and software revenues reached $52.3bn (£40.1bn) in 2015, a 12.8% increase from 2014. Global revenues are predicted to increase to $66.2bn (£50.7bn) by the end of 2020 thanks to greater demand in all regions and key markets for ‘toys-to-life’ and smartphone supported games.

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