A gamer plays on Sony’s Playstation 5 console at his home in Seoul.
Yelim Lee | AFP via Getty Images
The giants of the video game world saw their sales slip in the second quarter as the initial tailwind from the Covid pandemic subsided.
In the three months ending in June, Microsoft, Sony and Nintendo each posted disappointing results in their respective gaming businesses.
The figures reflect a broader decline in consumer spending on video games. Americans spent $12.4 billion on games in the second quarter, according to market research firm NPD, down 13% year-over-year.
Several factors are to blame, not least the easing of pandemic restrictions, with people eschewing home entertainment options in favor of outdoor activities.
The ongoing shortage of semiconductor equipment hasn’t helped either.
“Growth in the overall gaming market has recently slowed as the opportunities for users to get out of the home have increased as Covid-19 infections have subsided in key markets,” Hiroki Totoki, Sony’s chief financial officer, said of the company’s earnings. call last month.
Sony reported a 2% decline in year-over-year sales of its gaming unit in the June quarter, while operating profit fell nearly 37%. The company also issued a gloomy outlook, cutting its profit expectations for the year by 16%.
The main reason? People spend less time playing games and more time going out.
Overall playtime among the PlayStation player base fell by 15%, much lower than the company originally expected.
‘Covid effect’ disappears
Gaming was one of the big beneficiaries of the Covid pandemic, with publishers seeing strong growth as consumers spent more time indoors. This may interest you : The biggest new video games coming out the week of 7/25/22 • AIPT.
But with consumer spending habits shifting post-lockdown and inflation heating up, the industry is taking a hit.
At Microsoft, total gaming revenue fell 7% year-over-year. Sales of the company’s Xbox consoles fell 11%, while revenue from game content and services fell 6%.
The decline was “driven by lower engagement hours and monetization in third-party and first-party content,” Microsoft CFO Amy Hood said on the company’s earnings call last week.
Activision Blizzard, the embattled game publisher being acquired by Microsoft, reported a 70% drop in net profit and a 29% drop in revenue.
The Call of Duty maker blamed the decline on weak sales of the latest title in the popular shooter series.
Ubisoft, the company behind Assassin’s Creed, had a 10% drop in net bookings.
Michael Pachter, managing director at Wedbush Securities, said the disappointing numbers were largely driven by comparisons with “outsized results” a year ago. In other words, companies couldn’t match the wildly high numbers they posted in 2021.
“Everyone saw record numbers under shelter at the venue, with catalog sales of older titles leading the way,” Pachter told CNBC. “It made for an impossible comparison, and the year-over-year decline was well-telegraphed and was expected.”
Electronic Arts was one of the rare companies that defied the gaming contraction, posting a 50% increase in profits and 14% revenue growth.
Console shortage lingers
A major factor hampering performance in the gaming world is the ongoing battle for key console hardware. To see also : 2022 NBA Mock Draft: Jabari Smith to Magic, Chet Holmgren to Thunder.
Nintendo experienced a 15% drop in operating profit in the April-June period. The company behind the Super Mario franchise blamed the weak performance on the global semiconductor shortage, which meant it was unable to produce and sell as many Switch consoles as it wanted.
Nintendo sold 3.43 million units of its portable Switch console in the quarter, down 23% from a year earlier, while software sales fell 8.6% to 41.4 million units.
Sony sold 2.4 million PlayStation 5 consoles in the quarter, slightly higher than the 2.3 million units sold in the same period a year ago. The firm hopes that a lifting of lockdown measures in key manufacturing hub Shanghai and a sales boost during the Christmas season will help it meet its target of shipping 18 million PS5 units by 2022.
“The slow rollout of hardware is one of the biggest contributors,” Pachter said. “New hardware buyers tend to buy a lot of software, and PlayStation and Switch sales have been limited.”
The telecommuting trend has also caused delays for new game releases, limiting the pool of games people want to buy. Microsoft, for example, delayed the release of its long-awaited sci-fi epic Starfield until early 2023, while Ubisoft pushed back the launch of a game based on the Avatar film franchise.
More pain to come?
Rising prices for everything from gas to groceries and fears of an impending recession could spell further trouble for the sector. Read also : SDCC: Matthew Lillard Not Interested In Making More Video Games Until Actors Are Paid Better.
The global games and services market is expected to decline 1.2% year-on-year to $188 billion in 2022, the first annual decline in over a decade, according to data from Ampere Analysis.
“Cost of living pressures are putting extra pressure on household budgets,” Piers Harding-Rolls, director of research at Ampere, told CNBC.
“The impact is likely to be felt on high-ticket items, which could include console hardware, although limited availability and pent-up demand, particularly for the high-end consoles, means the impact will be minimal at this time.
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Harding-Rolls added: “There may also be some additional pressure on high in-game spending as players adjust their discretionary spending.”
Some companies are betting that a push toward subscription products will help counter the effect of declining game sales.
According to Microsoft, growth in the company’s Xbox Game Pass membership plan helped cushion the blow of softer demand for consoles and games. Although Microsoft did not provide an updated subscriber number for the service, it had over 25 million total subscribers as of January.
Sony recently revamped its PS Plus subscription service and hopes the move will help combat the recent slowdown in gaming activity. PS Plus subscribers totaled 47.3 million, according to Sony’s quarterly report, down slightly from the previous quarter.
