Gaming shrinks post-pandemic as players return to the real world

Gaming companies have been hit by weaker sales and engagement in recent months as gamers returned to live activities post-pandemic and began to cut spending amid the cost of gaming crisis. life.

Console producers, video game publishers and game chipmakers across the industry have reported a drop in demand over the past quarter, challenging the belief that gaming is one of the of the most recession-proof forms of entertainment.

The slowdown comes after the sector saw a surge in demand and windfall profits during the pandemic, as global shutdowns spiked consumer appetite for virtual entertainment and which, in turn, saw trading rise sharply within the industry.

Console makers Sony and Microsoft led the way in a slowdown in gaming, seeing sales declines in their gaming businesses. Last month, Sony reported a 15% drop in PlayStation engagement year over year.

On Monday, Nvidia, which is a heavyweight in the production of gaming chips, reported lower second-quarter revenue due to weakness in its gaming business. Second-quarter gaming revenue fell 44% from the prior quarter and 33% from a year earlier to $2.04 billion.

Strauss Zelnick, CEO of Take-Two Interactive, the company behind Grand Theft Auto, told investors this week that he doesn’t believe the “entertainment industry is recession proof or even necessarily recession proof.” On Monday, it released second-quarter and full-year sales guidance that fell short of analysts’ estimates, sending its share price down 5%.

“If you’re feeling the pinch of inflation, especially when it comes to non-discretionary spending like fuel and food, you can imagine that if you’re playing a game you might choose to spend a little less or spend a little less frequently,” Zelnick says.

This month, Activision Blizzard, which is currently being acquired by Microsoft for $69 billion, posted a 15% decline in second-quarter adjusted sales compared to the same period last year, largely due weaker demand in the console and PC market. and a bad response to the latest version of his iconic Call of Duty shooting game.

Meanwhile, Electronic Arts, famous for its Fifa franchise as well as simslast week gave a revenue forecast for the second quarter that missed analysts’ estimates.

As restrictions have eased, the pandemic-fueled gambling boom has faded. But it comes amid tough economic times, with consumers around the world looking to cut discretionary spending in the face of rising inflation.

The biggest impact appears to be on the mobile segment of the gaming market, which has been transacted in recent years. Take-Two completed a $13 billion acquisition of Zynga earlier this year, while EA bought a 3D mobile games company called Glu for $2 billion last year.

EA said mobile bookings were down 2.5% from the prior quarter, with legacy titles – excluding Fifa-Mobile – performing quite badly.

Andrew Wilson, chief executive of EA, told analysts there was an “open question” facing the industry: “In a world where you can engage deeply without spending, how will we see spending during this period ?”

Chart showing that global consumer spending on mobile games has fallen this year.  Estimated spending (in billions of euros) for Google Play and the App Store for the first quarter of the year in 2021 and 2022. The figures show a drop of minus 14.8% in spending for Google Play and a drop of minus 0.81% for the App Store.

Wednesday, the Roblox game creation platform, behind Jailbreak and MeepCity, saw its shares fall more than 12% after reporting a 4% decline in net bookings and slowing daily user growth. The company has lost more than 50% of its value since the beginning of the year.

Roblox chief executive David Baszucki, however, refuted the impact of slower gameplay on the company’s bottom line, saying it was more of a ‘future human experience platform’. than a game company and adding “we’ve been through these cycles before, and we’ve been relatively immune to them.

Game development platform Unity, which powers more than 70% of mobile games worldwide, lowered its full-year guidance on Wednesday due to slower-than-expected revenue growth. previously modeled, and attributed the revision in part to “recent negative macroeconomic factors”.

The groups have also been disappointed by weak game releases – normally the catalyst for stellar growth numbers – in part because the pandemic has disrupted pipelines. EA still suffers from low output of highly anticipated sound Battlefield 2042 game in November, while Take-Two pushed back one of its most important title releases.

Activision Blizzard also struggled after its flagship title Call of Duty received a lackluster reception late last year, which he attributed to the choice of a World War II setting that did not resonate with his audience.

“For growth to accelerate in the industry, you need compelling games,” said Neil Campling, an analyst at Mirabaud Equity Research, noting that audiences have become more selective now that they have more option. variety of leisure activities. “In reality, we’re still waiting for the next must-have hit game.”

Patrick O’Luanaigh, managing director of NDreams, a virtual reality publisher, acknowledged that there has been a “marked slowdown in large releases”, adding: “It’s relatively rare, which is frustrating for some people” .

Graph showing that the global games market is expected to continue to inflate.  The figures show the global games market forecast (in billions of dollars) and the forecast of world gamers (in billions) for 2020 to 2022 and the year 2025.

Nonetheless, the executives sounded positive about their medium to long-term outlook, indicating steady growth in the number of players worldwide.

EA’s Wilson pointed out how an expansion into mobile gaming, whether or not they opt for free games right now, “represents a way for us to access gamers in markets that our traditional business hasn’t. not”, indicating approximately 3.5 billion players worldwide. .

Zelnick agreed, noting that evidence suggests the next generation of gamers are “more engaged and playing more.”

“So I have to believe that interactive entertainment will continue to grow disproportionately to the rest of the AV entertainment business,” he added.

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