Game giants took a beating this week — but there's still hope

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Wednesday, Aug. 3, 2022

The gaming industry is slumping, but it will come back strong

The video game industry is taking a beating. Revenue is down, sales are slowing, and gamers aren’t playing as often as they did during the pandemic.

According to the NPD Group, U.S. consumer spending on video games in the second quarter took a nosedive compared to the same period in 2021, dropping 13% to $12.35 billion. Overall content spending? That also fell by 13% to $10.97 billion.

And those drops are starting to show up in gaming companies’ earnings reports. Microsoft (MSFT), Nintendo (NTDOY), Sony (SONY), and Activision Blizzard (ATVI) each reported a drop in game sales and user engagement in the latest quarter.

“There are a combination of factors at work here which, together, are pushing the market into decline this year,” Ampere Analysis senior analyst Louise Shorthouse told Yahoo Finance.

Those factors include everything from a lack of hot, new games to persistent inflation that's forcing some gamers to choose between paying for pricey gaming PCs and consoles or covering their regular bills. The ongoing chip shortage isn’t helping, either. Supply is still far too low compared to demand, with stores selling out as soon as new units are in stock.

Gaming companies are also pulling out of Russia, the 10th largest global market, due to the war in Ukraine — further dinging gaming industry revenue, Shorthouse explained. Meanwhile, gamers want to get out into the real world after two years of lockdowns. This all comes as the industry heads into a holiday season that, while set for some hits, is unlikely to make up for the rest of the year.

But the industry slowdown is unlikely to last long. Next year, we're slated to see a number of highly anticipated games — and hopefully, more consoles available to buy if the chip shortage eases.

Gamers have more to do and fewer must-have games…for now

The past few years of games releases have been especially strong across the industry. In 2020 we saw titles like “Call of Duty Warzone,” “Ghost of Tsushima,” “Assassin’s Creed Valhalla,” and “Animal Crossing: New Horizons” that helped power sales when gamers had little else to do but plop down on the couch.

The same was true in 2021, when “Resident Evil Village,” “Marvel’s Spider-Man: Miles Morales,” “Metroid Dread,” “Halo Infinite,” and “Monster Hunter Rise” landed on consoles and PCs.

But 2022 has seen far fewer blockbusters, aside from “Elden Ring,” “Horizon: Forbidden West,” and “Pokemon Arceus.” Gamers are also playing less often than they were at the height of the pandemic. According to Activision Blizzard, the number of monthly active users for Activision’s games, which include the “Call of Duty” franchise, has fallen from 127 million in the June quarter in 2021 to 94 million in Q2 2022.

The company’s year-over-year bookings — a measure of sales that doesn't include deferred income from the prior quarter — declined 14% year-over-year.

Nintendo saw console unit sales drop 23% year-over-year, while software unit sales fell 8.6%.

“So many people are going back to other habits they had before the pandemic, getting out doing social public things,” explained IDC research director for gaming and VR/AR Lewis Ward. “Now we're getting two other issues, which is inflation — which constrains how much disposable income people have to spend on things like games — and then reactions by gaming companies to curtail their outlays or maybe even lay off people in preparation or concern about a potential recession."

To be sure, I'm still expecting a handful of exciting games at the end of 2022, including “Gotham Knights,” “Bayonetta 3,” “God of War Ragnarok,” and “Overwatch 2.”

But those releases alone probably won't boost spending to levels we saw in 2020 and 2021. According to Ward, worldwide total software and services spending across mobile, console and PC sales rose 10% in 2021 to $194.5 billion. In 2022, though, that number is expected to fall 1% to $193 billion.

That’s a shocking drop considering the 20% to 40% jump in gaming numbers and spending on games we saw in 2020. But next year offers some hope for the gaming industry.

2023 should be a better year

Growth is largely expected to return in 2023, Shorthouse explained. “The outlook remains positive,” she said.

Ward offered a similar take on the year ahead, saying the gaming business should rebound by roughly 4% in 2023 to $201.5 billion in sales.

It doesn’t hurt that 2023 is already looking up for game releases. Bethesda’s highly anticipated “Starfield” will likely land next year, as will the sequel to “The Legend of Zelda: Breath of the Wild.” Both titles were initially set to launch this year, but were delayed until 2023. Other upcoming titles include “Diablo IV,” “Redfall,” and “Suicide Squad: Kill the Justice League.”

Broader economic issues will also likely ease in 2023. The Fed has moved to stanch inflation by raising interest rates, and that could be helpful as long as it doesn't trigger a recession. And while global supply chain disruptions and the chip shortage have made buying a new console difficult, that should become easier in 2023 as the bottlenecks subside.

While it's unlikely the gaming industry will return to pandemic-era growth, the market could look get back to normal levels of expansion by next year. Now if you’ll excuse me, I’ve got to get back on “Warzone” so I can accuse 12-year-olds of cheating after they beat me. I’ll see you online.

By Daniel Howley, tech editor at Yahoo Finance. Follow him @DanielHowley

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