Gaming giants Nintendo, Microsoft and Sony all reported declining revenues and missed earnings estimates in the past two weeks. Part of the reason, gaming companies say, is a weakened supply chain, still hit by pandemic-related lockdowns and the challenges of delivering consoles to retail stores. Another aspect is that much of the world has now reopened and is not looking to connect online.
“The world is on vacation,” Andrew Wilson, CEO of Electronic Arts, said in an earnings call on Tuesday.
On Monday, video game conglomerate Activision Blizzard reported net sales of $1.64 billion, a $700 million drop in revenue from the same period last year. CEO Bobby Kotick described a “challenging economic environment,” with many companies announcing freezes and layoffs; still, he said, Activision saw a 25% headcount growth compared to the previous year.
The company skipped an earnings call, citing Microsoft’s upcoming nearly $69 billion acquisition. It confirmed in a press release that the deal will still close on June 30 next year, if regulators approve.
While the Call of Duty franchise has seen setbacks, elsewhere in the company King, Activision’s mobile games unit, has thrived. Speaking to The Washington Post, Wedbush analyst Michael Pachter called it a “good quarter,” noting that the company saw mobile growth, especially in King’s in-app purchases. King’s player count stagnated and fell to 240 million, compared to 255 million in the same period last year.
Other titles with planned updates are on track, the company said, including “Call of Duty: Modern Warfare II”, “World of Warcraft: Wrath of the Lich King” and “Overwatch 2”. The company confirmed that “Diablo IV” is still slated for release in 2023. Still, it was revealed days later that a World of Warcraft mobile game co-developed with Chinese studio NetEase had been canceled by Blizzard.
“Much of the world is no longer in lockdown,” said Laine Nooney, assistant professor and historian of video games at New York University. “There’s definitely a sense of global constriction right now. It’s pretty clear that the US – which still accounts for nearly half of all global gaming revenue – is already in a recession. Video games have always been discretionary entertainment. As costs for basic goods such as gasoline and food rise, there is less room in the budget for entertainment.”
There was one bright spot. Electronic Arts reported profits on Tuesday, noting that sales were up 22% this year, compared to the same period last year. A big part of that growth has been EA’s roster of live service titles like “Apex Legends.”
“Electronic Arts was wise to stick with its proven formula of monetizing popular franchises. EA has been able to conquer the sports video game market with FIFA, NFL Madden and the recent addition F1,” said Joost van Dreunen, lecturer on games at the NYU Stern School of Business. “EA proves it is good at monetizing with record sales for FIFA Mobile for the quarter, highest sales for the FIFA franchise and a 40% increase in the daily average player count.”
Supply chain issues with consoles may have impacted the number of consumers who own the latest Xbox and PlayStation products and, consequently, the number of new titles they purchase. Among gaming companies, those with live-service games (like the constantly updated “Apex Legends” or “Candy Crush Saga”) saw microtransactions that boosted their bottom line.
Andrew Wilson, CEO of Electronic Arts, admitted that supply chain constraints were affecting the company, but expressed optimism that console units would be replenished next year.
“As the supply chain starts to ease up, we expect more and more people to pick up that next console,” Wilson said, adding that EA would invest in its sports titles to ensure it would have enough content to entertain gamers for the next eight years. . years of the current generation of consoles.
Nintendo reported operating profit of 101.7 billion yen ($764 million), which was about 13.5 billion yen ($101.4 million) below analyst expectations. Nintendo Switch sales dropped from 4.45 million units in the same period last year to 3.43 million now; Software sales also fell to 41.4 million units, compared to 45.3 million last year. The company attributed the console sales problems to supply chain problems and predicted it would catch up with production in the summer. Nintendo still expected it to sell a total of 21 million console units in the fiscal year ending in April.
As with its Japanese competitor, Sony’s gaming software sales fell about 25%, with sales of 47.1 million PlayStation 4 and 5 titles between April and June, compared to 63.6 million the year before. When asked about inflation and recession in the Western market during an earnings call translated from Japanese, Chief Financial Officer Hiroki Totoki replied that the main problem was meeting demand for consoles when faced with supply chain problems. He also pointed out that Sony released fewer major games this fiscal year than in the same period last year.
“There are two major restrictions imposed on us. One is the availability of parts and components. The other is the supply chain,” Totoki said after repeated questions about the PS5’s delivery issues. “We want to produce as many units as possible.”
Totoki declined to say whether Sony would increase the price of the PlayStation 5. He attributed the decline in game software sales to people who are more likely to leave their homes as the number of Covid-19 infections declines in some key markets. He said the company was still on track to sell a total of 18 million PS5 units in the fiscal year ending May 2023. He said supplies were recovering from a lockdown in Shanghai and scarce semiconductor parts.
Sony completed its acquisition of Bungie and Haven Studios earlier this summer. Totoki cited the earlier-than-expected closure of the Bungie deal, plus a weaker yen, as reasons for cutting projected operating profit from 305 billion yen (about $2.3 million) to 255 billion yen (about $1.9 million). .
Microsoft also reported a $259 million drop in gaming revenue, citing reduced demand for Xbox content and hardware, partially offset by growth in Xbox Game Pass subscriptions.
“Microsoft’s decision to take up subscriptions is timely as the new revenue stream is offsetting broader declines in software and hardware sales,” said Van Dreunen, a games business lecturer. “Subscriptions tend to provide more value to consumers during periods when the economy is weakening and inflation is high. However, it remains to be seen how Game Pass will stack up as rival Sony ramps up its offerings, and a wider range of entertainment services in adjacent categories such as video and music compete for share of the wallet.”
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