After crazy growth, the video game sector is in trouble

While major video game players have released their financial results for the second quarter of 2022, from April to June, it is clear that the sector is going through a difficult period, with a few exceptions. These difficulties are not the result of chance, but are the result of many factors.

Industry giants hit

Sony, which launched the PlayStation 5 in late 2020, sold 2.4 million units in the quarter, up from 2.3 million in the same period a year earlier. However, the Japanese firm reported a 2% drop in sales for its video game division, while operating profit fell nearly 37%. The company also issued a gloomy outlook, cutting its full-year earnings forecast by 16%.

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The same observation with its great rival Microsoft. The Xbox maker’s total gaming revenue fell 7%, console sales fell 11%, and content and services revenue fell 6%. Nintendo also had a disappointing quarter with a 15% drop in operating profit. The company sold 3.43 million units of its Switch handheld console in the quarter, down 23%, while software sales fell 8.6% to 41.4 million units.

Video game publishers have also been affected. Aside from Electronic Arts, which had a solid quarter with a 50 percent increase in profits, other sector giants struggled. Activision Blizzard, whose takeover by Microsoft announced last January, posted a 70% drop in net profit and a 29% drop in revenue. For its part, Ubisoft recorded a 10% drop in net revenue.

PlayStation 5.

Sony hopes to sell 18 million PlayStation 5s in 2022, with 2.3 million sold in the second quarter. Photo: Hi, I’m Nick / Unsplash

Players come out more

To understand these losses, it is enough just to take into account the period that the world has just gone through. The video game sector has been one of the main beneficiaries of the pandemic, with many people playing while stuck at home. It is logical to assume that the exponential growth in the number of players in this sector in 2020 and 2021 cannot be repeated, as people go out much more and therefore play less.

“Everyone saw record numbers during the lockdown, with catalog sales of older games leading the way. This resulted in an impossible comparison, and the year-over-year decline was well predicted and expected,” Michael Pachter, managing director of Wedbush Securities, told CNBC. Also, you should be aware that 2022 hasn’t been a great year in terms of big releases that have attracted fewer fans. A report from analytics firm NPD says so: Americans spent 13% less in the second quarter of 2022 compared to the same period last year.

The current economic environment with price inflation and a possible recession is also affecting the sector as consumers tend to spend less. “The rising cost of living translates into additional pressure on household budgets. The impact is likely to be felt on high-value products, including consoles, although limited availability and pent-up demand, especially for high-end consoles, means the impact will be minimal at this time,” says Piers Harding. research at Ampere, another market intelligence firm.

Scarcity, imprisonment in China… The video game sector faces many obstacles

These elements are not the only ones that need to be considered in order to explain the loss of companies in the world of video games. The very strict containment in Shanghai that affected supply chains, as well as the shortage of semiconductors, also affected the sector, in particular the activities of Nintendo and Sony.

The only positive thing to keep in mind is that streaming subscriptions haven’t been affected in the same way, such as in the case of Xbox Game Pass offered by Microsoft. Sony also hopes that the reorganization of the PS Plus service will allow it to compensate for the slowdown in video game activity.

Overall, the downturn seen in this sector is likely to continue for some time, but companies are looking to capitalize on the popularity of video game streaming.

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