Microsoft and Sony released earnings last week that suggest there’s undeniable softness in the sector—at least in the short term—after a pandemic-driven boom over the prior two years. The results mirror recent reports finding a slowdown in video game spending and engagement in the first half of 2022, potentially putting the industry on track for a rare year of contraction.
The recent semi-swoon has Wall Street ever-so-slightly on edge about the industry’s immediate prospects—even if it remains bullish on the long-term outlook.
Xbox parent company Microsoft said Wednesday that its gaming-related revenue declined 7% year-over-year in the most recent quarter, or 5% in constant currency, as hardware sales slowed and gamers spent less time online. By comparison, Microsoft’s gaming revenue rose 6% year-over-year in the prior quarter, or 8% in constant currency.
The results were even more grim Friday evening for PlayStation parent Sony, with the Japanese giant reporting a 12% year-over-year quarterly drop in game and network service revenue and a 31% fall in the unit’s operating income. Sony CFO Hiroki Totoki said that players spent 15% less time on PlayStation products in the quarter compared to the previous year—“a much lower engagement level than we anticipated in our previous forecast.”
Sony shares fell as much as 7% on the Tokyo exchange Monday, though they rebounded to close at a mere 3% dip.
Several other video game companies are scheduled to report earnings over the next 10 days, including Activision Blizzard (Monday after the bell), Electronic Arts (Tuesday), Nintendo (Wednesday), and Take-Two Interactive (Aug. 8).
Video game executives are hopeful the second-quarter stupor stems from an unfortunate confluence of transitory events, including: a post-pandemic return to outside-the-home activities; a dearth of highly-anticipated title releases over the past few months; a pullback in consumer spending due to high inflation rates; and supply chain snags stunting console manufacturing.
Industry analysts, however, expect the doldrums will extend a bit longer.
Ampere Analysis forecasters predicted in early July that global gaming revenue will slip by 1% this year, proving that “the idea that the games market is ‘recession proof’ is a fallacy.”
Mat Piscatella, a video games industry analyst at market research firm NPD, forecasts that U.S. video game spending will fall 9% this year after rising 40% between 2019 and 2021.
“There are many known unknowns when trying to predict what’s next, and a list of unknown unknowns that may be more extensive,” Piscatella wrote. “In the short-term, this means likely declines, uncertainty, and turbulence. While in the long-term, the growth prospects of the video game space remain as strong as they’ve ever been.”
Wall Street and gaming executives agree with Piscatella’s optimism.
The consolidation of industry heavy-hitters should hasten the shift toward cloud-based gaming and Netflix-like subscription services, a potential boon for companies like Microsoft and Sony. And while mobile gaming continues to gobble up market share, there’s plenty of revenue to go around. PwC forecasts that global console game revenue will rise 20% between 2022 and 2026, eventually hitting $42.2 billion, as younger generations keep gravitating toward the space.
“For the mid-to-long-term growth and trends, for now, we don’t have any serious concerns,” Totoki said.
So while players might be pressing pause for now, it’s certainly nothing close to game over for the industry.
Bob Thompson is our inhouse Home and Garden, Energy and Gaming news writer. Bob is keenly aware of the need to recycle. Bob has written for many online publications over the course of his writing career, before joining our team.
