Games: Exhaustion after decades of growth – the market has reached its ceiling – economic article

Sales growth in consoles and mobile apps has taken a hit as a “gloomy” mood spreads across the $200 billion video game sector, according to the Financial Times.

Nintendo Switch console sales – new target of 15.5 million units

The $200 billion video game industry is facing its biggest downturn in 30 years, as explosive growth fueled by smartphone gaming and the latest generation of consoles reaches its limits.

Hardware sales are slowing, with Sony lowering its PlayStation 5 sales forecast this week. Consumer spending on mobile games fell 2% last year to $107.3 billion, according to Data.ai, which expects low-single-digit growth in 2024.

Crisis period

The sense of crisis in the gaming sector stands in stark contrast to the growth achieved during the COVID-19 pandemic, which has allowed many isolated consumers to spend their excess time and money on games. That peak was the culmination of a winning streak for the digital entertainment business that began with the original PlayStation in the mid-1990s, and was further accelerated by Apple's iPhone.

Many in the gaming industry expected a quick rebound from the economic downturn in 2022 in the wake of the pandemic, but last year did not deliver the growth they had initially hoped for.

The latest quarterly numbers from some of the biggest publishers, including Electronic Arts and Take Two, have attracted investors. Meanwhile, game developers have been forced to cut thousands of additional jobs this year after already cutting up to 10,000 jobs in 2023.

“There are a lot of business concerns: about growth, profitability, keeping budgets under control, the market impact when there are so many products in place,” said Piers Harding-Rolls, director of gaming research at Ampere Analysis, a procurement researcher. “We are in an era of much slower growth.”

Fewer new players

The concern surrounds the lack of new gaming consoles being sold to expand the market. Growth has slowed from the latest generation of PlayStation and Xbox consoles released in 2020, and a global decline in smartphone sales means there are fewer new players coming online in what has become the most lucrative part of the industry in recent years, according to the Financial Times. .

After the PlayStation 5 surpassed 50 million units in December, Hiroki Totoki, Sony Group president and interim head of the console, said this week that it was “entering the second half of the console cycle.” . . Hence, we expect a gradual decline in unit sales from next financial year onwards.

The PS5's heavy discount in 2023 has already contributed to what Totoki described as a “significant” decline in Sony's gaming operating profits. He warned that Sony “is not planning to launch any new major franchise games” in the fiscal year that begins in April, depriving it of any support from big-budget games like Spider-Man or God of War.

Microsoft, whose Xbox consoles fell by a third behind Nintendo and Sony, said this week that it is trying to sell more of its own games on rival consoles as it tries to tap new sources of growth in an increasingly saturated market, after pushing 75%. $1 billion to buy Activision Blizzard last year.

The widely anticipated release of Nintendo's new console later this year can only accelerate the decline in PlayStation and Xbox sales as gamers save up for the next new thing.

“There is a specific console problem in the gaming industry: no one is buying Xbox, the PS5 has reached its peak at the expense of deep discounts and everyone is waiting for Switch 2.0,” said Gareth Sutcliffe of Enders Analysis. “Consoles have proven that they are not only a model for growth in gaming, but they are hitting a very clear number.”

Phil Spencer, head of Microsoft Gaming, pointed to a recent report by writer and technology investor Matthew Ball that showed the gaming industry grew less than 1% last year.

“That's slower than inflation, slower than most GDP growth, which means that matters [του gaming] It decreased last year compared to what happened in other categories [ψυχαγωγίας]Spencer stated.

New sources of growth and a double-edged sword of lower prices

He added that the sector's “key opportunity” is to find new sources of growth among gamers who can't afford a $500 console or a $70 gaming bundle. “How do we bring games to people who can't play today?” Spencer said. “I think we need to focus on this industry,” he added, according to the Financial Times.

Reducing prices is a double-edged sword. The massive popularity of free online games like Fortnite and Roblox is eating up hours of gameplay previously spent on $70 games. The strong influences of multiplayer games like Call of Duty also make it difficult for newcomers to succeed. “Thousands of titles are published every month, and the success rate is very low,” he said.

The high cost of developing blockbuster games has also increased the risks. “When you're talking about a $100 million-plus budget, even for a large company, if you lose on two or three of them, you're commercially vulnerable,” Harding-Rolls said.

This has led to a Hollywood-style reliance on reboots of the same big franchises from Sony, Microsoft, Electronic Arts and other major gaming companies. Meanwhile, entertainment giants are showing renewed interest in gaming, adding new competition for existing players in an increasingly shrinking market.

Disney invested $1.5 billion in Fortnite creator Epic Games this month to create what studio head Bob Iger described as a “huge Disney universe that will be dedicated to games and play,” while Netflix is ​​also expanding its gaming offerings.

“Just like we get our IP from our movies and TV, this is a great way to do that in games,” Iger told analysts after the Epic deal was announced, pointing to demographic trends that have shown younger consumers are spending a lot of time on games. Just like they do on TV and movies.

“My conclusion is that we have to be there, and we have to be there as soon as possible and in a very exciting way.”