June 2, 2023

A gamer uses Sony’s Playstation 5 at his home in Seoul.

Li Yelin | AFP via Getty Images

The video game giant saw sales slump in the second quarter as initial tailwinds from the Covid-19 pandemic receded.

In the three months through June, Microsoft, Sony and Nintendo’s respective gaming businesses all reported disappointing results.

The numbers reflect a broader contraction in consumer spending on video games. Americans spent $12.4 billion on games in the second quarter, down 13 percent from a year earlier, according to market research firm NPD.

Several factors are to blame, not least the easing of pandemic restrictions that have shunned home entertainment options in favor of outdoor activities.

The continued shortage of semiconductor equipment doesn’t help either.

“The growth of the overall gaming market has slowed recently as opportunities for user exits increase [the] As Covid-19 infections recede in key markets, Sony Chief Financial Officer Hiroki Totoki said on the company’s earnings call last month.

Sony reported that sales at its gaming division fell 2% year over year in the June quarter, while operating profit plunged nearly 37%. The company also issued a gloomy outlook, cutting its full-year profit forecast by 16%.

main reason? People are spending less and less time playing games and more time going out.

Total playtime for the PlayStation player base fell 15%, well below the company’s original forecast.

‘Coronavirus effect’ disappears

The Call of Duty producers blamed weaker sales of the latest entry in the popular shooter franchise for the slump.

Ubisoft, the company behind Assassin’s Creed, reported a 10% drop in net bookings.

Michael Pachter, managing director at Wedbush Securities, said the disappointing numbers were largely due to comparisons with an “extraordinary performance” from a year ago. In other words, the company can’t match the massive numbers they’re releasing in 2021.

“During the shelter-in-place period, everyone saw record numbers, with catalog sales leading the way in older titles,” Pachter told CNBC. “It established an impossible comparison, and the year-over-year decline was well-received. , and as expected.”

Electronic Arts was one of the few companies to overcome the shrinking game, with profits up 50% and revenue up 14%.

Console shortage persists

A major factor holding back performance in the gaming world is the constant scramble for critical console hardware.

Nintendo’s operating profit fell 15% in the April-June period. The company behind the Super Mario franchise blamed a global semiconductor shortage for the poor performance, which meant it couldn’t make and sell as many Switch consoles.

Nintendo sold 3.43 million portable Switch consoles in the quarter, down 23% year over year, while software sales fell 8.6% to 41.4 million units.

Sony sold 2.4 million PlayStation 5 consoles in the quarter, up slightly from 2.3 million a year earlier. The company hopes the lifting of lockdown measures in key manufacturing hub Shanghai and a boost from the holiday sales season will help it reach its goal of shipping 18 million PS5 units in 2022.

“The slow rollout of hardware is one of the biggest contributors,” Pachter said. “New hardware buyers tend to buy a lot of software, and PlayStation and Switch sales have been constrained by supply.”

The trend of remote work has also caused delays in new game releases, limiting the number of games people want to buy. For example, Microsoft delayed the release of its highly anticipated sci-fi epic Starfield until early 2023, while Ubisoft delayed the release of games based on the Avatar movie series.

More pain to come?

Soaring prices for everything from natural gas to groceries and fears of a looming recession could spell more trouble for the industry.

According to Ampere Analysis, the global games and services market is expected to contract by 1.2% year-on-year to $188 billion in 2022, the first annual decline in more than a decade.

“The tightening cost of living means increased pressure on household budgets,” Ampere research director Piers Harding-Rolls told CNBC.

“The impact will likely be felt on higher-priced items including console hardware, although limited availability and pent-up demand, especially for high-end consoles, means the impact will be minimal for now.

Harding-Rolls added: “High in-game spending may also face some additional pressure as gamers adjust their discretionary spending.”

Some companies believe the push for subscription offerings will help offset slumping game sales.

According to Microsoft, growth in the company’s Xbox Game Pass membership program has helped cushion the blow from weaker demand for consoles and games. While Microsoft doesn’t provide updated subscriber numbers for the service, it had more than 25 million total subscribers as of January.

Sony recently revamped its PS Plus subscription service in a move it hopes will help deal with the recent lull in gaming activity. According to Sony’s quarterly report, the total number of PS Plus subscribers was 47.3 million, slightly lower than the previous quarter.

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