Games lose strength after pandemic as players return to the real world

Game companies have been hit by weakening sales and engagement in recent months as gamers returned to real-world activities after the pandemic and began cutting spending amid the cost-of-living crisis.

Console makers, video game publishers and game chip makers across the industry reported a drop in demand last quarter, challenging the thesis that gaming is one of the most recession-proof forms of entertainment.

The slowdown comes after the industry saw a surge in demand and bountiful profits during the pandemic, as global lockdowns increased consumers’ appetite for virtual entertainment.

Console makers Sony and Microsoft were harbingers of the games slowdown, recording sales declines in their gaming businesses. Last month, Sony reported a 15% drop in PlayStation engagement year over year.

Last Monday (8), Nvidia, a heavyweight in the production of gaming chips, reported lower second-quarter revenue due to weakness in its gaming business. Gaming revenue in the second quarter was down 44% from the previous quarter and 33% from the year before to $2.04 billion.

Strauss Zelnick, chief executive of Take-Two Interactive, which owns the game GTA, told investors this week that he doesn’t believe “the entertainment business is recession-proof or even necessarily recession-resistant.” On the 8th, the company released forecast sales for the second quarter and full year, which fell short of analysts’ estimates, causing its share price to drop 5%.

“If you’re feeling the pinch of inflation, specifically around non-discretionary spending like fuel and food, you can imagine that if you’re playing games, you can choose to spend a little less or less often,” Zelnick said.

This month, Activision Blizzard, which is currently being acquired by Microsoft for $69 billion (R$ 355 billion), saw a 15% drop in adjusted sales in the second quarter compared to the same period last year, driven by largely due to weaker demand in the console and PC market and a poor response to the latest release of its iconic shooter Call of Duty.

Meanwhile, Electronic Arts, famous for its FIFA franchise, as well as Sims, last week made a revenue forecast for the second quarter that was below analysts’ estimates.

The biggest impact appears to be in the mobile segment of the gaming market, which has been the focus of negotiations in recent years. Take-Two completed a $13 billion acquisition of Zynga earlier this year, while EA bought a 3D mobile gaming company called Glu for $2 billion. 3 billion) last year.

EA said mobile bookings were down 2.5% from the previous quarter, with legacy titles – excluding FIFA Mobile – performing very poorly.

Andrew Wilson, EA’s chief executive, told analysts that the industry faces an “open question”: “In a world where you can get deeply involved without spending, how will we see spending over this period?”

On Wednesday, gaming platform Roblox, creators of Jailbreak and MeepCity, saw its shares drop more than 12% after reporting a 4% drop in net bookings and a slowdown in daily user growth. The company has lost more than 50% of its value since the beginning of the year.

Game development platform Unity, the engine behind more than 70% of mobile games worldwide, lowered its full-year guidance on Wednesday as revenue growth was slower than than previously modeled, and attributed the revision in part to “recently negative macroeconomic factors”.

Disinterest accompanies wave of weak launches

Groups have also been let down by weak game releases — typically the catalyst for astronomical growth numbers — in part because the pandemic has destabilized channels. EA is still reeling from a weak launch of its highly-anticipated Battlefield 2042 game in November, while Take-Two has delayed the release of one of its most significant titles.

“For growth to accelerate in the industry, you need compelling games,” said Neil Campling, an analyst at Mirabaud Equity Research, noting that audiences have become more selective now that they have more diverse entertainment options. “Actually, we’re still waiting for the next blockbuster game.”

The executives gave a positive tone to their medium and long-term prospects, pointing to a steady growth in the number of players around the world.

EA’s Wilson highlighted that an expansion into mobile gaming, regardless of the preference for free-to-play games now, “represents a way for us to access players in markets that our traditional business doesn’t offer”, indicating around 3.5 billion players worldwide. the world.

Zelnick concurred, noting that evidence suggests the next generation of gamers are “more engaged and play more”.

“So I have to believe that interactive entertainment will continue to grow disproportionately to the rest of the audiovisual entertainment business,” I add.

Translated by Luiz Roberto M. Gonçalves