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Wednesday, Nov. 9, 2022
The holidays won't save the game industry from its terrible year
Video game sales around the world have slumped in 2022, and experts predict that even the holiday shopping season won't rescue the industry from its terrible year.
The pandemic lockdowns powered growth in video games last year and in 2020, as couch-bound gamers searched for a distraction from COVID-19. From 2019 to 2021, the global video game content and services market grew 26%, jumping from $151 billion to $191 billion, according to Ampere Analysis.
That growth cooled in 2022, as the pandemic eased and the economy faltered. Microsoft (MSFT), Sony (SONY), EA (EA), and Take-Two (TTWO) each saw year-over-year sales declines. Nintendo (NTDOY) says it expects to sell 2 million fewer Switch consoles this year due to continued chip shortages, though it raised its sales forecast thanks to the weaker Japanese yen. Even mobile gaming sales are declining, with NPD Group predicting a 9% drop in the third quarter of 2023 from the same time a year earlier.
While the holiday season traditionally brings huge game sales, experts predict a muted fourth quarter thanks to a lack of new, exciting content. We'd usually see hot titles for the holidays, but pandemic-related delays have pushed many games into 2023. Yes, the pandemic has eased enough to get people off of their couches — but it's still throwing snags in the supply chain. Those disruptions could strike a blow to an industry that's already suffering from year-over-year comparisons to its pandemic-driven highs in 2021.
“This holiday season is set up to be a natural let-down just from a quantity perspective,” Jefferies analyst Andrew Uerkwitz told Yahoo Finance. “If you look at the number of games last year to this year, it's actually down. There's been over 100 games delayed over the last 24 months. And that's publicly announced delays.”
Few games, but plenty of eager gamers
Game companies traditionally release their biggest titles in the lead-up to the holidays to get their hits out during the busiest shopping season of the year.
Last year, the gaming giants fired off a host of big-name titles including “Halo Infinite,” “Battlefield 2042,” “Metroid Dread,” and “Call of Duty Vanguard” to name a few. While “Battlefield” and “Call of Duty” underperformed expectations, the titles were still among the best performing of the year in terms of U.S. sales. This year will be different.
“As it happens, this holiday season we don't have a very big release schedule,” Wedbush analyst Michael Pachter told Yahoo Finance. “There is no ‘Cyberpunk.’ There is no ‘Battlefield.’ We have the games that come out every year, which are ‘FIFA’ and ‘Call of Duty.’ ”
“God of War Ragnarok” and “The Callisto Protocol,” two highly anticipated games that launch Wednesday and in December, respectively, could help improve sales, but there’s no guarantee that they’ll lift the entire industry.
To be sure, people are still looking for games to play. Activision Blizzard’s “Call of Duty Modern Warfare II,” which came out in October, sold $1 billion worth of copies in its first 10 days on the market. Over at EA, some 10.3 million players jumped onto “FIFA 23” in the game’s first week of availability in September.
Even so, EA cut its full-year net bookings forecast on the strong U.S. dollar, which is hurting overseas sales, from between $7.89 billion and $8.1 billion to between $7.65 billion and $7.85 billion.
Gamers will have to wait until next year to get their hands on new titles. According to Uerkwitz, more than 100 games that were initially scheduled to be released in time for the holiday season are delayed until sometime in 2023 either due to quality checks or because of COVID-related slowdowns.
“And that's publicly announced delays,” Uerkwitz explained. “That's not games that quietly got delayed internally or whatnot. And so just a lack of quantity of high-profile AAA games I think has been a large part of the year-over-year decline in PC and console.”
Then there’s the drop in mobile games sales. According to SensorTower, mobile game spending dropped 6% year-over-year to $21.1 billion in Q1 2022 and 6.9% year-over-year in Q2 to $20.1 billion.
“The reason that 2022 will be down overall, isn't necessarily that consoles and PCs have had a rough year, although they had, it's because mobile gaming appears to be on track to drop 6% or 8%,” Lewis Ward, IDC research director of gaming, eSports and VR/AR, told Yahoo Finance. “If that happens, even if consoles and PCs had a great year, we could probably still be down year over year.”
That doesn’t mean that the holiday season will be a complete bust. According to Pachter, if there is a year-over-year decline in sales, it will likely be somewhere in the 1% to 2% range. That said, even a small decline means that the overall downward sales trend for the year won’t change.
A brighter 2023
While the holiday season could be a let-down for the gaming industry, the year ahead should offer some relief despite high inflation and foreign exchange headwinds. That's because a large number of big-name games are expected to hit the market in 2023.
“Assuming recessionary concerns dissipate, and inflation gets back under a reasonable level of control or back to a baseline norm of low single digits in 2023, the baseline that the gaming industry was on before COVID will probably reassert itself,” Ward explained.
High-profile games set to launch in 2023 include Nintendo’s “Legend of Zelda: Tears of the Kingdom,” Ubisoft’s “Skull and Bones,” Activision Blizzard’s “Diablo 4,” Bethesda’s “Starfield,” and a slew of others.
Those titles alone will likely sell millions of units. Toss in annual releases like “Madden” and gamers dropping their cash on online games like “Call of Duty: Warzone 2.0,” and 2023 will look far better than gaming’s terrible 2022.