Gaming Industry’s Revenues Declining Due To Constrained Spending After Recent Surge

After a surge in spending on game software, hardware, and peripherals over the previous two years, the video game industry is currently experiencing a severe downturn in growth as consumers start spending money elsewhere again. Furthermore, video game demand has significantly slowed from recent highs, which makes gaming companies wonder if they will be able to survive an economic slump.

For video game producers like Activision Blizzard and Electronic Arts, who are also suffering from supply-chain delays and a shift in customer preferences due to the world’s recovery from recent events, rising pricing and a lack of successful titles have added to their troubles.

One of the most recent examples of this came from the gaming platform Roblox in early August, whose revenue growth slowed to just 30 percent from 83 percent two quarters earlier. 

According to data from analytics company NPD, consumer spending on video games in the United States declined 11 percent in June and is predicted to fall 8.7 percent this year. As opposed to the iGaming industry, which has been consistently growing throughout the world, especially in the United States, as a result of new legislation that regulates the market. Attracted by exclusive bonuses and special promotions, such as the Wildz Casino bonus, players have been turning to iGaming platforms as a new form of online entertainment, as the market recorded a year-on-year growth of over 11 percent.

Analysts and industry executives agree that one key aspect is the easing of the health crisis. A lack of new blockbusters, the situation in Ukraine, and rising prices for necessities were also cited as contributing factors to the slowdown.

According to Jesse Divnich, senior vice president at Interpret, a company that conducts market research for video games, “the job market is still hot, there is plenty of froth on the economy causing aggressive inflation, and the relaxation of recent restrictions are leading consumers to consider spending on more experiences outside of the home”.

Companies report slowdown

While competitors Electronic Arts and Take-Two Interactive issued sales warnings, Activision Blizzard announced a lower-than-anticipated quarterly profit.

Take-Two’s senior executive Strauss Zelnick told reporters, “When you have 50 percent of big bank experts saying we would be in a recession in the next quarter or two, my perspective is: we’re in a recession and we are witnessing some softness”.

Console producers have also suffered as gaming revenue fell for Xbox maker Microsoft, PlayStation maker Sony lowered its projection, while Nintendo reported fewer sales.

For these businesses, who are already dealing with component shortages, the sluggish demand is a double blow. The decline in demand is having a spillover effect on gaming chip manufacturers as well. While Nvidia reported a 19 percent sequential revenue decrease, Advanced Micro Devices reported falling sales of its graphic gaming cards.

However, industry analysts and firm executives anticipate growth above the levels reported two years ago, relying on the release of postponed titles and a reduction in part shortages. The worldwide games market will produce $196.8 billion in 2022, up 2.1 percent from the 7.6 percent increase in 2021, according to data firm Newzoo.

Major companies disagree about slump.

The PlayStation business, according to Sony Group Corp., slowed down this spring. Playtime on the PlayStation 4 and 5 declined 15 percent in the third quarter compared to the same period last year in terms of sales. In defense of itself, Sony pointed out that the global reopening has had an impact on the entire industry.

The challenge for game developers is that although hardware supply and shipping restrictions from the past two years still apply, players’ time spent playing games is decreasing, and new games are being released more slowly than before.

Microsoft Corp. also reported a decline in the sales of content and services for the Xbox division in the most recent quarter. And as expected, Nintendo Co. reported a 23 percent decline in software sales in the US during that time.

The same should have held true for Nintendo’s Europe sales, but it didn’t, if Sony’s explanation for the fall as a result of the reopening and return of daily activities is to be believed.

Nintendo’s software sales in Japan, Europe, and other markets including Oceania and China remained unchanged or slightly up during the third quarter despite the absence of a big release. Game sales for Sony dropped 26 percent.

Nintendo, however, does not believe that people are spending less time gaming, according to comments from analysts who spoke with the firm after its findings. Getting enough consoles on shelves in the US was the only issue.

All three console manufacturers are still having trouble with clogged supply chains and logistics. The majority of the Switch devices weren’t in stores in time for Nintendo to release its financial results, according to analysts who claim that units headed for US shores arrived around the end of Nintendo’s reporting quarter. They claim that this had an impact on US software sales because US gamers frequently purchase many games when purchasing a device.