Videogame sales have been slumping at an alarming rate lately after two solid years when the industry saw sales reaching dizzying heights, thanks to the pandemic. However, videogame makers are now struggling as people once again have more entertainment options, with the economy having fully reopened.
Videogame sales decreased both in the first half and second quarter of 2022, according to market research company NPD, as players significantly reduced their purchases of consoles and gaming peripherals. Soaring prices have been a major threat to the industry as people are aggressively cutting down their spending on discretionary items and cautiously buying necessities. Besides, there are several other challenges that are plaguing the industry.
Videogame Sales Declining
Videogame sales in the United States have been on the decline since the beginning of the year. The scene, however, changed drastically, with the picture remaining completely opposite over the past couple of years. According to a report from the NPD, videogame sales declined by 1.78 billion in the second quarter of 2022.
Total spending on video games in the second quarter was a meager $12.35 billion, marking a decline of 13% year over year. There are several factors that have been posing challenges for the videogame industry, the biggest right now being soaring commodity prices.
Inflation is clearly a factor in this revenue decline, and cautious spending has resulted in people spending less on luxuries.
People spent more time indoors during the COVID-19 pandemic, which led to a massive jump in sales of video games. As a result, between 2019 and 2021, the gaming business gained 26%, reaching record-high revenues of $191 billion. Sales were already up from 2015, and the pandemic provided a further boost.
Since the start of this year, things have changed. Experts had predicted that the industry would see a sharp decline in sales once consumers find more options for outdoor recreation following the economic reopening. However, that didn’t happen immediately, as sales surged and were even higher in 2021 as several popular titles and consoles were launched during this period.
Videogame Makers Struggling
Of the several reasons that have resulted in videogame sales plummeting in 2022, the major is a dearth of new titles and consoles. In fact, videogame makers also have been complaining of a decline in revenues as a result of this halt in sales rally.
Last month, both Microsoft Corporation MSFT and Sony Corporation SONY reported a decline in their gaming revenues during their earnings call. Nearly all major videogame developers are delaying the introduction of new consoles or titles, and reported a sharp decrease in sales in the second quarter.
Last month, MSFT said that its gaming unit’s revenues fell 7% on a year-over-year basis in second-quarter 2022. Xbox console sales dropped a whopping 11% year over year during this period. Microsoft also said that its content and service revenues declined 6% in the second quarter. Microsoft carries a Zacks #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
SONY’s performance at its videogame unit, too, has been dismal. SONY said last month that its gaming revenues declined 2% year over year in the second quarter, while Sony Corporation’s operating profit dropped 37%. Sony also downwardly revised its profit forecast by 16%.
Nintendo NTDOY, one of the top performers in console sales during the peak of the pandemic, saw its operating profit decline by 15% in the second quarter of 2022. Only 3.43 million Switch portable consoles were sold by NTDOY during this period, a 23% decline from the previous year. Additionally, Nintendo’s software sales declined 8.6% on a year-over-year basis in the second quarter to 41.4 million.
The scene at Activision Blizzard ATVI was even worse. ATVI, which is being acquired by Microsoft Corporation, reported a decline of 70% in net profit. Activision Blizzard’s sales plunged 29% in the second quarter. ATVI attributed the decline to a drop in sales of the most recent installment of its popular title Call of Duty.
Other factors are also hampering sales. A shortage in semiconductor supply has been plaguing the production of videogames, which is directly impacting revenues. Gamers have also been facing difficulty finding new consoles in physical stores and online due to logistical problems as well as a shortage of gaming components and semiconductors.
Moreover, gamers’ interest is dwindling because there haven’t been any major launches in a while, and the dry period will continue for some time. The most-played games in the second quarter were primarily classics. This is one of the reasons why businesses like Sony, Microsoft, and Nintendo witnessed a decline in second-quarter sales.
Performance in the gaming sector is also being hampered by the ongoing rivalry for crucial platform hardware.
In the second quarter, sales of Nintendo’s portable Switch device fell 23% year over year. Sales of the Sony PlayStation 5 console totaled 2.4 million between April and June, marking a slight increase over 2.3 million units sold during the same time in 2021.
A report from Ampere Analysis predicts the global gaming business to shrink 1.2% this year to $188 billion. This will be the gaming industry’s first annual decline since 2012.
However, the industry still has a lot of potential. As more games and platforms are expected to be released in the second half of the year, sales will certainly rise.
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