The video game industry has a hangover from COVID

The video game industry has a hangover from COVID

The video game industry is suffering from a COVID hangover that even a bottle of Pedialyte and a bacon, egg and cheese can’t fix. After explosive growth throughout the pandemic, game sales are finally plummeting back to Earth.

Both Microsoft ( MSFT ) and Sony ( SONY ), two of the world’s leading gaming companies, revealed this week that their gaming divisions experienced a year-over-year drop in revenue as rising inflation affects the industry. It’s not just hardware and gaming sales that are taking a hit.

Players are also spending less time playing than last year. Both Microsoft and Sony reported lower engagement with their respective online gaming services, Xbox Live and PlayStation Plus.

The likely reason? People around the world are venturing outside again as pandemic fears subside.

Sony’s PlayStation 5 is still hard to come by. (Photo by Philip FONG/AFP) (Photo by PHILIP FONG/AFP via Getty Images)

How bad is gout? According to NDP, June US spending on gaming hardware, content and accessories sank 11% year-over-year to $4.3 billion. Still, that’s far more than pre-pandemic levels, where NDP said U.S. spending in June rose to $959 million in 2019.

The gaming industry is certainly not dying. But after such massive growth during the pandemic, it now faces a return to normalcy that could hurt.

Gamers don’t buy as many games

In their latest quarters, Microsoft and Sony reported declines in game software sales from 2021. Microsoft said revenue from content and services fell 6% year over year due to lower share and monetization of game titles. third parties and first party.

The company does not break out specific figures between game and hardware sales, but said its more personal computing segment, which includes Xbox-related sales as well as Windows sales and advertising revenue, fell 2% year-on-year to 14.4 billion dollars.

Sony, meanwhile, reported a 13 percent year-on-year drop in software revenue from 346 billion yen ($2.6 billion) to 302 billion yen ($2.3 billion). Game unit sales fell 26% year over year, from 63.6 million units to 47.1 million units.

The story continues

Like Microsoft, Sony blamed the slowdown on a decline in third-party and in-house game titles. The most popular game in the US over the past month, according to NPD, was From Software’s “Elden Ring,” which has been available for five months.

Players are also playing less than last year.

“Total gaming time for PlayStation users decreased 15% year-over-year in the first quarter,” said Hiroki Totoki, Sony’s chief financial officer, when the company released its earnings report. “Play time in June improved by 3% compared to May and was only down 10% compared to June 2021, but this is a much lower level of engagement than we anticipated in our previous forecast “.

Microsoft's Xbox Series X (black) and S (white) game consoles are displayed at an SK Telecom flagship store in Seoul on November 10, 2020. (Photo by Jung Yeon-je / AFP) (Photo by JUNG YEON -JE/ AFP via Getty Images)

Xbox Series S and Xbox Series X from Microsoft. (Photo by Jung Yeon-je / AFP) (Photo by JUNG YEON-JE/AFP via Getty Images)

Microsoft did not provide data on the decline in participation, only noting that it affected revenue from Xbox content and services.

Gaming hardware sales are taking a hit

During the pandemic, gaming hardware like Sony’s PlayStation 5 and Microsoft’s Xbox Series X have been incredibly hard to come by.

Supply chain disruptions and global chip shortages made getting your hands on a last-gen console largely impossible unless you spent your time glued to Twitter checking for inventory updates at places like Best Buy. Not to brag, but I did this for three different friends.

According to Microsoft, Xbox hardware sales were down 11% year over year. Sony, meanwhile, saw PS5 sales rise from 179.7 billion yen ($1.3 billion) to 196.1 billion yen ($1.5 billion) year over year. The PS5 is still in short supply, though the company says it’s pulling in more supply for the holiday season. That said, Sony won’t change its projection of 18 million units shipped in 2022.

NPD, meanwhile, said industry-wide first-half U.S. hardware sales fell 8 percent to $371 million. New console sales in the first half of the year also fell 9% to $2.1 billion.

The holidays will be important for gaming companies

As with most consumer technology companies, video game sales are cyclical. The holiday season is traditionally the industry’s best time of year with major titles and other product launches designed to boost overall sales.

And Sony has already said it has a slate of high-powered games ready to drain consumers’ wallets, including “God of War Ragnarok” and “The Last of Us Part 1.” Microsoft is also working to complete its purchase of Activision Blizzard, which will add “Call of Duty” to its roster of homegrown titles, further boosting global game sales.

For now, we’ll have to wait and see how the rest of the industry fares as companies continue to release their financial results. Nintendo ( NTDOY ), Take Two ( TTWO ), EA ( EA ) and Activision Blizzard ( ATVI ) report earnings next week.

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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!