When COVID-19 brought many markets screeching to a halt, video games stayed golden.
As parents scrambled to get consoles for kids stuck at home and retired gamers found themselves picking up controllers again, an industry that was already posting year-over-year record revenues soared to nearly $180 billion globally for 2020. The games market bested itself again in 2021, bringing in more than $190 billion as other entertainment markets like film exhibition were still in recovery, per Newzoo.
Immediate takeaways labeled gaming recession-proof, a designation that is being questioned amid heightened fears of a post-lockdown recession looming over 2022. After all, there has been an increase in the standard new-game price from $60 to $70 on top of newer hardware already being expensive.
Adding fuel to the fire, the enticing growth in gaming-content spend seen throughout the pandemic has slowed significantly.
Content-spend growth throughout 2020 ahead of new consoles from PlayStation and Xbox launching in Q4 was the direct result of unusual circumstances stemming from the pandemic, so it was unlikely that quarterly year-over-year growth rates would remain above 20%. Still, the first quarter of 2021 was 17.5% above what the 2020 equivalent pulled in, whereas the first quarter of 2022 only grew 4% year-over-year, well below the rates seen throughout the rest of 2021, per estimates from Kagan, the media research unit of S&P Global Market Intelligence.
Mobile remains the primary driver of growth for game content overall, so nothing much has changed there. Per Kagan, 2022’s first quarter saw more than $31 billion spent on mobile content, which represents a record for the sector.
Meanwhile, growth for content spend on consoles and PC is stagnating amid rising preference for subscription services like PlayStation Plus and Xbox Game Pass, which grant players access to wide libraries of downloadable games for a monthly fee. Cloud gaming, a tiny but growing sector within the games market, is also offered at the highest tiers of both services.
Revenue for mobile is tied to free-to-play spending models that prioritize in-game purchases from engaged players. But even as mobile revenue grows, Kagan estimates show a slowdown in growth for sector-wide in-game monetization as well. 2021 shows $128 million stemming from in-game purchases, an 11% year-over-year increase from 2020, a year that saw in-game spend rise 33% from 2019.
This highlights how console and PC are the sectors straining content-spend growth. While the microtransaction model is observably effective for mobile, the PC and console crowds are much more resistant to it, putting pressure on publishers to ensure a healthy balance between games designed as live services that make effective use of microtransactions and games that cater to single-player crowds.
A big driving force behind the heightened M&A activity in the games space throughout 2022 is the desire to bring healthy mobile operations and companies with successful live services into the fold.
Activision Blizzard has a major mobile asset in “Candy Crush” publisher King, which further complements the ground Activision broke in transitioning its “Call of Duty” franchise into a lucrative live service across multiple platforms including mobile, making it an incredibly valuable target for Microsoft as Xbox seeks to release as many first-party games as Sony Interactive Entertainment (SIE) does for PlayStation.
Releasing high-quality AAA games takes time and is costly, which is why SIE sought to bring Bungie into the fold as a means of expanding in-game revenue via the popularity of “Destiny 2” before it completes development on its own live-service projects. Likewise, Take-Two's completed purchase of mobile games company Zynga will give it a backbone of in-game monetization that supports development of big games like “Grand Theft Auto VI,” a priority for publisher Rockstar that has already nixed updates to “Red Dead Online” and planned remasters of “Red Dead Redemption” and “Grand Theft Auto IV.”
Such AAA games continue to be delayed into 2023, as was the case recently with Square Enix’s “Forspoken” for PlayStation as well as Microsoft subsidiary Bethesda’s “Redfall” and “Starfield,” both of which will be exclusive to Xbox. When highly anticipated games like these are delayed, that’s launch-day money being pushed further down the timeline, a trend that any publisher would want to be able to counteract by leaning on existing live services.
EA is one major publisher caught in this conundrum. It has successful live services via EA Sports and acquired studios like Glu Mobile but is balancing out that strategy with “Star Wars” games aimed at the single-player market alongside remakes of fan favorites
Earlier in 2022, EA was reported to have held unsuccessful talks with Comcast regarding a merger with NBCUniversal that would have seen the telecom part ways with its major media asset as AT&T did with the Warner Bros. Discovery deal. Both entities have stayed mum on the matter, but talks could have lasted longer if EA boasted a portfolio of live services as prominent as Activision Blizzard’s.
Regardless, EA remains a hotly anticipated acquisition target for media and tech leaders. The jeopardization of in-game monetization amid a recession could foil such hopes for EA or any other gaming company seeing a buyer.
Everyone is playing games these days, but younger generations remain the most common spenders, per a Newzoo survey comprising more than 75K online individuals across the globe
The Pew Research Center found that economic fallout from the pandemic saw young adults among those affected hardest, a trend that could easily continue in another recession. Meanwhile minor gamers, who are the most frequent spenders on gaming content, rely on parents’ cards to make in-game purchases. Adults being forced to tighten their finances will naturally foster a ripple effect that could impact the youngest of gamers.
Since mobile gaming’s inherent monetization model is what is currently maintaining growth for the overall market, a noted reduction on spending within that model as sectors like console and PC prioritize player discount via subscriptions is exactly what could ruin the economic downturn-proof status gaming so proudly held during the worst of the pandemic’s financial strain.