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During the 2008 recession, the video game industry was heralded as a bright spot in the economy. The industry, described as recession-proof, has shown resilience, selling millions of Nintendo Wii and DS systems even as banks collapsed and the real estate market collapsed.
In today’s economy, however, analysts say the video game industry may not be as invincible as Superstar-powered Mario. Copies of games – and the sometimes subtle transactions that go into them – are getting more and more expensive. Virtual reality hardware prices are increasing. As the US economy shrinks and people review their financial budgets, analysts say video game spending could fall.
“It’s a lot more uncertain this time around,” said Cassia Curran, founder of management consulting firm Curren Games Agency. “Employment remains high and demand for outdoor entertainment is rising after two years of the pandemic, and sports sales declined modestly in the most recent quarter after a couple of buoyant years driven by the pandemic.”
In an approaching recession, one of the first things people cut back on is discretionary spending. The video game industry is no exception to this general rule, experts say, but the value of a $60 game or free-to-play title can take hours and span months, making them a steal during an economic downturn . can be given.
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During a conference call Aug. 8, Take-Two CEO Strauss Zelnick said, “We are now seeing the impact that falling consumer spending and increased inflation will have on the industry. You can see that in today’s report and that of our competitors.” Also featured in the Take-Two game resources report are Rockstar and 2K Studios, makers of hits like Grand Theft Auto V, Red Dead Redemption II and 2K’s popular Assortment of sports titles.
Gaming titans Nintendo, Microsoft, and Sony all reported falling sales and softening profit expectations in late July or early August. Part of the reason is a weak supply chain, still suffering from pandemic-related lockdowns and the challenges of getting consoles to stores, according to gaming companies. Another factor is that much of the world is now back open and not looking to socialize online.
In August, Meta, formerly known as Facebook, increased the price of its Quest 2 VR headset from $299 to $399.
“The cost of manufacturing and shipping our products is increasing,” Meta spokesman Brian Pope said in a statement. “By adjusting the price of Quest 2, we can continue to increase our investment in groundbreaking research and new product development.”
Pope said Meta will continue to place a heavy emphasis on games as it’s one of Quest 2’s most popular content categories.
The Washington Post reached out to more than a dozen gaming companies for comment on how they plan to weather a potential recession. Hoovers, Electronic Arts, Take-Two, Ubisoft, Devolver Digital, Annapurna, Square Enix, CD Projekt Red and Sega declined to comment. Others, including Sony and Xbox, were unresponsive.
Video game companies are tightening their belts, in some cases slowing down hiring, and stepping out with new game development. Tencent reported its first 3 percent revenue decline in August to a total of $19.78 billion, with gaming revenue falling 1 percent.
As previously reported by Kotaku and Bloomberg, Unity and Niantic have laid off part of their workforce to save money. Niantic spokesman Mark van Lommel said in a statement: “In June we made the decision to halt production on some projects and reduce our workforce by approximately eight percent to focus on our key priorities. We’re grateful for their contribution and support them through this difficult transition.” He said the layoffs will help Niantic weather the “weather of widespread economic uncertainty” that companies are facing and investing in augmented reality technology.
Ubisoft confirmed in an earnings call in July that it had canceled four new games, citing the “changing financial environment”.
Chris Kramer, Head of North American Communications for Tencent Games, said: “Budgets are tightening across the board for all companies, which means it will be difficult to approve new projects unless they have a solid prospect of success. Don’t be.” , “Release efforts are scaled back as budgets shrink, so game companies need to do more with less and really look at where the best return on the dollars spent is being achieved.”
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According to Karan, investors are more likely to bet on well-known companies like game developers with proven franchises and strong track records, rather than risking it with new and unfamiliar properties.
Among gaming companies, live-service games (like the constantly updated Apex Legends or Candy Crush Saga) have seen microtransactions bolster their bottom line over the past three months. While players can access these games for free, the titles offer glittery cosmetics or battle passes for real money. Many analysts are wondering how these free-to-play games will fare in a downturn.
“The entire esports industry faces a big question mark,” Curran said. “Will a recession result in more gamers choosing free-to-play games over premium titles? Become the big spender [free-to-play] Are games – which usually generate the majority of revenue – taking a cut in their purchases? At the moment we can only speculate.”
Riot Games has increased the price of its in-game currency, which can be exchanged for cosmetics and champions, by around 10 percent worldwide. Previously, $5 was 650 Riot Points, but as of August 19, it’s down to 575 RP for pure players.
“We update our pricing by region annually to account for factors such as inflation, currency fluctuations and exchange rates,” said Joe Hickson, a spokesman for Riot Games. “We know that price changes never feel good, especially in uncertain economic times, so we try to approach these situations with empathy and understanding. However, these changes give players what to expect from Riot. are necessary to proceed.”
The economy has also impacted the industry’s competitive gaming endeavors around esports. Will Partin, a research associate at the University of North Carolina at the Chapel Hills Center for Information, Technology and Public Life, points to the incredible ways the esports industry is making money that could leave it vulnerable in a recession.
Teams rely on content creation to drive sponsorship and advertising revenue, while venture capitalists are reluctant to pay for exports in times of higher interest rates, he said.
“These are turbulent times and this is having a noticeable impact on exports,” said Partin. “The teams that will perform best are those that have created strong revenue streams (whether in merchandising, agency work, consulting, etc.) outside of their core esports business. But I doubt they too will be able to avoid layoffs and spending cuts.”
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Twitch streamers have also felt the quandary as viewers become less willing to pay for subscriptions and multi-hour streaming becomes less worthwhile.
Esports and content creation company FaZe Clan went public in July through a special purpose acquisition firm, a so-called “blank check” firm that raises money for private companies. In an April filing, the company revised its financial guidance due to “recent market trends.” The company declined to comment on this story.
FaZe Klan, one of the world’s most recognized and loved esports and gaming content brands, has never been profitable, according to its financial records. In 2021, FaZe Clan reported a net loss of $36.86 million. Losing $18.86 million from January through June, it is on track to lose more this year, nearly $5 million more than the same period last year, according to an August filing. The company has $94 million in debt, including $1 million from Paycheck Protection Program (PPP) loans it took out during the pandemic.
Like the esports industry, esports journalism relies heavily on advertising revenue, leaving it on shaky ground when ad sales dry up. In March, Enthusiast Gaming abruptly fired 11 members of its nearly two dozen editorial teams at its esports and gaming news site Upcomer.
“There is a lot of uncertainty in the market in general and that can lead to quick decisions, hard decisions and rushed decisions,” said a person who works at Esports Journalism and spoke on condition of anonymity. Talk to the media from your employer.
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“Whoever invests in these properties expects very quick returns. It’s not just in esports journalism, it’s in esports in general,” said the esports journalist. “That’s why you [saw] There have been many teams and organizations that have advanced to the Overwatch League.” Activision Blizzard’s Overwatch League was launched in 2017 and has sold over $20 million worth of franchised slots to investors but owners of the New England Patriots and Los Angeles Rams teams, Robert team owners like Kraft and Stan Kroenke struggled to generate returns.
“A lot of this is buying into an industry and audience that are used to not being paid to watch the things they love, and those habits are not going to change,” the journalist said.
Several teams in the Overwatch League have recently cut players from their rosters, including Washington Justice, which is in the process of trimming its roster, journalist Jacob Wolf first reported. Former general manager Aaron “East” Heckman Tweeted on July 5th“The team is fighting for a dwindling fan base instead of trying to make it bigger,” before deleting her account.
The Overwatch League declined to comment. Heckman did not immediately respond to a request for comment.