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Can Videogame Makers Overcome the Lean Patch in Sales?

The U.S. videogame industry has been witnessing a steady decline in sales over the past year, with sales slowing almost every month. The unprecedented heights reached during the peak of the pandemic reversed with the economic reopening.

The first two months of 2023 saw sales rebound, but the month of March again turned out to be unimpressive for videogame makers, who continue to struggle amid ongoing price challenges. Another major reason for a slowdown in sales last year was a dearth of new releases. This year, however, will see a large number of new title releases, which might finally help the industry overcome its present lows.

Videogame Sales Suffer

The videogame industry, which took a massive hit in 2022, has been trying to rebound. Yet, sales are quite low. According to the latest data from Circana, consumer spending on video games totaled $4.6 billion in March. The figure might look attractive but is down 5% year over year.

On a year-to-date basis, sales are down 1% year over year at $13.6 billion. The decline in March comes after sales rebounded in February when sales rose 6% to $4.6 billion. March’s decline can be attributed to a dearth of new releases.

As a result, spending on content declined 7% to $3.8 billion in March compared with $4.08 billion a year ago. However, spending on hardware jumped 10% to $505.4 million, recording the second-best spending in March in U.S. history. The highest spending on gaming hardware in March was $680 back in 2021.

Spending on accessories rose 1% to $239 million.

Multiple factors are responsible for the sharp decline in video game sales over the past year. The pandemic saw sales skyrocket in 2020. As a result, between 2019 and 2021, the gaming sector expanded 26%, reaching record-high sales of $191 billion. Since 2015, videogame sales have been increasing, and the outbreak has given this space a further lift.

Experts had projected that sales would decline once consumers have more options for outdoor entertainment as the economy reopened.

Challenges Aplenty for Video Game Makers

According to Mat Piscatella, Circana’s executive director, videogame engagement is returning to pre-pandemic levels, which indicates that spending is likely to increase in the near term.

The report also showed that big players continued to dominate in March. Although only eight new titles were released in the month, which was one of the major reasons behind the decline in spending on content and overall sales, these titles ranked among the top 16 best-sellers of March.

Spending on gaming in March was driven by SONY’s SONY PlayStation 5, which held the number one spot both in terms of console and dollar sales. SONY is also the top seller on a year-to-date basis.

Hardware unit sales of the SONY’s PlayStation 5 have now surpassed PS4 on a time-aligned basis (29 months in the market). On a year-to-date basis, date hardware spending has increased by 21% to $1.5 billion from $1.23 billion a year ago.

Microsoft Corporation MSFT reported solid earnings on Apr 25. MSFT reported quarterly earnings of $2.45 per share, beating the Zacks Consensus Estimate of $2.22. Microsoft also said that revenues from Xbox content and services increased 3% year over year, driven by growth in Xbox Game Pass. MSFT’s Xbox ranked No. 2 in hardware dollar spending. Microsoft presently has a Zacks #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

On the other hand, Nintendo’s NTDOY Switch held the No. 2 spot in units sold during March.

Among the best-selling titles, Activision Blizzard’s ATVI Call of Duty: Modern Warfare II held the No.4 sport in March. ATVI’s Call of Duty: Modern Warfare II was dethroned from the No.1 spot in February by Warner Bros. Interactive’s Hogwarts Legacy, and it slipped further in March.

Activision Blizzard had a robust fourth quarter of 2022, wherein revenues were driven by mobile gaming. ATVI reported revenues of $948 million, or 41%, of its overall revenues from mobile and auxiliary platforms.

Electronic Arts EA also saw its best-selling title slumping. EA’s FIFA 2023 ranked No.5 in the best-selling titles, while Madden NFL 23 dropped to the ninth spot in March.

Sales are slowing but the videogame industry seems to be putting up a solid fight amid the ongoing inflationary pressures. More next-generation consoles and new games are expected to be released this year, which will increase demand for both hardware and software.

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