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Can Videogame Makers Withstand the Ongoing Challenges?

The gaming industry continues to struggle, with sales declining almost every month now. Although spending on games has continued, the craze for video games, which peaked in 2020 following the COVID-19 outbreak, is suddenly missing this year. Amid this, videogame makers have been reporting a decline in revenues in their gaming units.

After declining in both the first and second quarters, sales of videos again fell sharply in August, according to market research group NPD, as players significantly reduced their purchases of consoles and gaming peripherals. Another reason for this sudden and sharp decline has been rising commodity prices. In addition, the industry is dealing with a number of other problems.

Videogame Sales Continue to Fall

According to the latest report from the NPD Group, video game sales totaled $4.10 billion in August. The numbers look attractive but sales are down 5% year over year. August 2021 sales came in at $4.31 billion.

Moreover, spending on video game content dropped 6% from $3.81 billion to $3.59 billion year over year in August. However, hardware sales jumped 14% from $329 million to $375 million.

Video game sales have been declining over the past few months due to multiple reasons, the most significant being soaring commodity prices. Inflation is at multi-year highs, and that definitely is behind the steep decline in sales.

Rising prices have posed a serious threat to the sector and consumers are aggressively reducing their spending on discretionary items and cautiously spending on necessities.

During the COVID-19 pandemic, people spent more time indoors, which resulted in a sharp increase in video game sales. As a result, the gaming industry grew 26% between 2019 and 2021, hitting record-high revenues of $191 billion. Video game sales were on the rise since 2015 and the pandemic gave it a further boost.

This year, however, has changed things completely. Year to date, sales are down 9% from $38.20 billion to $34.60 billion.

Industry Trying to Fight Back

Things have changed since the beginning of this year. Experts had predicted that the industry would experience a sharp fall in sales, following the economic reopening, as consumers would have more options for outdoor recreation.

That didn't happen right away, though, as a number of popular games and consoles were released during this time, and sales soared even further in 2021.

Price isn’t the only factor that has been hindering sales. One of the many factors contributing to the decline in videogame sales in 2022 is the dearth of new platforms and games being released. In reality, videogame producers have been lamenting a reduction in revenues as a result of this slowdown in the upswing in sales.

In fact, video game makers also have been complaining of a decline in revenues because of this sudden halt in the sales rally.

The first half of the year has been difficult for the gaming industry and sales are still on the decline. However, video game makers are still trying to fight back. Sony Corporation SONY PlayStation 5 was the best-selling console in August. This comes after SONY reported that gaming revenues declined 2% year over year in the second quarter. Moreover, SONY’s operating profit plummeted 37%. Sony also downwardly revised its profit forecast by 16%.

Things looked the same for Microsoft Corporation MSFT. Although Microsoft’s Xbox Series XIS saw double-digit growth in August 2022 compared to August 2021, the company has been complaining of a decline in its gaming revenues. MSFT, during its last earnings call, said that its gaming revenues in the second quarter declined 7% year over year.

However, Microsoft is trying to fight back, and August was a good month, with Xbox Series 5 XIS coming in at number two in terms of dollar sales. Microsoft currently carries a Zacks #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nintendo NTDOY, which was one of the top console sellers during the height of the pandemic, has also struggled this year. NTDOY reported a 15% drop in operating profit in the second quarter of 2022. Nintendo only sold 3.43 million Switch portable systems during this period, which was a 23% decline from last year.

Additionally, Nintendo's software sales fell to 41.4 million in the second quarter, an 8.6% year-over-year decline. However, the company has been one of the best performers this year compared to its competitors. Nintendo Switch was the second-best selling gaming console in terms of total units sold. Also, Nintendo has sold maximum consoles on a year-to-date basis.

The only company that reported profits in the second quarter is Electronic Arts EA. The company said its profit surged 50%, while its revenues jumped 14% year over year in the second quarter. Electronic Arts launched Madden NFL 23 in August that went on to become the best-selling game of the month.

This makes Madden NFL the best-selling game in its launch month for 23 straight years. It is important to note here that this year has been deprived of new launches of new games and titles, which usually drive sales.

With no major title launches, the interest of gamers is dwindling and the dry period will continue for some time. The most played games this year have been the classics.

A number of other factors are also hurting sales. Videogame manufacturing has been hampered by a lack of semiconductors, which has a direct influence on sales. Due to logistical issues, a lack of gaming components, and a paucity of semiconductors, gamers have also had trouble finding new consoles in physical stores and online.

According to a forecast by Ampere Analysis, the global gaming market would decline 1.2% this year to $188 billion. The gaming sector will experience its first annual decrease since 2012.

However, the industry still has potential. Sales will undoubtedly increase as additional platforms and games are expected to be released later this year.

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