Videogame Industry Struggles to Maintain Growth Amid Declining Consumer Spending

In response to a decline in spending, companies are canceling games and implementing cost-cutting measures.

• Videogame publishers are canceling games and cutting costs amid a slowdown in spending by players, reversing some of the growth made during the pandemic.
• The decline in consumer spending on mobile games, the biggest and fastest-growing segment of the industry, was significant, at 12% last quarter compared with a year earlier.
• Established blockbusters like Call of Duty and FIFA are receiving more funding than new properties and niche titles, and tech-industry heavyweights that made bets in video gaming are pulling back on the sector.

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Challenges

The videogame industry is facing several challenges, including declining spending, economic concerns, and fading metaverse hype. As a result, companies are cutting costs and canceling games. Publishers are shifting their priorities and reducing spending on infrastructure, personnel, and other areas. Established blockbusters are receiving more funding than niche titles and new properties. 

Take-Two Interactive Software Inc., Electronic Arts, and Ubisoft Entertainment SA have trimmed their full fiscal-year outlook, while Activision Blizzard reported record net bookings for the holiday quarter and a full year. The continued low supply of new consoles and rising game prices have also contributed to the decline in spending. The hype around nonfungible tokens and other new technologies that helped lift some game companies’ shares in recent years has faded.

Tech-industry heavyweights that made bets in video gaming, such as Google and Meta Platforms (formerly Facebook), are pulling back on the sector. While consumer spending on games is still higher than before the pandemic, a return to normal life coupled with high inflation has weighed on many publishers' results, according to analysts. 

Overall, U.S. videogame software sales, including subscriptions, fell 2% in the three months through December 2021 from a year earlier. The decline in consumer spending on mobile games, the biggest and fastest-growing segment of the industry, was more significant, at 12% last quarter compared with a year earlier. 

Event Horizon

There are bright spots, with Roblox Corp. reporting holiday-quarter results well above average estimates from analysts, mainly due to the launch of new features and an increase in spending among older players. Roblox shares jumped more than 25% the day after the company announced earnings, despite its plans to reduce its spending on infrastructure this year by 25% to 30%. 

Joost van Dreunen, who teaches the business of video games at New York University's Stern School of Business, said that it would likely take much longer for the metaverse, nonfungible tokens, and other new technologies to achieve mainstream adoption in video gaming.

So What?

So, turns out the videogame industry is not having it easy. Spending is on a decline and companies are canceling games and cutting costs to keep up. The big guys are getting even bigger, while smaller titles are getting snubbed. Add to that low console supply and rising game prices, and it's not looking too good. 

But hey, it's not all bad news - some companies are still doing okay, thanks to the launch of new features and an increase in spending among older players. The future of the industry remains to be seen, but it's safe to say it's not all fun and games.

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Intro: The videogame industry is experiencing a slowdown in growth, as companies are canceling games and cutting costs amid a decline in consumer spending. Established blockbusters like Call of Duty and FIFA are receiving more funding than new properties and niche titles, while tech-industry heavyweights that made bets in video gaming are pulling back on the sector. Our latest article delves into the challenges facing the industry and how publishers are responding to shifting market conditions.

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