The pandemic boom in videogames is expected to disappear in 2022

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While the videogame industry continued to fuel a pandemic in 2021, investors and analysts are less hopeful in 2022, as continued semiconductor shortages and game delays are combined with hopes that many will turn off PlayStations and leave home. Will give

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Chip shortages in particular have been a pain for makers of videogame consoles like Sony Group Corp.’s Sony.
-0.62%

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6758,
-0.78%
PlayStation, Microsoft Corp. of MSFT,
+0.21%
xbox and nintendo company’s 7974,
-0.54%
Switch console. Lewis Ward, gaming research director at IDC, expects that share of the videogame industry to be a drag on growth: IDC expects console/TV spending to drop about 6% to $62.75 billion in 2022.

Overall, Ward estimates that worldwide gaming revenue will grow 11% to $251.39 billion in 2021, while it will grow 24% to $226.84 billion in 2020. While 11% is still pretty healthy growth, Ward expects a more “dramatic” flattening in 2022, when he forecasts revenue of $256.43 billion, or an increase of just 2%.

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Much of that expected flattening has to do with the belief that the worst of COVID-19 has passed, and even with variants like Delta and Omron, the stay-at-home situation won’t go back to 2020 was seen in and in early 2021.

“In my models and discussions with people, we are certainly thinking that life will return to something more normal, especially in countries where vaccination rates in some cases are over 50%, 60%, 70%, 80%, Ward told Businesshala in an interview.

Ward said he expects “normalcy to return and a large minority of first-time gamers will go back to being non-gamers, and a much larger minority of people who become more intense gamers will go back.” . to spend his time and money on things other than gaming, that there would be some slowdown inherent in that.”

The game itself will also be a big issue, as many major releases have suffered delays, with no publisher wanting to experience the same fan and media heat as CD Projekt SA CDR,
-0.20%
Following the release of its bug-ridden 2020 “Cyberpunk 2077”. Publishers are more likely to keep updating their older games with fresh downloadable content to make money from earlier successful releases.

“I think the biggest games in 2022 are going to be the biggest games from 2021, which were the biggest games of 2020,” NPD Group analyst Matt Piscatella told Epic Games’ “Fortnite,” examples like Roblox Inc.’s RBLX. Referring to. ,
-1.42%
Platform, Activision Blizzard Inc. of ATVI,
+0.73%
The “Call of Duty” franchise, and Mojang Studios’ “Minecraft”, owned by Microsoft.

“Those are the games that are going to remain the biggest because of that constant content flow, and are going to remain the biggest — now, trying to break that level is going to be extraordinarily difficult,” Piscatella said.

Expectations of a dramatic recession were clear on Wall Street in 2021. With two trading sessions remaining in 2021, shares of Activision Blizzard were down 28% year on year, with Electronic Arts Inc. ea,
-0.25%
Down 6%, Take-Two Interactive Software Inc. TTWO,
+0.51%
Shares are down 12%, Zynga Inc. of ZNGA,
-1.72%
The stock is down 34%, and Unity Software Inc. You,
+0.72%
Shares are down 13%. In comparison, the iShares Extended Tech-Software Sector ETF IGV,
-0.14%
is up 11%, and the S&P 500 Index SPX,
+0.14%
28 percent increase.

For those companies that went public in 2021, things were a little different: Roblox shares are up 126% from its direct listing price of $45, and AppLovin Inc. APP,
-2.05%
The shares are up 17% from their $80 IPO pricing. Israeli mobile-game developer Playtica Holding Inc. pltk shares,
-3.97%,
However, their $27 IPO is 33% less than the pricing.

It was tough in 2021 for console makers and buyers

Expectations for a shrinking console market come from product cycles and chip shortages. Ward said the current version of Nintendo’s popular Switch console was “getting long in the tooth” and that the company was pulling back shipments in anticipation of a new iteration in 2023.

Ward’s console category includes hardware-bundle expenses, while PC and mobile are software/service expenses only, and TV refers to micro-console game spending such as Alphabet Inc.
+0.04%

Google,
-0.02%
Stadia Pro and Nvidia Corp’s NVDA,
-1.06%
Shield Android.

Even with strong consumer demand, Sony pulled back shipments of its PlayStation consoles due to production challenges “about one million units”, and “even though they haven’t said that,” Microsoft has run into similar challenges with the Xbox. , Ward said. Microsoft showed its hand for a recent tournament by resorting to using the Xbox’s developer model because It didn’t get enough consumer versions,

Ward said console makers are not only grappling with chip shortages, but they will then have to deal with the logistics of getting parts into factories, and then moving finished products from China to consumers as global supply-chain problems stem from COVID. arise – 19 The problem remains. So, Ward said, the pullback in numbers reflects console makers’ expectations of where they’ll be a few quarters ago.

Looking at the bigger chip picture, other analysts expect supply-chain problems to ease in 2022, but not by much.

“The overall supply landscape remains constrained, but we are seeing generally signs of easing,” Benchmark analyst David Williams said in a recent note. “Demand remains resilient despite inflationary pressures and a lack of well-telegraphs in most end markets.”

Williams said, “While there has been improvement in many areas of the supply chain, we feel that prior increases in commodity and transportation costs are not working fully to deter end consumers, who are looking for consumption in the new year.” There could be a headwind.”

Evercore ISI analyst CJ Muse looked at this from the demand side and fundamentals in the industry, and said in a recent note, “If you thought the wall of worry was going to be tough in 2021, just wait.” Saraswati feels that the improvement in the industry is likely to be more in 2023 than in 2022.

“On a secular basis, the semiconductor story is strong, with COVID accelerating the digitization of nearly every industry,” the museum said. “Spraying across product cycles including AI/ML, data center/networking infrastructure, metaverse, 5G, automotive/industrial continues the broad-based recovery, and with a clear vision for silicon intensity there is much to like in semi land.” is something.% of GDP.”

bug or delay? Both result in angry fans.

A common dilemma has seen an increase in game development during COVID-19: if it’s taking longer than expected to develop a game by its announced release date, do you release it on time and have it? Risk of getting a bug, or do you delay the release—sometimes repeatedly—to make sure it meets the highest quality-control standards?

Most publishers chose the latter route following the “Cyberpunk 2077” debacle, which forced distributors such as Sony to offer full refunds due to the low quality and lack of backwards compatibility with previous generation consoles.

Then you likely have the worst of both worlds: a delayed game that isn’t well received when it hits. EA’s “Battlefield 2042” was not only delayed a month from release, but it was also voted one of the worst-reviewed games in the history of online games site Steam, with gamers posting videos online showing bugs in the game. Huh.

Activision Blizzard said in November that it would delay the release of its two highly anticipated games, and Take-Two recently faced a rough launch of its “Grand Theft Auto: The Trilogy – Definitive Edition.”

While IDC’s Ward said he thinks delays and bugs are “game specific” – meaning some games are more difficult to develop than others – Renée Gittins, executive director of the International Game Developers Association, said that COVID-19 was the biggest headwind for developers.

“Especially with the pandemic, we’ve seen a lot of game studios struggle with the transition to remote work,” Gittins said. “When you’re used to working in an open office environment where you have a lot of passive communication between teams and you can actually collaborate more easily in person than in those informal meetings, a remote- Being forced into a work environment hurts. Communication a lot.”

“There are a lot of difficulties that game developers generally face and this is only being exacerbated by this remote-working environment that many have been forced into by the COVID-19 pandemic,” Gittens said.

To give way to the videogame metaverse?

With older games proving harder to produce as new games continue to rack up cash, many are viewing the “metaverse” as the future of the industry. The concept — a virtual world in which users can build and offer their own experiences — is similar to what Roblox is offering, and could provide a way for the industry to not rely so heavily on single-game launches, Ward said. .

“If the stage does well,…

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