Recession-proof video game industry is now beginning to buckle under recessionary pressure
After enjoying years of stratospheric market growth, the expected recession-proof video game industry is now beginning to buckle under widespread macroeconomic problems.
The video game industry, which encompasses several facets of online and mobile gaming activities, including marketing and monetization, has begun to come down from its peak, having experienced a growth of 26% between 2019 and 2021.
Its growth is attributed to more than $191 billion in value, and since 2015, the industry has steadily expanded into new products and consumer-based services.
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Now, with economies around the world seeing skyrocketing inflation and central banks aggressively raising interest rates, other issues, including supply chain constraints and pending shutdowns in China and other major manufacturing countries, have caused the video game industry to experience major headwinds.
Economic problems have not been the industry’s only stranglehold.
Game developers have extended planned game releases throughout the year, postponing title releases until 2023. This may have left a sour taste for consumers who were promised some high-profile and exciting games that were originally meant to be enjoyed during the better half of the year.
Benjamin Swift, managing editor of Guided Hacking, an online platform that produces educational content for ethical hacking and reverse engineering, believes that while the industry remains a robust and highly profitable sector of the global economy, there is a need for developers and companies to trust their existing functions and structures and make it work as best as possible.
“Consumers automatically spend less when times are tough, and with economists predicting a tighter financial year as a recession approaches, perhaps it would be in the best interest of game developers and companies to hold on to their best-selling products and services to ensure consumers are engaged while they receive an innovative and exciting gaming experience at the same time.”
According to Ampere Analysis, the nearly $200 billion industry will experience a 1.2% drop in market value this year, with estimates valuing the industry at $188 billion.
The sudden bump that could potentially send a shock wave effect across the industry comes with its kind of bells and whistles.
The advent of robust growth
With the price of essential goods including food, gas and utilities increasing, consumers are experiencing inflation reaching deep into their disposable income each month.
In a November Games Market Update from Newzoo, the games market would see a further decline of 4.3% year-over-year, as higher prices across the board make it harder for many to purchase video games, consoles and accessories.
The holiday season is typically considered one of the best times for the gaming industry, with consumers stocking up on holiday gifts for family. Even this year, things look quite different, and many have made some adjustments to see how far their money will take them this holiday season.
The decline does not come without problems, as global industry leaders including Sony Group Corp (NYSE:SONY), Electronic Arts Inc (NASDAQ:EA), and Two-Take Interactive Software, Inc (NASDAQ:TTWO), among others, have already announced that the industry may miss its estimates for the fourth quarter.
In a recent PwC poll, more than 50% of respondents said inflation and higher prices have had a major impact on their holiday spending.
The ripple effect may not have reached the edge, but as economic pressures continue, consumers will only tighten their belts and the gaming industry will soon feel the waters rushing.
Delays are now a part of life
This year, gamers and enthusiasts were faced with a large amount of game delays, as major developers were seen scrapping initial release dates and pushing it into 2023.
For many, this meant that instead of buying a long-awaited game, remake or expansion that they were promised at the beginning of the year, perhaps even before that, they now had to wait longer for their wishes to be fulfilled.
Still, game delays are nothing new, and often developers will delay the release date to iron out any last-minute bugs or glitches before making it publicly available.
This year, consumers experienced a number of high-profile titles and games being pushed even further into the new year. While this won’t necessarily have a huge effect on market growth, it’s pretty easy to understand that if there’s nothing to release or give consumers, they won’t necessarily upgrade their consoles or games during that time.
The shortage here is not only the physical games and devices developed by developers, but also the lack of supplies and materials needed to complete products.
A shortage of semiconductors, a small component used in nearly all electrical appliances and gadgets, has made it harder for game makers to fulfill orders for consoles and other electrical accessories.
While there has been talk of whether China, the world’s largest producer of semiconductor chips, would be able to increase its capacity as demand continues to rise, questions about the answers have been met with hollow answers.
The bottom line
Although the video game industry remains resilient in the face of volatility, broader macroeconomic issues have made it increasingly difficult for the industry to function and grow.
The coming year may prove to be another challenging experience for the gaming industry, and developers may find themselves making significant changes to their forward-looking guidance in hopes of turning losses into growth.
While it is possible to turn the situation around once recessionary conditions have eased, the solutions may not be as simple, and developers need to consider how their current strategy will lead them forward. While there’s a lot to take into account, the gaming industry could feel its legs cut significantly shorter in the coming months if it doesn’t prepare for a hard knock.