Publishers are preparing for the new economic challenges that will affect the value of gaming. As the global economy is feeling the pinch, consumers feel a greater need to save money.
Image credit: Ubisoft/Lucasfilm
The corporate financial season is not the most thrilling of all the seasons that change throughout the year, but this rare chance to get a pulse on the industry in an objective manner can be very valuable.
Although it would be an overstatement to claim that the financial reports, and statements on earnings calls, which are made after them, are devoid of any marketing hype, different rules, more strict than other times, apply. The numbers can be manipulated by companies, but they must also be presented honestly. This allows everyone to know how others are doing and to adjust their planning accordingly.
This is the one that gets the most attention, as this is when we usually get the latest information on console shipment numbers. It’s not surprising that this is the case, as the Switch 2 launch date approaches and tariffs are a threat.
While platform holders’ results are important for the industry as a whole, they do not reflect the realities that other businesses in the business face. We need to look at the reports from all publishers in order to get a broader view.
Even by corporate financial standards, many of the reports released this quarter and even for most of this year are quite serious. There’s a lot of variety in the recent results from major companies such as Capcom, Square Enix and Sega to Ubisoft and Warner Bros.
First, and most importantly, sales have been down. Most companies reported a decline in revenue over the last year. Capcom, however, is an exception, as the company has maintained a winning streak of many years. Take-Two, meanwhile, reported a small percentage point increase in sales thanks to its sporting titles.
The overall trend is that revenues are declining. You can pinpoint specific problems or decisions that each company suffered, but you still need to look at the overall trend. This is especially true since it fits in with warning signs that are flashing on market data around the globe, which indicate that consumer spending has declined over the last year.
Sega and Square Enix were both more profitable in the last year, despite lower revenues. It is partly due to the restructuring of the companies and the narrowing of the development focus, but also because of the high sales of the back catalogue, which are low-cost and therefore great for the bottom line.
Image credit: Rockstar Games
Long-tail purchases are crucial for the financial health of an industry (and, if you take a broader definition, transactions like GTA Online are also long-tail for Take-Two). But they could also indicate a growing price-sensitivity on behalf of consumers, who may be more willing to pay less for older titles than to purchase newer releases at full-price.
If that’s the case, then it is consistent with wider economic trends. We know that many consumers are experiencing a squeeze on discretionary spending, so seeking out alternatives that offer a better value is an obvious response. This could mean the gaming industry has experienced its first real recession.
The conventional wisdom has been that the gaming industry is well protected against recessions, even if individual segments may be affected. “recession-proof” It was true a few decades ago but no one I know would bet on it today. Games are a great way to spend your money, especially if you’ve cut back on other expenses like travel and entertainment.
This lack of attention to new IP or its expansion is unusual, even by the standards of the gaming industry.
In recent years, this logic has been challenged by things such as subscription video services that offer entertainment hours per dollar easily comparable to any games, or even free-to play games. The other option that many people prefer is to doomscroll their way through endless hours of mind-rot. There’s a tricky calculation at play right now because gaming, which is trying to raise prices on many top-of-the-line products, is also facing the possibility that consumers will tighten their belts.
These results may indicate that consumers have begun to reject paying premium prices for games. Not only do back catalogue games with lower prices seem to perform better than other segments. There are also games that have launched at $50, such as EA’s Split Fiction and the indie game Clair Obscur Expedition 33.
It is important to remember their success at a time when many publishers are trying hard to establish a price of $80, which will be the new standard.
Remasters and other back-catalogue titles are often priced at lower prices, which is appealing to both consumers as well as publishers. Many publishers’ restructuring efforts are described as streamlining or improving. However, it looks more like a strategic de-risking strategy – they focus on a few core franchises that have proven to be successful.
Image credit: Sega/Atlus
One thing that is common to all the companies that have reported their results over the last couple of weeks, however, is how they are openly focused on just three or four IPs. Sega was the only one to mention a positive thing about an original or non-core IP.
The lack of attention to new IPs or extensions is unusual, even by industry standards. Even in companies like Capcom that do very well, the pipeline of software is dominated by remakes, Remasters, Re-Imaginings, and revisitations. The overall sense is clear: publishers are in battening-down-hatches mode right now.
This approach makes sense if you assume that the economy will worsen. In a situation where consumers feel financially insecure, companies should focus on their most popular titles and then fill the rest of the gap with cheaper games.
We can only hope, in the short to medium term, that those publishers, who have a focus on tentpole franchises, will eventually return to creating new IPs. The exhaustion of franchises is another very real issue. Growth, however, must come from creative innovation. It is impossible for a company to survive forever by finding ever more aggressive ways of promoting the same old dying horses.
