Games industry forced to focus on hit titles in response to weak sales

Lacklustre video game sales are forcing publishers to rethink their 2023 release plans, as the industry responds to cash-strapped gamers’ increasing preference for familiar franchises such as Call of Duty and Fifa.

Over recent weeks, many of the world’s biggest games makers, including Activision Blizzard, Electronic Arts, Ubisoft and Take-Two Interactive, each released their latest quarterly statements. Most revealed underwhelming sales during the crucial Christmas holiday period.

While the industry had been bracing for a slower Christmas compared with the past two years that were boosted by Covid-19 lockdowns, some of the industry’s biggest names were caught off guard by a larger than expected drop in overall consumer spending in December.

Only Activision Blizzard bucked the trend. This week, it reported a 43 per cent jump in net bookings — a measure of customer spending which excludes revenue deferrals related to online services — for the December quarter, thanks to record sales and engagement in the latest Call of Duty launch, Modern Warfare II.

Hits such as Call of Duty are becoming more scarce as consumers choose to spend on reliable favourites rather than risk their money on unproven new titles. As a result, several games companies have cancelled or pushed back new game releases over the past month.

Ubisoft has said it would scrap three unannounced projects, while last week EA chief executive Andrew Wilson said the company was cancelling two mobile games based on its popular Apex Legends and Battlefield franchises as it was “reallocating investments to prioritise our biggest growth areas”.

Grand Theft Auto publisher Take-Two downgraded its outlook on Monday and announced cost-cutting measures, as chief executive Strauss Zelnick warned the company was “operating in an environment that is in many ways more challenging than we anticipated”.

“We believe that, as a result of macroeconomic conditions, consumers shifted holiday spending towards established blockbuster franchises and titles that were offered with pricing promotions,” he said. While Take-Two’s established franchises, such as GTA, continued to sell well, newer releases struggled.

Take-Two’s comments echoed similar remarks from EA, Ubisoft and Frontier Developments. Last month, Ubisoft’s stock fell 14 per cent in a single day after it warned that holiday sales had been “markedly and surprisingly slower than expected”.

Even those games titles that are performing well — EA’s Wilson noted that the latest iteration of its Fifa football game was “pacing to be the biggest title in franchise history” — have not been enough to avert a 5 to 10 per cent drop in global sales volumes of premium console games last year, according to estimates by research group Ampere Analysis.

The industry had hoped for a boost from pent-up demand for new games from new PlayStation 5 owners, as this was the first Christmas where there was a good supply of the console since its 2020 release.

The PS5 has become the most popular console of its generation despite almost two years of supply-chain shortages limiting availability. However, software sales fizzled through the final weeks of 2022.

“You have this strange dynamic, coming off the highs [of the Covid era] but also the macroeconomic backdrop,” said Piers Harding-Rolls, analyst at Ampere. “I think it’s very hard to distinguish where the differences lie in the impact of those two different background issues.”

One factor is the availability of free games such as Fortnite and Fall Guys, which generate all their revenue from in-game sales of optional extras.

Out of the ten top console games by playing time, according to Ampere, five are free to play, which in a recession might prove more appealing than purchasing a new release outright, said Harding-Rolls.

However, in-game spending on optional extras such as expansion packs or avatars fell even more than full game sales, as casual players who may have spent more than usual during Covid lockdowns drifted away from the games market.

Tom Singlehurst, media analyst at Citigroup, said there were factors affecting games sales beyond the “obvious” culprits of the end of Covid lockdowns and the cost of living crisis.

“In those long winter evenings, for an audience that does skew a bit more male and a bit younger, the World Cup possibly sucked in time that would otherwise [have] been dedicated to video games,” he said.

The quality of the games themselves, alongside several high-profile delayed releases, may also have been a factor.

“All the games companies I talk to agree that with staff working from home, at best there are productivity issues and at worst quality issues,” said Singlehurst. “Unless it’s a real cast-iron critical hit, some of these titles have struggled to get traction.”

That has only fuelled the success of bankable franchises such as Call of Duty, which won widespread critical acclaim last year despite the previous release suffering poor reviews.

Singlehurst predicts that games publishers will imitate Hollywood’s increasingly risk-averse release strategy, relying on sequels and familiar brands, and cutting back on new intellectual property.

“I wonder whether we are about to enter a period of a slightly more mundane or even boring approach to development management,” he said. “These are big enough chunks of money that you’ve got to take the risk out of the IP.”