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Can the Videogame Industry Bounce Back From Its Lows?

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Videogame sales in the United States are slowing at a rapid pace after having hit record highs over the past couple of years. While rising prices are curtailing consumer discretionary purchases and prompting cautious spending on necessities, there are several other challenges facing the industry that was thriving till a few months ago.

According to the latest report from NPD Group, video game sales saw one of the worst first halves this year in recent times. The decline in sales was witnessed in both console and mobile games and now manufacturers are shying away from releasing new games, which may further lower the interest of people.

Videogame Sales Decline in First Half

According to the latest report from NPD, videogame sales fell 10% year over year in the first half of 2022, with sales declining to $26.3 billion. The decline seems to be at the same pace as was the ascent a couple of years ago when sales skyrocketed following the COVID-19 outbreak.

Spending on video games fell across almost all categories. The report shows that spending on content declined 10%, while hardware spending is down 9% from a year ago. Accessories spending is down a staggering 14%.

Mobile gaming is also on the decline. According to tracking firm Sensor Tower, spending on mobile games declined 10.7% in June on a year-over-year basis.

The gaming industry is facing several challenges. Inflation definitely is one of the reasons, as people are spending cautiously, which has seen them cut down on luxuries. The steep decline in videogame sales in the first half comes after an impressive 2020 and 2021.

The videogame industry got a boost from the COVID-19 pandemic as most people spent time indoors. This saw the videogame industry expanding 26% between 2019 and 2021, reaching a record $191 billion in size. The market was already growing from 2015, and the pandemic gave a further boost to sales.

Big Players Utilize Opportunity

The peak of the pandemic also coincided with the launch of major next-generation consoles from the likes of Microsoft Corporation (MSFT - Free Report) and Sony Corporation (SONY - Free Report) . The launch of Microsoft’s Xbox Series X and S machines along with Sony’s PlayStation 5, which were both launched in November 2020, were instant hits. SONY has a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nintendo (NTDOY - Free Report) , the makers of Nintendo Switch, which was already one of the top sellers in early 2020, launched Animal Crossing: New Horizons in March 2020, the same month that the pandemic struck. The game went on to become one of the top sellers of the year.

Nintendo went on to release multiple tiles for Switch throughout 2020 and 2021 that were among the top five sellers.

Both 2020 and 2021 saw some of the best titles released ever. As more people stayed indoors, the videogame industry was seen going from strength to strength.

Activision Blizzard (ATVI - Free Report) released one its most successful titles Call of Duty: Modern Warfare 2 - Campaign Remastered in March 2020. Later that year, in November, ATVI released Call of Duty: Black Ops Cold War among other titles and the reception was similar.

The next year, Activision Blizzard released Tony Hawk's Pro Skater 1 + 2 and Call of Duty: Vanguard among several other titles. Both titles are still in high demand.

Electronic Arts (EA - Free Report) released Star Wars: Squadrons in October 2020, one of its biggest titles of that year. The same month EA released FIFA 2021. The next year it released FIFA 2022 among other major titles.

However, things have changed since the beginning of this year. Experts had predicted that video game sales would decline once the economy starts reopening as people would have more options for entertainment. That didn’t happen as sales continued to skyrocket in 2021 as major titles and consoles were launched but that has now come to a halt.

Gamers are losing interest as there have been no major launches in recent times and the dry period will continue for some time. The top-selling games in April, May and June were mostly old titles.

Moreover, with logistics disruptions and a shortage of gaming components coupled with a shortage of semiconductors, gamers are unable to find new consoles both in physical stores and online.

Also, the Russia-Ukraine war is hitting hard. Several big videogame manufacturers and hardware makers, including Microsoft and Sony, have suspended operations in Russia following the invasion of Ukraine.

Russia, according to research firm Ampere Analysis, was the 10th largest gaming market in the world but sales have been drastically cut short now, which is hampering the industry.

However, there is still immense potential in the videogame industry. As more titles and consoles hit the market in the second half of the year, sales are likely to pick up. According to Ampere Analysis, the gaming industry is giving back a bit of the profit this year after two years of robust growth. The year should end higher than the pre-pandemic levels and start growing again at a rapid pace in 2023.