Tag: Industry

Helldivers 2 Launch Pushes PlayStation to Annual Sales High & Profit Growth in Fiscal Year 2023 Report

DomsPlaying

As earnings season marches on, I’ll wrap up this week with my final recap of the big three gaming manufacturers.

Sony, the largest of the group by sales, has reported its fiscal year 2023 results. In this piece, I’ll cover mostly the annual financials to give a broad perspective of where the PlayStation division has been recently and will be soon.

If any of the data is quarterly, I’ll point that out.

That said, here’s the big headlines from PlayStation’s portion:

  • Achieved record annual revenue above $29B.
  • Reported double-digit operating profit growth.
  • Biggest year of unit sales for a PlayStation device despite missing target.
  • Breakout success of Helldivers 2 across both console and PC.

Underlying the record top-line and profit performance was a boost in third party sales, including downloadable content, headlined by the likes of surprise hit Helldivers 2 from Arrowhead Game Studios and Insomniac Games with Spider-Man 2, the former highlighting the benefit of adopting PC and the sizeable upside of live service risk.

Additionally, yen depreciation had a tangible impact on annual growth, as I’ll illustrate shortly. This currency effect is amplified for Japanese companies operating globally.

Throughout this time frame, PlayStation 5 hardware closed the lifetime sales gap with its predecessor and passed another milestone on the global best-seller list. On the software side, unit sales increased while shifting towards a digital split.

“During the PlayStation 4 generation, we were able to significantly grow profits in this segment thanks to rapid digitalization and the expansion of network services,” management wrote.

“In the PlayStation 5 generation, which has capitalized on the established PlayStation 4 user base, the trend is hard to see due to the impact of stay-at-home demand and acquisition-related expenses, but, since the launch of the PlayStation 5, we have continued to achieve a high level of, and more stable, profit growth.”

Read on for more detail around Sony’s latest numbers and predictions for the next year!

The above slides show Sony’s Game & Network Services (G&NS) division results for the year overall.

  • Annual revenue increased 17% to $29.55B.
  • This included $1.9B of currency impact.
  • Operating profit rose 16% to $2.01B.
  • This includes $267M of currency impact.

I’d point your attention to the above gallery, namely the operating income chart I compiled which illustrates the Helldivers 2 effect, and more broadly shows what happens when Sony’s live service effort pays off. Quite literally.

Until the final quarter of its fiscal year, operating profit was trending down 25%. After January to March, the year ended up as a double-digit increase!

Moving on to products categories within G&NS, here are select annual revenue and growth stats:

  • Hardware was $8.39B, up 8%.
  • Add-On Content hit $7.5B, up 26%.
  • Digital Software at $5.89B, up 29%.
  • Network Services reached $3.78B, up 17%.

On the strength of newer launches and evergreen titles, Add-On Content surpassed Hardware in Q4 alone, though the latter became the leading segment for the full year as PlayStation 5 reached the middle of its life cycle (yes, already!).

Within the console side of the business, it was a banner year for shipments even if Sony’s forecast was too ambitious (as I wrote since they first posted it). Hardware results were:

  • PlayStation 5 shipped 4.5M units in the March quarter, down from 6.3M.
  • This led to a fiscal year shipment total of 20.9M, compared to 2022’s 19.1M.
  • Slightly below Sony’s 21M target, and well below its original guidance of 25M.
  • Still, it’s above PlayStation 4’s 20M in the same year, which was its best.

Check out the image below for a full comparison of the last two Sony console generations, showing that PlayStation 5’s current 59.3M lifetime was less than a million off PlayStation 4 at 60.2M, much closer than other points in their launch-aligned history.

As for the broader industry, PlayStation 5 officially surpassed the lifetime unit total of Microsoft’s Xbox One, which launched in 2013 and ended at 58M. The next milestone will be Nintendo Entertainment System at 61.91M, which I’d imagine it might have already reached as I write this.

Here’s further insight into how software did for the G&NS segment during fiscal 2023.

  • Unit sales reached 286.4M, up from 264.2M prior year.
  • Sony-made titles made up 39.7M of that, down from 43.5M.
  • Digital downloads comprised 70%, up from 67%.

The clear winners were a pair of sequels in October’s Spider-Man 2 and February’s Helldivers 2, the latter being PlayStation’s fastest-selling game ever amassing 2M units in 12 weeks. For context, 2022’s God of War Ragnarök sold 10M in 10 weeks.

Can’t forget about the likes of Blizzard’s Diablo IV and Capcom’s Street Fighter 6, plus the continued benefit of annualized sports and shooter titles, even on an off year with the lackluster Call of Duty: Modern Warfare 3.

Then, to a lesser extent, there was contribution from Square Enix’s Final Fantasy titles. In recent investor materials, Square Enix pointed out Final Fantasy 16 and Final Fantasy 7 Rebirth, both PlayStation exclusives, missed expectations (what else is new). With Square’s move to multi-platform, the days of third-party exclusives are clearly dwindling.

We also heard a bit from Sony on engagement, driven a lot by evergreen titles that dictate the market leader’s success here. As I mention in recent Circana U.S. sales recaps, tons of people play console primarily for experiences including Fortnite, Roblox, Minecraft and Grand Theft Auto V.

Sony reported that Monthly Active Users (MAUs) across PlayStation Network ended the year at 118M. While that’s no longer an all time high, which was achieved the prior quarter with 123M, it was still up 10M year-on-year.

The final stretch of fiscal 2023 was a fantastic one for Sony, pushing it to all-time revenue and generating higher income when it seemed like the year might be a down one for profitability.

A surprise multi-platform hit and PC’s contribution bumped up that profit growth, along with an all-time year for hardware shipments plus ongoing engagement in various legacy games.

Sony has recently backed off its live service push, to focus more on fewer titles in the space. A game like Helldivers 2 proves that all it takes is a single game capturing the zeitgeist to drive financial growth and keep an audience coming back for more.

It doesn’t hurt to have a simultaneous PC launch, a platform with a notoriously passionate user base. (Better or worse.)

I’ll quickly look ahead to Sony’s expectations for the coming year. Here’s the PlayStation forecast:

  • Revenue will be down 2% to $29.1B.
  • Operating profit to increase 7% to $2.15B.
  • PlayStation 5 shipments of 19M, down almost 2 million.

“As we enter the second half of the console cycle, we expect the number of new PlayStation 5 units sold to gradually decline,” management wrote in its remarks.

“However, by steadily maintaining and expanding the consistently increasing number of active users and user engagement, while also strengthening control over business costs, we believe that we will be able to steadily increase sales and profits from the PS platform going forward.”

Overall, I’m guessing G&NS will achieve these goals, and perhaps even increase the console shipment guidance to 20M. I’m expecting a lot of consumers upgrading and new buyers for Grand Theft Auto VI, expected to launch in calendar 2025.

Executives also reiterated that its new sci-fi multiplayer IP Concord will be out in this same time frame, as it aggressively moves to improve margins and incorporate the PC market. Could there be others launching by the fiscal year end?

Speaking of executives, Sony announced the replacement for exiting PlayStation boss Jim Ryan. Or should I say replacements, and both are internal hires. Hermen Hulst (my prediction back when the Ryan news broke) and Hideaki Nishino be co-leaders, heading up new respective groups within Sony Interactive Entertainment.

With that done, this concludes my latest recap. I recommend checking out socials for more coverage of earnings season and everything across the games industry landscape. Thanks for reading, be well!

Note: Comparisons are year-over-year unless otherwise noted.

Exchange rate is based on reported average conversion: US $1 to ¥144.4.

Sources: Circana, Company Investor Relations Websites, Sony Interactive Entertainment.

-Dom

Nintendo Posts Positive 2024 Annual Results & Sets Switch Successor Reveal for Current Fiscal Year

DomsPlaying

Keeping with my new tradition, I’m here with a quick-hitting recap of Nintendo’s latest annual results.

I’ll then look ahead to its current fiscal year, the 12 months ending March 2025, during which the company will officially reveal its next hardware.

Don’t worry. I’ll have my usual charts and reactions, just in an easier format!

Here’s the highlights for Nintendo’s 2024 financial report:

  • Both revenue and profit bounced back to growth in the single digits.
  • Annual Switch shipments were 15.7M, above its latest guidance.
  • During the latest quarter, Switch passed 140M sold lifetime.
  • Over half of software sales were digital for the first time ever.

While unit sales for consoles and software declined last year, Nintendo saw financial growth due to a depreciating yen, a shift to the premium Switch OLED model, shifting spending towards digital content and a sizeable impact from April’s The Super Mario Bros. Movie.

“For hardware, by continuing to convey the appeal of Nintendo Switch, we try to not only put one system in every home, but several in every home, or even one for every person,” management wrote. “Another objective is to continually release new offerings so more consumers keep playing Nintendo Switch even longer and we can maximize hardware sales.”

Scroll ahead for the full rundown and predictions for an exciting, and crucial, time in the company’s history.

Top level, these are the main stats for Nintendo’s annual results during the year ending March 2024.

Fair warning: Get ready for numbers!

  • Revenue up 4% to ¥1.67T ($11.57B).
  • Currency impact on revenue of ¥94.4B ($653M).
  • Operating profit rose 5% to ¥528B ($3.66B).
  • Currency impact on operating profit of ¥35B ($242M).

These were enough to log the third best year in the Switch era by both metrics. While impressive given its latest console’s age, having major releases in the Zelda and Mario franchises alongside a blockbuster animated flick were enough to make up for slowing unit sales.

As for product category breakouts:

  • Software represented 56% of total sales, up from 54%.
  • 81% of software sales were first party, up from 79%.
  • The proportion of digital software sales was 50%, up from 48%.

Regional splits were as follows:

  • The Americas at 44%, same as last year.
  • Europe was 24%, down slightly from 25%.
  • Japan reached 22%, compared to 23%.

Underlying a larger-than-usual portion of Nintendo’s growth was its mobile, IP and licensing segment. On the strength of the billion-earning The Super Mario Bros. Movie, sales here rose 82% to ¥11.2B ($77M), plus had the knock-on effect of boosting the popularity of Mario-themed titles in subsequent quarters.

I’ll now reflect on the Hardware portion of the report.

  • Switch shipments from January to March were 1.96M, down from 3.06M.
  • That brought the year to 15.7M, or 13% lower than fiscal 2023.
  • This figure was above management’s revised guidance of 15.5M.
  • OLED model was the only one showing growth, up 1% to 9.32M.

While hardware ended up meeting the latest target that executives set, it came in slightly below my personal forecast of 16M. Management called this “stable” for a console of its age.

Lifetime Switch shipments are now 141.32M, thus retaining its spot as the third best-selling gaming console ever.

Prior to this, figures were based on shipments to retail. Nintendo did provide a slide on sell-thru to consumers, charting it out over the Switch’s full life cycle.

Overall, it was the second lowest year for sell-thru other than 2017’s launch. The premium OLED model experienced its highest sell-thru to date, while the base model continued its steady decline, both as expected.

Moving on to Software results for the full year:

  • Game unit shipments declined 7% to 199.67M.
  • Even so, that was above the latest target of 190M.
  • There were 31 million-sellers. Nintendo produced 20 of them.
  • Lifetime Switch software unit sales approached 1.24 billion.

In terms of debuts, February’s Mario vs Donkey Kong remake collected 1.12M units. Additionally, Princess Peach: Showtime! moved over a million in a week, reaching 1.22M by the end of March.

Then there’s the ever-growing list of older and evergreen titles in the portfolio.

  • The Legend of Zelda: Tears of the Kingdom saw 20.61M in less than a year.
  • Super Mario Bros. Wonder jumped to 13.44M after two quarters.
  • July 2023’s Pikmin 4 finished the year at 3.48M.
  • Mario Kart 8 Deluxe raced towards 62M lifetime.

Shifting over to software sales as measured by sell-thru to consumers:

  • The Legend of Zelda: Tears of the Kingdom at 19.5M.
  • Super Mario Bros. Wonder was 12.4M.
  • Pikmin 4 eclipsed 3.3M, meaning most of its copies have been purchased.
  • November’s Super Mario RPG remake hit 2.6M (out of 3.31M shipped).

“The Legend of Zelda: Tears of the Kingdom, Super Mario Bros. Wonder, and Pikmin 4 all saw sell-through grow at a faster pace than any past titles released on Nintendo Switch in their respective series,” management wrote.

Executives also shared an update to Nintendo’s unique engagement statistic called Annual Playing Users. As of March, it reached an all-time record of 123M, up a million over the prior quarter and 7 million compared to the prior year.

The company might share an update for Switch Online memberships during a corporate briefing in the next few days. The service’s paid membership count was 38M as of September 2023.

It’s another mostly positive annual announcement for Nintendo, showcasing top-line momentum and profitability even as hardware and software units declined. It’s well-known that the market for Switch is saturated, which meant executives had to look for other avenues like film to keep growing, while also supporting the vast audience base with flagship franchises and external partnerships.

What’s to come for the company entering a pivotal time as it plans to bridge the gap between console generations?

Well, I’ll now run through the headlines for Nintendo’s fiscal 2025 targets:

  • Revenue could be down 19% to ¥1.35T ($9.34B).
  • Operating profit expected to decline 24% to ¥400B ($2.77B).
  • Switch anticipated to ship 13.5M units, down 14%.
  • Guidance of 17% lower Switch software units, or 165M.

“Switch has entered its eighth year since launch,” management mentioned. “While it will be challenging to sustain the same sales momentum as before, we will work to maintain high user engagement with the hardware and invigorate the platform so that more consumers continue to play Switch for longer.”

If that last bullet point is achieved:

  • Switch will compete for best-selling console ever at roughly 154.82M sold.
  • Nintendo DS is in second at 154.02M to date.
  • Sony’s PlayStation 2 is currently tops at 155M.

I see the financial forecasts as fine and achievable. On the other hand, Nintendo’s hardware plan is ambitious. Especially given the lighter release slate, chock full of remakes and reissues, and people waiting anxiously for that new announcement. I’m more around 12.5M to 13M, at most.

Speaking of Super Switch, the reveal is officially imminent!

Nintendo President Shuntaro Furukawa took to Twitter to announce that the announcement of Switch’s successor will happen this fiscal year. Though not at a June Direct, which will focus more on the slate of games for the back half of this calendar year.

Based on the guidance and an aggressive target for existing hardware, I expect a full-blown Super Switch reveal to happen around January 2025 with a subsequent launch sometime in or after April 2025.

That about does it for my latest reaction piece. What did you think? Predictions for Super Switch?

Hit me up here or on social media to chat and stay tuned for more coverage of earnings season soon. Thanks for reading!

Note: Comparisons are year-over-year unless otherwise noted.

Exchange rate is based on reported average conversion: US $1 to ¥144.52.

Sources: Company Investor Relations Websites, Nintendo Twitter.

-Dom

Mobile Strength & New Premium Titles Carry March 2024 Circana U.S. Games Industry Report

DomsPlaying

United States Games Industry Sales (March 3rd to April 6th, 2024)

It’s time to cover another U.S. games industry spending report from Circana, this one for the month of March and the end of 2024’s first quarter.

Here’s the quick hits for March consumer spending on video games here in the States:

  • Overall spending increased 4% to $4.89 billion.
  • Content grew 9% to $4.25 billion.
  • Hardware declined 32% to $391 million.
  • Accessories moved up 9% to $242 million.

Content, which made up 87% of total spending in March, contributed solid sales momentum for the domestic market, boosted by double-digit mobile growth and a slew of new launches. At the same time, Hardware continued to drag without a huge catalyst or fancy new product offering in sight.

“Mobile’s strong performance was supplemented by a 3% increase in Console Content spend, along with a 2% gain in the PC, Cloud and Non-Console VR Content segment,” said Circana’s Mat Piscatella on Twitter. “Mobile accounted for 89% of the total year-on-year growth in video game content spending during the month.”

Highlighting the announcement was Dragon’s Dogma 2 as the month’s best-selling premium title, highest of the six new releases among the Top 10. Monopoly Go stacked up yet again as mobile’s top grossing game, while Fortnite and Helldivers 2 led platform engagement charts. PlayStation 5 came out on top for console sales by both dollars and units, as it has most months recently.

Scroll down for more on product categories, best sellers, most played games, first quarter results and my predictions for future reports.

In terms of Content, mobile retained its driving force status, growing 15% in March.

On the premium side, Dragon’s Dogma 2 from Capcom debuted at numero uno on the overall chart. It’s already the year’s 3rd best-selling title, and took less than a month to eclipse lifetime sales of 2012’s Dragon’s Dogma and its Dark Arisen expansion combined.

February’s winner Helldivers 2 came in second, solidifying its spot as the top seller for Q1. The latest from Arrowhead Game Studios already ranks 7th ever for Sony-published titles, an extraordinary feat mostly due to its PC success, and it’s been among the most-played games on both PlayStation and PC since its launch.

Perennial sales beast MLB The Show 24 scored a third place start, right around where it usually begins during its launch month, inserting itself as the 5th best-selling title of 2024 to date.

Rise of the Ronin from Koei Tecmo started at #5 in March, and #14 for the Q1 chart. Globally, the publisher claims it’s tracking above Nioh. This tracks here, since that game charted at #9 in the U.S. during its February 2017 launch.

Nintendo’s latest Princess Peach: Showtime! slotted in 6th, excluding digital, while Sega’s Unicorn Overlord had a fantastic start in 8th. Rounding out the new titles among the top ranks was Take-Two’s WWE 2K 24 in 9th, again without its digital portion included.

As measured by monthly active users, Fortnite was the most played on both PlayStation 5 and Xbox Series X|S, followed by Call of Duty and Grand Theft Auto V. On the PC side, it was Helldivers 2, Counter-Strike 2 and Baldur’s Gate 3. Also, huge shout out to poker roguelite Balatro in 4th on PC!

Check below for March’s best-seller ranks for premium and mobile.

Top-Selling Premium Games of March 2024, U.S. (Physical & Digital Dollar Sales):

  1. Dragon’s Dogma 2
  2. Helldivers 2
  3. MLB The Show 24^
  4. Call of Duty: Modern Warfare 3
  5. Rise of the Ronin
  6. Princess Peach: Showtime!*
  7. Final Fantasy VII: Rebirth
  8. Unicorn Overlord
  9. WWE 2K24*
  10. Hogwarts Legacy
  11. Madden NFL 24
  12. EA Sports FC 24
  13. Minecraft
  14. Horizon Forbidden West
  15. Tekken 8
  16. Rainbow Six Siege
  17. Elden Ring
  18. Mario Kart 8*
  19. Marvel’s Spider-Man 2
  20. Mortal Kombat 1

Top-Selling Mobile Games of March 2024, U.S.:

  1. MONOPOLY GO!
  2. Royal Match
  3. Roblox
  4. Candy Crush Saga
  5. Coin Master
  6. Whiteout Survival
  7. Last War Survival
  8. Pokémon Go
  9. Township
  10. Clash of Clans

Here’s the scoop on Hardware’s tough time last month:

  • All three major console families saw spending decline over 30%.
  • PlayStation 5 was the leader by both units and dollars.
  • The digital edition of PlayStation 5 contributed 39% of unit sales.
  • Nintendo Switch was #2 measured by units.
  • Xbox Series X|S secured runner-up by dollars.

Flipping over to Accessories as a segment:

  • Spending moved up almost double-digits.
  • The headset and headphone sub-segment rose 8%.
  • PlayStation 5’s Dual Sense Edge was March’s best seller.
  • Sony’s high-end controller was also Q1’s winner.

Expanding to results for the January to March 2024 time frame:

  • Overall spending grew 6% to $14.67 billion.
  • Content increased 9% to $12.84 billion.
  • Hardware dropped 24% to $1.12 billion
  • Accessories jumped up 25% to $707 million.

Within premium gaming, Helldivers 2 was the quarter’s top earner. That was followed by Call of Duty and newcomer Dragon’s Dogma 2. Other standouts include Final Fantasy VII: Rebirth in 4th, Persona 3 Reload in 9th, last year’s winner Hogwarts Legacy at #10.

Similar to March, PlayStation 5 was the leading console in Q1 by units and revenue while Nintendo Switch came in the second spot by units, and Xbox Series X|S slotted at #2 by dollars.

“Total U.S. Video Game spending being up 6% in Q1 2024 despite a 24% drop in hardware spending.. shows how diversification has made the market more resilient,” said Piscatella.

Here’s the list of best-selling premium titles for 2024 to date.

Top-Selling Premium Games of Q1 2024, U.S. (Physical & Digital Dollar Sales):

  1. Helldivers 2
  2. Call of Duty: Modern Warfare 3
  3. Dragon’s Dogma 2
  4. Final Fantasy VII: Rebirth
  5. MLB The Show 24^
  6. Tekken 8
  7. Suicide Squad Kill the Justice League
  8. Madden NFL 24
  9. Persona 3 Reload
  10. Hogwarts Legacy
  11. EA Sports FC 24
  12. Skull & Bones
  13. Marvel’s Spider-Man 2
  14. Rise of the Ronin
  15. Super Mario Bros. Wonder*
  16. Elden Ring
  17. Minecraft
  18. Like a Dragon: Infinite Wealth
  19. The Last of Us Part 2
  20. Mortal Kombat 1

In summary, March and 2024’s first quarter had comparable dynamics when it comes to category results, where both Content and Accessories went up, notably bolstered by mobile and surprise launches in previously-unheralded franchises like Helldivers and Dragon’s Dogma, while Hardware faces a number of headwinds and can’t find a catalyst to growth right now.

Looking ahead, I’ll now run through my thoughts on April and a quick mention of my annual forecast.

  • I’m thinking we’ll see total April sales rise in the single-digits.
  • Content will go up, more impacted by older titles rather than new launches.
  • I expect Hardware to decline in the low to mid double-digits.

I certainly expect there to be fewer new titles in April ranking high on the premium list, compared to more than half of the Top 10 this past March, because there weren’t many triple-A flagships.

The controversial Stellar Blade has a solid chance at competing for a Top 5 debut, even being a PlayStation 5 exclusive. Otherwise, we’ll likely see movement for Microsoft-owned brands. This includes Sea of Thieves hitting a new audience and Bethesda games creeping back into the Top 20 or higher due to the uber-popularity of Amazon’s Fallout series, which already attracted 65 million viewers according to Variety.

In terms of an annual forecast for all of 2024, Piscatella is maintaining his guess for a 2% drop in spending. Personally, I’ll maintain my latest forecast of “virtually flat to slightly down” based on signs pointing to the more enthusiast PlayStation 5 Pro hitting market instead of a Super Nintendo Switch, the latter of which would drive Hardware to much better performance and have a system-selling title alongside it.

That’s it for March and the first quarter. Time flies. I recommend reading Piscatella’s thread here on social media. I’ll be back next week with more earnings season coverage. Thanks for reading!

Note: Comparisons are year-over-year unless otherwise noted.

*Digital Sales Not Included

^Xbox & Nintendo Digital Sales Not Included.

Sources: Circana, Koei Tecmo, Variety.

-Dom

Microsoft’s Quarterly Xbox Sales Increase Only Due to Activision Blizzard in Fiscal 2024 Q3 Report

DomsPlaying

The start of a new earnings season, complete with my usual calendar, means it’s time to start up recaps as well.

I’m going to try something new and tighten up these recap articles!

More concise, same great quality. I hope.

Today, that means covering Microsoft’s recent 2024 Q3 results. I’ll focus mostly on Xbox during this January to March time frame, where there was major sales growth solely due to the impact from Activision Blizzard, as other areas within gaming declined including things like content, subscription and hardware offerings.

Still, Xbox segment sales outpaced guidance, mainly due to out-performance of Call of Duty.

Microsoft’s gaming division also hit a major milestone this quarter. Feeling the boost from the acquisition being included for two quarters now, annualized Xbox sales reached $20 billion for the first time ever.

I mean, this is why Microsoft spent all that dough. Plus, executives expect this to continue in the immediate future, according to guidance I’ll highlight later in this article, as that annual sales number is likely to move above $21 billion to close the fiscal year.

Now I’ll move right into a rundown of the numbers and a look ahead into the future of a somewhat shaky time for Xbox’s output.

Here’s a quick summary of Microsoft’s quarterly gaming sales, as shown in the slides above.

  • Q3 revenue rose 51% to upwards of $5.45 billion.
  • This was above management’s, and my, expectations.
  • It’s an all-time Q3 record, and Xbox’s second best quarter ever.
  • Out of that percentage gain, 55% was due to ActiBlizz impact.
  • Implies all other areas like Xbox, Bethesda etc saw a decline of 4%.

These quarterly sales move gaming back to fourth place in terms of Microsoft’s major product categories, trailing Windows at $5.93 billion.

Expanding now to current annualized Xbox revenue to get a broader sense of the business:

  • Overall annual gaming revenue is $19.97 billion.
  • Compare that to $18.13 billion as of last quarter.
  • The chart in the above gallery shows these in context.

I’ve long written about how this was the strategy around Microsoft’s merger and acquisition activity, to push past the $20 billion per year mark and approach its largest peers, like Sony and even Tencent, especially by leveraging ongoing services and breaking more into mobile.

Which is why I don’t think Microsoft is done buying, even after spending so much on the world’s largest formerly third party publisher.

Similar to my earlier coverage of Xbox, I’ll mention that Microsoft gives limited visibility into the profitability, or lack thereof, of its gaming business. Two points on that:

  • The More Personal Computing (MPC) segment saw operating profit rise 16% to $4.92 billion.
  • The ActiBlizz deal boosted expenses, as its net impact in Q3 was an operating loss of $350 million.

This implies that Xbox, despite seeing a big top-line boost, was likely less profitable this quarter.

Here’s where I’ll highlight the underlying dynamics, by way of discussing product categories.

First up is the larger of the two, Xbox Content & Services (Xbox C&S):

  • Q3 Xbox C&S revenue increased 62% to $5.03 billion.
  • Same as games revenue, this is also a Q3 record and second best ever.
  • ActiBlizz growth contribution was 61%, thus a 1% gain for everything else.

Then, on an annual basis:

  • Current annual Xbox C&S revenue is $16.86 billion, or 84% of the total.
  • That’s up from $14.86 billion last quarter, when it was 82% of the total.

On the flip side, Xbox Hardware had another tough time, without much to drive its fundamentals right now, as lower unit sales weren’t enough to offset gains from higher pricing:

  • Q3 Xbox Hardware revenue declined 31% to $350 million.
  • The lowest 3rd quarter dollar sales of the Xbox Series X|S generation.

Looking at the last 12 months:

  • At present, Xbox Hardware annual sales are $3.11 billion.
  • That’s down from $3.27 billion sequentially, and $3.37 billion last year.

Since Microsoft doesn’t tell us anything about lifetime Xbox Series X|S unit sales, I’ll keep up with my guesstimates.

  • I had the family at 29 million to 29.5 million last quarter.
  • It’s now likely hovering right around the 30 million milestone.
  • I forecast it moved 700K to 800K in the three months ending March.
  • Which lands it around 29.7 million to 30.3 million to date.

When it comes to supplemental stats like engagement, player counts etc, Xbox management didn’t have much to say.

Chief Executive Officer (CEO) Satya Nadella did note the following on the firm’s conference call:

  • Q3 records for “game streaming hours, console usage and monthly active devices.”
  • The first ActiBlizz title on Game Pass Diablo IV was one of the service’s biggest launches.
  • Players clocked over 10 million hours during its first 10 days.
  • This month, Xbox had 7 games among the Top 25 on the PlayStation store.

Which is a distinct lack of specifics, especially as it relates to Game Pass subscribers or total monthly active users, which unfortunately is a common theme here from management.

Before closing out, I’ll mention Microsoft’s overall results.

  • Company revenue jumped 17% to $61.9 billion.
  • Operating profit moved up 23% to $27.6 billion.
  • Microsoft Cloud sales increased 23% to $35.1 billion.

Slipping into the future, management provided guidance for the final quarter of fiscal year 2024.

Here are the expectations shared by Chief Financial Officer (CFO) Amy Hood for Q4 gaming performance.

  • Total gaming revenue growth in the low to mid-40s.
  • 50 points of that via ActiBlizz impact.
  • Xbox C&S expected to grow in the high 50s.
  • 60 points there from ActiBlizz, thus implying everything else will be down 10%.
  • Xbox Hardware will “decline again.” Based on my math, it will be down 24%.

Using these to make certain assumptions, that translates to the following in dollar terms:

  • Total gaming revenue around $5 billion.
  • Xbox C&S revenue upwards of $4.55 billion.
  • Xbox Hardware hitting $450 million.

These feel right to me, with upside for content based on Senua’s Saga: Hellblade II launching in May, certain games like Sea of Thieves accessing additional audiences and a good effect from Amazon’s Fallout show (which is awesome).

Really, it’s going to go as ActiBlizz games go, notably as they are added to Game Pass.

If Xbox hits these targets, it would shatter a record for fiscal year sales, approaching $21.5 billion. For comparison, this number was at $15.5 billion at the end of fiscal 2023!

I hope you enjoyed the new format experiment, where I’m balancing analysis with word count to make it easier to follow and fun to read.

I’ll be back soon with more articles, and feel free to reach out on social media in the interim. Thanks for reading. Until next time, be well!

Note: Comparisons are year-over-year unless otherwise noted.

Sources: Company Investor Relations Websites, Xbox Wire.

-Dom

Seven Major Games Industry Predictions for 2024

DomsPlaying

Now that I’ve looked back with my 2023 Year-in-Review, which I still highly recommend reading to catch up on trends, games and studios you might have missed, it’s officially time to move into the new year!

After a legendary twelve months of game releases amidst a disastrous time for the industry’s labor market, I believe uncertainty and volatility are set to define 2024. There will be challenges, and plenty of them, yet also select opportunities on which to capitalize. I see a future with new hardware, labor issues and new service launches from key players, among other things.

Rather than make general statements, which are far too easy, I try to make my predictions quantifiable somehow, or at least be as specific as I can, to hold myself accountable. Plenty of people make predictions; not many grade themselves. For instance, here’s my results from last year:

  • Microsoft & Activision Blizzard Deal Closes in Calendar 4th Quarter: Correct.
  • Nintendo Goes Another Year Without Announcing a Switch Successor: Correct.
  • Global Games Industry Value Returns to Growth & Passes $188 Billion: Partially Correct.
    • It grew, albeit not as much as I expected.
  • PlayStation 5 Wins Best-Selling Console in the U.S. Yet Misses Sales Targets: Correct.
    • Well, so far. I would also argue Sony is tracking below its PlayStation 5 fiscal target.
  • Xbox Game Pass Price & Subscription Base Increases: Partially Correct.
    • Cost to consumer went up, though Microsoft refused to share user base stats.
  • Special Year of Fighting Game Releases & Announcements: Correct.
  • Amazon Games Makes Massive Studio Acquisition: Incorrect.
  • Bonus: Bungie Announces & Launches Destiny Universe Transmedia Property: Incorrect.

Not bad, right! Now, check a look below for seven predictions for 2024 covering the games industry at large. Plus, as usual, a super bold bonus guess mostly for fun.

Happy New Year everyone.

Super Nintendo Switch & New 3D Mario Release in Fourth Quarter

I’ll get an obvious one out of the way. In fact, I’ll make it a bit harder by attempting to guess exact things for what’s inevitably going to be the year of Nintendo’s next hardware launch. The company’s next hardware will be called Super Nintendo Switch. It will again have a hybrid portable and console setup, will launch with one model in October, and cost $400 to start.

Alongside, Nintendo will product a mainline 3D Mario as a launch title. It won’t be a sequel to 2017’s Super Mario Odyssey. It will be an open world with various areas and secret levels. It will be called Super Mario [Something] 3D. In addition to this, I’m guessing a motion game launches day-and-date plus a mainline Animal Crossing and Mario Kart will both be out within its first year. The device will, after a somewhat slower start as adopters move on, end up following a similar trajectory as its predecessor within three years. That’s right, I’m officially done underestimating Nintendo.

Difficult Labor Market Continues as Major Publishers Reduce Workforce

This is absolutely the most painful prediction to write, mainly because it’s a carry-over from last year that I don’t think will stop any time soon. During January to December 2023, Games Industry Layoffs estimated that upwards of 9,000 jobs were cut across the sector. I believe that anyone hoping for a more cheerful 2024 for hiring or even stability will, unfortunately, be disappointed.

After years of low interest rate borrowing, higher-than-usual consumer demand and expansion by many firms, I’m expecting even more layoffs and even studio closures in 2024, especially at the top-end, AAA level. Within the first week of January alone, Surgeon Simulator maker Bossa Studios laid off a third of its employees and further losses were reported at Embracer Group’s 3D Realms and Slipgate Ironworks. I believe we’ll see a further contraction of more than 3,000 to 5,000 jobs, with at least two major publishers announcing 5% to 10% workforce reductions.

Microsoft Xbox Mobile Store & Big Name Activision IP Announcements

Here’s a two-for-one. A natural progression of Microsoft’s service-oriented strategy will be developing a dedicated Xbox mobile distribution platform that integrates Game Pass and cloud offerings. I anticipate it will both reveal and release this sort of storefront in 2024, let’s say between June and December. It will simply be called Xbox Mobile. This move is advantageous from various perspectives, in particular for maximizing platform fees, diversifying its offerings, controlling content flow, appealing to potential partners and expanding its audience base across devices. Can it truly compete with Apple and Google’s market share? Well, you won’t see me betting on that.

That brings me to the second part of the prediction: Now that the Activision Blizzard deal is done, I believe the team will revive certain brands, especially those that can round out the Game Pass portfolio and even crossover to mobile. Within the next 12 months, I’m thinking the team will announce the following: new Skylanders and Tony Hawk’s Pro Skater iterations, both being ongoing platforms and revenue generators. Once the mobile store and larger brand IP are established, Xbox will move into Spyro the Dragon and Phil Spencer’s beloved Hexen, which I don’t expect to be revealed until at least 2025. I’m much more skeptical on others, for instance a Guitar Hero revival.

Sony Launches PlayStation 5 Pro & Spider-Man 2 Expandalone in November

Not to be outdone by Nintendo, I’m thinking fellow Japanese hardware maker Sony kicks off its mid-generation console refresh this year. While it feels like just yesterday the platform holder launched the PlayStation 5, partly because of a global pandemic making the passage of time irrelevant, it’s now over three years into the latest cycle. Thus, I’m expecting a boosted PlayStation 5 Pro announcement sometime in the third quarter and a quick turnaround to release in the beginning of November 2024.

Along these lines, I’m going to say star studio Insomniac Games is cooking up what I call an “expandalone” for its 2023 hit Marvel’s Spider-Man 2, similar to the Miles Morales counterpart to 2018’s Marvel’s Spider-Man. (Mild spoiler warning!) This will be a solid 8 to 10 hour experience, it will hit market on the same exact day as the new console model, boast a range of performance options to show off the fancy tech and feature the webbed buddies facing off against Carnage as the primary villain.

Total Global Games Industry Value Will Remain Virtually Flat

In the last quarter of 2023, NewZoo estimated the global games industry did exhibit growth during the year even with a slew of challenges, moving up under a percent to $184 billion in value. The largest contributor of Mobile accounted for over $90 billion, down 2% as this segment stagnated during the year. It was Console and PC software, including full game digital downloads, driving upward momentum with those segments moving up 5% and 2%, respectively.

This year, I’m leaning towards caution for 2024 and think the global industry will remain virtually flat, with slight downside in potential negative territory. This would be notable as only the second decline of the last 16 years, alongside 2021 to 2022. I am guessing $183 billion to $184 billion for the full year. Partly because of a tough comparison against a stacked release calendar, between the out-performance of Hogwarts Legacy and The Legend of Zelda: Tears of the Kingdom among others. I expect minimal mobile momentum to remain, as well as subscription stagnation and a heavy reliance on a new Nintendo console that could have a slower adoption rate. There is some decent upside if my PlayStation 5 Pro prediction hits, because I do expect a good holiday season for Sony regardless.

AI Usage Ramps as At Least Two Big Titles Embrace Generative Voice & Writing

It’s time for the dreaded buzzword bro: Artificial Intelligence! As much as people don’t like AI, or misuse the term, it’s part of our collective future and is already an integral part of making games. It has been for a while within an industry that blends art and technology, as various notably projects have already used some form of it to assist human developers. Recent examples include Ubisoft writers leveraging it for non-playable character chatter, Squanch Games having AI artwork in High on Life and The Finals from Embark Studios features generative text-to-speech.

I expect this sort of AI-assist development tech to take an even more prominent role in 2024. How will I quantify this prediction? I believe that at least two major publisher titles will heavily feature something like AI-enhanced primary characters or substantially aiding the writing team with main or side quest lines. Candidates include Ubisoft, Square Enix and even PlayStation Studios, the last of which has done great work with accessibility features, a fantastic opportunity area for this exact sort of development workflow enhancement.

M&A Cautiously Continues With Acquisitions by Saudi Arabia’s Savvy Games & Netflix

Last year’s merger and acquisition (M&A) valuation was skewed by Microsoft’s monumental $69 billion takeover of Activision Blizzard. Before that closed in October, companies weren’t as active in terms of deal value through the first nine months of 2023 according to a global report from Drake Star. There were 746 deals valued at $18 billion, down from 626 deals at $51 billion during the same time in 2022. Similar to my sentiment right now, there’s a lot of uncertainty around things like rates and jobs, which is why I believe that 2024’s deal landscape will be selective rather than massive.

Even so, there will always be moves made by key players. I expect a couple of those to be Savvy Games and Netflix. The former is the gaming investment vehicle of Saudi Arabia’s government, which is throwing cash at various sectors including tech, while the latter is hellbent on pushing games to its millions of subscribers. Might a name like CD Projekt be appealing to these kinds of buyers after a stock price decline? (I’d say so.) Might a platform holder named Sony be interested in spending big bucks on a Ubisoft or Capcom? (Eh, I don’t think so.) Finally, which business will Embracer spin off to pay down its debt and which company might subsequently buy them? (I’d wager Gearbox Entertainment or Coffee Stain, or both.)

Bonus & Bold: Bungie Concludes The Final Shape With Destiny 3 Announcement

That’s right, it’s time to finish with a pipe dream! Yes, it’s a mostly absurd one. It’s something I want more than expect to happen. I acknowledge Bungie got rid of a reported 100 folks, or 8% of staff at the time, back in October. It’s making a huge push towards The Final Shape expansion, the huge finale of Destiny’s decade-long saga. A good portion of the team is actively focusing on extraction shooter and likely 2025 launch Marathon.

I’d still wager the talented folks at Bungie are drafting up something more substantial for the future of Destiny that isn’t just the announced periodic episodes once the latest expansion concludes in June. Plus, it’s a bloated game with a reportedly dated development process that drastically needs a reset. Which is why I think the third mainline Destiny franchise title will (realistically probably not) be announced this year, and (is super unlikely to) launch subsequently in 2026!

Note: Comparisons are year-over-year and dollars are in US$ unless otherwise noted.

Sources: Bloomberg, Company Investor & Media Websites, Drake Star, Drexel News Blog (Image Credit), Games Industry Biz, NewZoo, Video Games Chronicle, VideoGameLayoffs.com.

-Dom

Spider-Man & Mario Highlight a Down Month for U.S. Games Industry Sales in October 2023 Circana Report

DomsPlaying

Here I am with another domestic sales recap, beginning the final quarter of results for 2023!

October’s numbers are in from industry tracking firm Circana, who revealed the winners of last month’s big battle for supremacy during the year’s busiest time for new game releases.

Despite all the premium software launches, total spending across the U.S. declined 5% in October to just over $4 billion. All of the three major segments of Content, Hardware and Accessories saw lower sales, with Hardware suffering the worst loss over 20%.

That said, 2023’s annual spend remains trending upwards as each category is pointing towards growth rates in the single digits.

The main reason behind October having lower spending, which I apologize for not pointing out last month, was Call of Duty launched last October while this year’s title didn’t hit until November. This led to a strong October 2022, and a difficult comparison against which last month had to contend.

“Growth in physical console software and mobile spending was offset by declines in other areas,” said Circana’s Mat Piscatella. “Particularly digital premium downloads driven by the release date shift of Call of Duty.”

There were still plenty of success stories. October had nine new titles among the Top 20 premium best sellers list, six of which settled within the Top 10. All of them within existing franchises, mind you, as is often the case in a world of brands and sequels.

The biggest among them being Marvel’s Spider-Man 2 which swung a victory as the month’s top earning game, experiencing a notable boost from leading on physical sales in particular. Congrats to everyone who participated in my poll and voted for Sony’s latest blockbuster hit!

It follows that Super Mario Bros. Wonder came in second place, with the usual caveat that Nintendo doesn’t share digital sales here for its published titles.

Supported by the system-seller that is a new Spider-Man game, Sony’s PlayStation 5 again led the Hardware segment. As it has most months this year except for May, trending towards winning 2023 overall in a fully-supplied environment.

Scroll down to get right into October’s data and lists, then my predictions for November.

United States Games Industry Sales (October 1st to October 28th, 2023)

Overall, consumers spent $4.04 billion across gaming in the U.S. during October, or 5% less than last year’s $4.27 billion. This lack of growth, despite all the great starts for software and healthy console dynamics, displays the power of Call of Duty: Modern Warfare 2 launching in last year’s corresponding period. It’s truly a rising tide that lifts all boats.

This latest sales number means 2023 is now tracking up 2%, towards $43.42 billion.

As the largest contributing segment, Video Game Content moved down 4% in October to $3.56 billion. It made up 88% of spending, compared to 86% a year back. Circana attributed it partially to lower downloaded games, even as physical console and mobile gained.

The Content category, which includes software, add-ons and subscriptions, is trending up 1% year-to-date to $37.64 billion.

Mobile was one of the bright spots, a trend we haven’t seen much in 2023. Spending in this area rose 2%, with the report highlighting a consistency among the top games and a notable jump for Clash of Clans back into the Top 10. October’s biggest mobile earners were, in order: MONOPOLY GO!, Royal Match, Roblox, Candy Crush Saga and Pokémon GO.

A variety of new launches bolstered premium software, more than I can remember compared to any month this year.

Marvel’s Spider-Man 2 web-launched above all others during its impressive debut, with launch month sales This year’s Insomniac Games’ open world comic adventure is already the 4th top seller of 2023 even with less than a month of tracking, a monumental win for Sony’s first party that benefited from huge physical sales and a higher price point.

Here’s where Super Mario Bros. Wonder slotted, in 2nd on the overall list and the leader of Nintendo Switch as a platform. It just missed the Top 20 for 2023 to date, at numero 21. Being the first 2D Mario title in over a decade, it’s hard to make legit comparisons for the domestic charts. So I’ll use Switch titles instead. Both Super Mario Odyssey and New Super Mario Bros. U Deluxe reached third during their respective debuts.

Rounding out the Top 3 was Assassin’s Creed Mirage, which continued as a quiet seller echoing recent announcements from Ubisoft on its successful start. Even as a more focused, lower-priced title than its recent predecessors. It began one spot below Assassin’s Creed Valhalla, which debuted in 2nd during November 2020, and the same position as Assassin’s Creed Odyssey in 2018.

Next up for new titles were two annual sports releases in UFC 5 and NHL 24 scoring 7th and 8th, respectively. This means Electronic Arts published four of the Top 8 titles, echoing its live service and ongoing game narrative.

Sega’s Sonic Superstars landed next at #9. For comparison, Sonic Frontiers sped to 4th last November. Beyond the Top 10, Metal Gear Solid: Master Collection Vol. 1 from Konami reached #12, Xbox’s Forza Motorsport reboot finished in 17th and CI Games’ Lords of the Fallen snuck on the list at #20.

You may notice one critical darling that’s missing from October. As I anticipated, Alan Wake 2 didn’t chart. The reasoning is pretty clear. Remedy Entertainment’s latest didn’t have a retail release and publisher Epic Games does not share digital sales. Meaning none of its sales were even counted in this context, thus it’s not comparable to more traditional software starts.

Moving briefly to the annual list right now, the Top 3 remained constant: Hogwarts Legacy, The Legend of Zelda: Tears of the Kingdom and Madden NFL 24. Then there’s the only new entry in Marvel’s Spider-Man 2, knocking Mario Kart 8 out of the Top 20 for the first time all year.

Check below for October’s aggregate premium rankings and 2023 so far.

Top-Selling Games of October 2023, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Marvel’s Spider-Man 2
  2. Super Mario Bros. Wonder*
  3. Assassin’s Creed Mirage
  4. Madden NFL 24
  5. EA Sports FC 24
  6. Mortal Kombat 1
  7. UFC 5
  8. NHL 24
  9. Sonic Superstars
  10. Hogwarts Legacy
  11. Call of Duty: Modern Warfare 2
  12. Metal Gear Solid: Master Collection Vol. 1
  13. NBA 2K24*
  14. Starfield
  15. Elden Ring
  16. The Crew Motorfest
  17. Forza Motorsport
  18. Star Wars Jedi: Survivor
  19. Minecraft
  20. Lords of the Fallen

Top-Selling Games of 2023 So Far, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Hogwarts Legacy
  2. The Legend of Zelda: Tears of the Kingdom*
  3. Madden NFL 24
  4. Marvel’s Spider-Man 2
  5. Diablo IV
  6. Call of Duty: Modern Warfare 2
  7. Star Wars Jedi: Survivor
  8. Mortal Kombat 1
  9. Starfield
  10. Resident Evil 4 Remake
  11. MLB: The Show 23^
  12. EA Sports FC 24
  13. Dead Island 2
  14. Final Fantasy XVI
  15. Street Fighter 6
  16. FIFA 23
  17. Elden Ring
  18. Armored Core VI: Fires of Rubicon
  19. Remnant II
  20. Dead Space Remake

Video Game Hardware took the biggest hit of all major segments in October, moving down 23% to $327 million. I don’t see this as a major story, just a move from one month to the next. So many folks picked up new consoles to play Call of Duty in October 2022, with comparable system sales shifting into November this year.

In stark comparison to the monthly figure, Hardware has grown the most through the first ten months of the year, up 6% to $4.03 billion.

The month’s best-selling console again went to PlayStation 5, as measured by both units sold and revenue generated. It’s continuing to track as 2023’s top device by both metrics.

Intriguingly, even during a month in which a new Mario launched, Xbox Series X|S earned 2nd place on dollar sales, while Nintendo Switch was the runner up by units. I’d imagine that’s partially because of a higher selling price for Xbox, and Switch sales are mostly double dips, Mario red OLED versions or purchases for kids as its audience is firmly saturated.

Similar to the movement of their overall category, all of the three big console families saw double-digit spending declines in October.

In addition to the monthly figures, Circana also provided a quick update on where lifetime figures are for the current generation consoles. Which have now been on market for nearly three years! PlayStation 5 is currently 9% above the PlayStation 4, while the Xbox Series X|S family is tracking behind Xbox One by 11%. Makes sense, given the dichotomy between each company’s approach.

Within our final category of Video Game Accessories, spending last month lowered 2% to $147 million. The most modest of declines compared to its counterparts.

Through October, buyers have purchased $1.75 billion worth of Accessories, or 1% higher than the same time frame in 2022.

October’s top earning peripheral was Sony’s PlayStation 5 DualSense in midnight black. I was expecting that the Marvel’s Spider Man 2 Limited Edition controller might win again, as it did in September, though this result is probably more about limited supply than consumer sentiment.

I’ll confirm with Circana on the current annual best seller, which I believe is still the premium tier PlayStation 5 DualSense Edge based on just how much revenue it generates per sale alone.

Now, what about the Meta Quest 3? Didn’t it launch in mid-October?

It did. However, it wouldn’t be included in this particular industry report. Circana confirmed that Meta Quest headset spending isn’t considered gaming for their tracking purposes. Rather, it’s a “a multi-function device.” Which means that Circana’s Technology group reports on Meta Quest.

Compare that to something more streamlined for gaming like PlayStation VR 2, which is included. Even if it remains a somewhat small portion of the pie.

This treatment truly affects the Accessories numbers because Meta Quest has proven to have the most widespread appeal of any augmented or virtual reality device across the consumer space.

Before I recap and shift to predictions, here’s an added bonus: Circana’s new engagement rankings by platform! As part of its public report, the company is now sharing the most played titles across PlayStation, Xbox and Valve Corporation’s Steam digital marketplace for PC titles. Here’s a look at those, in order of Monthly Active Users (MAUs).

During October, Call of Duty: Modern Warfare 2, Fortnite and Marvel’s Spider-Man 2 were the most-played on PlayStation. When it came to Xbox, it’s the same top 2 games then Grand Theft Auto V reached third. Counter-Strike 2, Baldur’s Gate 3 and Cyberpunk 2077 were the most played on Steam. Other standouts included Roblox starting in 4th on PlayStation, Forza Motorsport zooming to 7th on Xbox and The Finals beta landing it in 4th on Steam.

While October’s total spend declined, there’s a clear reason for it and it won’t really impact 2023’s overall result other than shifting spending on Call of Duty to November. Separate of that, which is a purely hypothetical scenario of course, I’d bet October spending would have grown against last year, especially within Content.

On social media, Piscatella mentioned Hardware in particular didn’t have a surprising result, although he believe it was below that which the platform holders expected. He anticipates more discounting and promotion in the coming months. Plus, he’s becoming more cautious on his annual forecast of 3% spending growth in 2023.

Speaking of looking ahead, I’m looking at spending gains in November driven by what I expect to be the biggest seller in Call of Duty: Modern Warfare 3.

Even with lackluster reviews, it’s still the single most popular gaming brand in the country. It will catapult up the annual chart to become 2023’s best seller, maybe even in November’s report. I expect yet another year where two Call of Duty titles end up in the Top 10.

Now that October is behind us, the release slate is slowing down considerably. There’s a couple niche Nintendo titles in WarioWare: Move it! and Super Mario RPG remake, both of which will end up charting, the latter having more upside into possibly the Top 7. Otherwise, I think Sega’s Like a Dragon Gaiden: The Man Who Erased His Name can surprise, reaching a Top 15 start. There’s also Robocop: Rogue City which garnered more critical appeal than anyone ever thought it would. Why not, let’s say it gets a Top 20 start!

It’s a key time for Hardware approaching the November pre-holiday and the Black Friday period here in the States. I expect a comparable dynamic as October where PlayStation 5 will lead on revenue and units, with Xbox in second by dollars and Switch by units. Especially given the new PlayStation 5 model is now on sale, just in time for shopping sprees to begin.

This is where I recommend hopping over to Piscatella’s Twitter thread for further details and a complete rundown of those spankin’ new engagement lists.

I remain eternally thankful you are checking out the site! Stay well as the holiday season approaches.

Note: Comparisons are year-over-year unless otherwise noted.

*Digital Sales Not Included

^Xbox & Nintendo Digital Sales Not Included

Sources: Circana, Nintendo, PlayStation Blog, Sony Interactive Entertainment, Ubisoft Entertainment.

-Dom

PlayStation Hits Its Best Second Quarter Sales Ever as PS5 & Third Party Games Lift Sony’s FY 2023 Q2 Report

DomsPlaying

No rest for the writer!

Today continues an especially busy stretch of this latest earnings season, as Sony Corp just reported its fiscal 2023 second quarter results today out of Japan.

During this three months ending September, both the firm overall and the PlayStation division experienced revenue growth. And while profitability declined at the company level, the amount earned by Sony’s gaming business moved up double digits.

In fact, PlayStation just generated its best ever Q2 revenue in history.

That marks multiple record-breaking quarters in a row for Sony’s Game & Network Services (G&NS) segment, since Q1 hit its own all-time high as I covered a few months back. This past second quarter saw sales zip past $6 billion for the first time, jumping up more than 30% since last year.

Plus, unlike back in June, PlayStation has bounced back to profit growth this time. I’d argue this is even more substantial than record revenue because it accounts for expenses and really gets to the core of its ongoing health amidst a most turbulent of industries.

Underlying momentum was a higher PlayStation 5 contribution alongside better third party and add-on content performance. On the profit side, signs point to the Bungie acquisition costs being fully recognized, since there’s no longer a mention of the deal. Caveat being, similar to Nintendo, we can’t forget about the yen’s weakness on results for these kinds of Japanese companies that have a ton of overseas sales.

One major component is how PlayStation 5 shipped 4.9 million units between July and September, notably more than this time last year and the corresponding quarter for PlayStation 4. This figure was within management’s forecast, pushing lifetime PlayStation 5 sales to 46.6 million and closing the gap with its predecessor when launch-aligned, as I’ll dig into later.

As for the group’s forecast, executives increased guidance for annual gaming revenue across fiscal 2023 while maintaining guidance for operating income and PlayStation 5 hardware shipments at 25 million, which would be the single best year ever for the brand’s console output.

“We recognize selling more than 25 million PlayStation 5 units this fiscal year remains a challenging goal,” said Chief Financial Officer (CFO) Hiroki Totoki when talking to the media. “It will depend on how sales do in the year-end holiday season. We won’t pursue expanding the PlayStation 5 installment base alone, but will keep profitability in mind.”

Scroll down for a swing through the numbers then a set of my own predictions alongside Sony’s future forecasts.

Total revenue for Sony as a whole rose 3% to $19.6 billion, with the biggest growth contribution from G&NS, Sony Pictures and Music, offset by declines in other areas. However, operating profit at the group level declined 24% to $1.82 billion. This was led by quarterly declines for Financial Services, Imaging & Sensing Solutions and Entertainment, Technology & Services segments.

Focusing strictly on PlayStation during the three months ending September, revenue jumped up 32% to $6.6 billion. That’s an entire third of Sony’s overall business. It’s what I call a massive all-time number, considering last year’s $5 billion or so was also a Q2 record at the time.

A crucial note both in the broader context and at the PlayStation level is the specific impact of currency movement. Out of the $1.6 billion growth, upwards of $410 million is strictly because of foreign exchange rate changes. This helps understand how much of the trajectory is organic, compared to an economic market force like yen weakness.

Reversing its fortune compared to a decline in Q1, operating profit for G&NS moved up an impressive 16% to $340 million. That’s 19% of Sony’s group total. Affecting the plus side were both third party content sales and currency movement, plus there’s no longer any mention of certain acquisition costs that were dragging down profitability. I believe the $3.6 billion purchase of Bungie has been fully recognized now and will no longer affect the bottom line. On the downside, management cited how hardware has produced increased losses, I’d imagine due to higher manufacturing costs.

Checking out product category splits, which are shown in the last graph above, Hardware sales grew a whopping 60% since last year and contributed 30% of PlayStation’s total. The next largest segment at 23% of the pie was Add-On Content, moving up 18% in dollar value. Digital Software produced 39% growth, settling at 21% of the total. In fact, the only product type to decline was Physical Software, down a modest 4%.

Annual PlayStation revenue is tracking towards $28 billion. As you can see in the gallery above, on the revenue graph, this is well above the highest it’s ever been, over a billion more than last quarter. Essentially, if this keeps up, Sony’s gaming unit will have its best year of sales ever. On the other hand, annualized operating profit is at $1.75 billion, which compares more to the late days of the PlayStation 4 life cycle. Still great in a historical context, just not as strong as the past three years or so.

As of this week, the “big three” console manufactures have all reported their latest results. The sole remaining biggest player is Tencent, which will be later this month. Right now for comparison purposes, Sony’s $28 billion is tops for the industry. Even if backing out currency impact, it’s well in the lead. Tencent generated $25 billion as of last quarter, and Microsoft’s Xbox segment saw almost $16 billion (though that’s before accounting for anything from Activision Blizzard). Nintendo’s at $13 billion, albeit with more than twice as much annualized operating profit than PlayStation: $4.2 billion compared to $1.75 billion, respectively.

Heads up: enhanced launch-aligned PlayStation console sales chart is live!

This fancy visual aid gives more context to PlayStation 5’s improving shipment numbers. The console’s 4.9 million units sold-in last quarter is an increase of 48% compared to the 3.3 million in Q2 last year. Plus, it’s 26% higher than the PlayStation 4’s 3.9 million in the corresponding second quarter of fiscal 2016.

It’s the fourth quarter since PlayStation 5’s release in November 2020 that it moved more than 4 million units in a quarter, and one of those was that launch period.

Which means that PlayStation 5, at 46.6 million lifetime, has reversed course and narrowed the gap against its predecessor this quarter. It’s presently only a million units away from reaching PlayStation 4, boosting its trajectory since the supply challenges of yesteryear.

This latest lifetime figure means it’s also passed another gaming device on the all-time best-sellers list. That would be Nintendo’s 1980 handheld the Game & Watch, of course, which ended its tenure at 43.4 million. Next up will be Nintendo’s classic Super NES, which sold 49.1 million globally.

One statistic that Sony didn’t update was console sell-thru to consumers. Probably because it usually waits until a big milestone in order to do so. Earlier this year, the PlayStation 5 reached 40 million sold-thru as of July 16th. I’d bet it’s a bit higher now, maybe in the 45 million range, especially ahead of a system-seller like Marvel’s Spider-Man 2. I don’t see a reason demand would have fallen off.

Digging more into the supplemental stats present in PlayStation’s presentation, full game software unit sales stood at 67.6 million in Q2, up from 62.5 million last year. However, due to a lighter calendar, the proportion of first-party published games was lower, making up 7% of that total as opposed to 11% a year back.

Digital versions accounted for 67% of PlayStation game sales, up from 63% in September 2022. This means that 2 out of every 3 premium games purchased for Sony’s platforms were downloadable.

As for player engagement, Monthly Active Users (MAUs) across all of PlayStation Network totaled 107 million as of September month-end. While this is down a million from the June quarter, it’s up 5 million since last year’s Q2. Management also said that total hours played moved up 4% in the latest three months.

Here is where I’ll continue to lament the loss of PlayStation Plus membership numbers, which Sony stopped reporting earlier this year. It will forever, at least for the foreseeable future, remain cemented at 47.4 million as of March 2023.

It’s been a historic run lately for Sony’s top-line gaming numbers, pumping out multiple quarter’s worth of record revenue and generating more than $6 billion in second quarter sales for the first time. PlayStation is the premier industry player by revenue right now, even if backing out the impact from the yen’s depreciation.

Profitability has certainly been more questionable, partially because of temporary factors like studio investments, acquisition expenses and hardware manufacturing costs. Still, it achieved a double-digit income boost in Q2 on hardware units ramp up and software support from external partners like Electronic Arts and Take-Two Interactive with their respective sports titles, plus something like Diablo IV from Blizzard Entertainment and the Warner Brothers Mortal Kombat 1.

Which is why it’s even more painful to hear about layoffs at various PlayStation studios, including Media Molecule, Visual Arts and Bungie. There continues to be a disconnect between executives and everyone else. It’s not just at Sony, this is just one of the more glaring examples especially as its profitability gets back on track.

Impossible as it is to follow that up, I’ll take a look now at the company’s forecast and make some quick predictions.

The firm revised its fiscal year 2024 PlayStation revenue upwards by 5%. Management now thinks gaming sales will surpass $30 billion when the 12 months end in March 2024, in what would be an astonishing finish and record-breaking result. It then reiterated operating profit guidance of $1.87 billion.

In order to hit the 25 million PlayStation 5 hardware unit target, it still needs to ship almost 17 million units across the next two quarters. 16.8 million to be exact. Even with new PlayStation 5 slim models and the PlayStation Portal, this remains a staggering target that will require an absurd holiday number then a miraculous January to March. For context, the largest holiday season ever for PlayStation 4 was 9.7 million in fiscal 2016, and its largest March quarter was 3.1 million right after launch.

Yea, I’m still not a believer. In that overly ambitious forecast or the over-priced peripheral that is the PlayStation Portal. I’ll keep my same prediction as back in August: 24 million to 24.5 million, leaning more towards the lower end.

With respect to software, note that Marvel’s Spider-Man 2 launched after the three months covered here. Still, Sony shared a sales update for Insomniac Games’ latest open world adventure, selling-thru 5 million copies to consumers after 11 days. It had previously started with the best first 24 hours in PlayStation history, at 2.5 million copies. It’s since fallen behind God of War: Ragnarök at 5.1 million in 3 days, nearly a year ago to the day. The Last of Us: Part 2 moved 4 million copies during its opening 3 days back in June 2020.

All in all, it’s a fantastic launch for Peter Parker and Miles Morales considering the size of the PlayStation 5 install base, clearly bolstering the company’s expectations for the back half of this year.

The final bit of relevant news from Sony’s earnings was a comment around its live service strategy, moving into next fiscal year and beyond. As reported by Video Games Chronicle, CFO Hiroki Totoki mentioned that out of its previously-planned 12 live service titles originally scheduled for launch by end of Fiscal 2025, only half of them are on target. Considering how much time and money Sony is putting into this effort, moving them out is a big deal for its financial future and resource allocation. Personally, I remain skeptical that all of them well actually hit market at any point.

Whew. Well, that’s a wild week of coverage coming to a close. I hope you enjoyed this latest recap. Thanks much for hanging around during this season. I’ll have more coverage here and on social media as another eventful year approaches its inevitable end. Take care!

Note: Comparisons are year-over-year unless otherwise noted. Exchange rate is based on reported average conversion: US $1 to ¥144.4.

Sources: Company Investor Relations Websites, Yahoo Finance, Video Games Chronicle.

-Dom

Nintendo Achieves Best 1st Half Sales of Switch Era & Raises Financial & Software Forecasts in 2024 Q2 Report

DomsPlaying

It’s a busy week here at the site and on socials, partly because the earnings calendar is packed. So, there’s no time to waste, I’ll get right into the topic at hand.

Nintendo reported its second quarter of its fiscal 2024 yesterday, which showcased a fantastic first six months. With sales rising more than 20%, this time frame ended up being the single biggest first half of a fiscal year for revenue since the Switch launched back in 2017.

With a couple of caveats. As always.

First, the results were mostly driven by the record first quarter that I wrote about in August. When focusing strictly on the April to June period, revenue and operating profit declined 4% and 20%, respectively due to a relatively light launch schedule and lower quarterly Switch hardware output than a year ago.

Beyond these dynamics, Japan is currently seeing its worst local currency depreciation in decades. Which is always worth mentioning in this context, and Nintendo specifically cites the yen movement in its report, because it has a notable effect on Japanese companies that operate globally.

Echoing this, Switch hardware unit shipments totaled 2.93 million in the quarter. That’s off 10% from the 3.25 million this time last year. Still, it pushed Switch lifetime shipments to 132.46 million, making it only the third gaming hardware ever to pass the 130 million mark.

In terms of new games, Pikmin 4 was Switch’s big title during the quarter, and has shipped 2.61 million copies since June. This amount means it’s already the highest-selling game in the franchise to date. Add it to the list of titles impacted by the Switch effect, which often boosts new titles in existing series to all-time sales records.

The Legend of Zelda: Tears of the Kingdom also contributed to software and continued its monumental run, now approaching the 20 million unit milestone in just its second quarter. The latest mainline Zelda is a smash hit, already at almost two-thirds of 2017’s classic Breath of the Wild lifetime sales!

In what I’d argue is the most important part of the report, and something I predicted would happen during my Q1 article, Nintendo raised most of its guidance for the full financial year. Management now expects higher revenue, operating profit, software unit shipments and will pay a higher dividend to shareholders. The only thing it didn’t raise was Switch hardware shipments, which it “only” reiterated at the current level of expectation.

“For hardware, by continuing to convey the appeal of Nintendo Switch, we try not only to put one system in every home, but several in every home, or even one for every person,” the company said related to its forecast. “Another objective is to continually release new offerings so more consumers
keep playing Nintendo Switch even longer and we can maximize hardware sales.”

Here’s quick bonus for something that happened after this financial period: Nintendo announced today that Super Mario Bros. Wonder sold-thru 4.3 million units to consumers during two weeks on sale. This makes it the fastest-selling Super Mario title, at least since the firm began tracking this stat in 2004. No wonder execs are more optimistic after yet another historic Switch launch.

Just like Drill Mario would, I’m now going to dig deeper into the numbers.

I’ll first address its quarterly earnings then expand to the 1st half and annualized figures for greater context on how Nintendo’s business is faring over time.

For the second quarter alone, revenue came in at $2.38 billion or 4% lower than a year back. Operating profit dropped 20% to $670 million. Which checks out, due to the big release of this period being Pikmin 4 plus Switch has almost achieved hardware saturation in its likely last year.

Taking the full six months into account, Nintendo achieved $5.65 billion in sales and $1.99 billion in operating income, increases of 21% and 27% respectively. That sales number is above even Switch’s best year in 2020, and operating profit is not far off from that year’s high either.

While this is certainly bumped up by out-performance of Tears of the Kingdom and the Super Mario Bros. Movie, slightly higher hardware units and early upside from Pikmin 4, there’s also the element of yen depreciation. While currency movement is usually more temporary, Japan’s currency weakness has been ongoing for many quarters now.

Taking a look into product categories, Nintendo’s hardware business accounted for around 41% of sales during both the first quarter and six months. That’s relatively constant since last year, when it was at 40%. Software accounted for the remaining 59% this time around, where it was 60% last year. A system-seller like Zelda plus certain bundles continue to prop up console sales this late in the cycle.

From a regional perspective, sales shifted out of Japan and into other territories. Both the Americas and Europe stayed the same since last year, contributing 44% and 23%, respectively. Japan declined from 24% to 21%, while what Nintendo classifies as Other jumped up from 9% to 12%.

Both digital and Intellectual Property (IP) related sales experienced the most growth during Nintendo’s first fiscal half, even if these areas still don’t represent a major portion of sales. Digital revenue output moved up 16%, and accounted for exactly half of the company’s Q2 dollar sales, virtually the same as the 51% a year ago. The mobile and IP-related category more than doubled, jumping 133%. Growth came more so from the IP side than mobile, as The Super Mario Bros. Movie stands at over $1.36 billion in box office earnings.

Combining the last four quarters, the company’s trailing 12-month revenue is currently at $13 billion. While down slightly since last quarter’s $13.12 billion, it’s up 6% year-on-year. Annualized operating profit is tracking towards $4.2 billion, down only slightly compared to both Q1 and last year’s second quarter.

If the revenue number holds, and the firm hits its latest target, Nintendo could achieve the highest annual sales since Wii’s massive popularity in 2008, even with the Switch hanging on during its twilight years.

Pulling a similar passage from my last Microsoft write-up, I’d like to compare industry peers to get a sense of where all of them stand right now. Sony, which reports results tomorrow, had PlayStation revenue upwards of $27.8 billion at last count. Tencent came in next at $25 billion, then Microsoft generated $15.78 billion before the Activision Blizzard deal closed. This is where Nintendo slots, at $13 billion. One thing to note is that Nintendo is more profitable than Sony, which is the only firm out of these four that reports profit numbers for gaming, and I’d imagine it has better margins than Microsoft’s Xbox business with its big investments and product expenses lately.

I mentioned a bit about Nintendo’s hardware results up front, I’ll now get into a more detailed breakdown of this product category.

The second quarter saw those 2.93 million Switch shipped to market, compared to 3.25 million a year ago. This tracks, notably after just how many units moved during the prior quarter, including a desirable special edition for Zelda.

Now, during the first six months of fiscal 2024, Switch sales moved up 2% to 6.84 million. While not quite at the highs of the Switch’s glory days in 2020 to 2022, it is above earlier shipments figures before 2019 during the corresponding time frame.

This shows the utter resilience of Nintendo’s hardware appeal, and making games that translate well from console to handheld. Plus, it highlights how the move to an OLED model replacing the base model drives people to picking up multiple devices for themselves or household members.

Out of those 6.84 million for the first half, 4.69 million were OLED versions. That makes up 69% of the total, and it’s 32% higher than last year’s figure. In fact, it’s the only model to grow over this time frame, considering the base model dropped 44% to 1.25 million units and Switch Lite moved down a more modest 2% to 900K.

This continues to life the lifetime Switch hardware figure, now standing at that 132.46 million. Which is still wild to write, mainly because of how it’s outpaced all expectations. Even mine and Nintendo’s itself. Thing is, while it’s secured a Top 3 spot on the all-time best-selling console list, I don’t see it moving up any further assuming Super Switch is out within the next 12 months. There’s still a 21.56 million gap between Switch and Nintendo DS at 154.02 million.

Then again, the Switch has exceeded all expectations thus far. It might surprise me.

One additional item that I found disappointing from Nintendo’s report is there wasn’t any further detail on console sell-thru to consumers, which it has recently added to its explanatory material. This is likely because it’s trending downward. Still, I’d rather the more data, the better. Maybe next time.

I’ll now take a similar look at the current software dynamic for Nintendo, the segment that makes up the majority of its business right now.

Overall Switch software unit sales in the quarter totaled 44.87 million, down 14% from 54 million. On the flip side, 1st half game sales rose 2% from 95.41 million to 97.08 million. It helps to have one of the highest-rated titles of all time launched in this period in Tears of the Kingdom.

These results drove lifetime software sales for Switch to pass yet another major milestone, this time surpassing 1.1 billion copies sold. It’s now upwards of 1.13 billion, an astonishing result. For perspective, the DS and Wii never reached a billion, even with the former selling many more hardware units. The sheer number of games that Switch owners buy, especially first party, is higher than any Nintendo device in history.

Speaking of big sellers, the number of games that have shipped over a million units during the current fiscal year jumped up a sizeable amount. There were only two back in Q1, just Tears of the Kingdom and the ever-present Mario Kart 8 Deluxe. The Q2 number was 16. Out of these, 12 were published by Nintendo while 4 were produced by third parties.

Chief among them being Pikmin 4, hitting that all-time high for a Pikmin franchise game of 2.61 million units in a single quarter. The previous record holder was Pikmin 3 Deluxe, another Switch title that has moved 2.4 million copies since October 2020.

I will point out that while the latest title has the best lifetime unit sales already, it currently has a lower attach rate than its predecessor partially because of just how many Switch have flooded the market. Pikmin 3 sold 1.28 million, or 9% of Wii U console sales, while Pikmin 4 stands at a 2% attach rate. For the time being.

Separately, it’s hard to overstate the pure magnitude of Tears of the Kingdom. The title sold another million units in the quarter ending September, bringing lifetime sales to 19.5 million. It’s not often that a game approaches 20 million units in a couple quarters. Thus, the title held its position as the 9th best-selling Switch title and will easily surpass Super Mario Party‘s 19.66 million next quarter.

I can’t write about Nintendo earnings and not mention Mario Kart 8 Deluxe, the game that never stops selling. It sold more copies than the brand new Zelda title last quarter, moving over a million and a half in Q2 alone. This game is almost a decade old, people! After this latest boost, the Switch version has officially passed 57 million sold to date.

Elsewhere in terms of new milestones, 2022’s Nintendo Switch Sports scored a new mark, passing 10 million to settle at 10.77 million.

While Nintendo usually reports on shipped numbers, it did share some insight into sell-thru to consumers. In addition to the aforementioned record launch for Super Mario Bros. Wonder, Pikmin 4 has sold-thru 2.5 million units globally as of last week, the largest start in series history.

As for engagement and player stats, Nintendo hit us with an update on Switch Online memberships and (its made-up stat of) Annual Playing Users, both of which are growing at this time as the user base expands. Switch Online subscribers now stand at 38 million, up from 36 million as of September 2022. Annual Playing Users, which is the number of people who have played a single game on Switch in the last 12 months, moved up to 117 million. It was 116 million in Q1, and 108 million last year.

Even considering the latest quarter trending down a bit, Nintendo bucked the trend of an aging console during the first half of fiscal 2024, turning it into a historic one for top-line sales compared to all others since the Switch first launched. It certainly helped to have a blockbuster movie to supplement traditional revenue streams, capitalizing on the quality of its big brand identities.

For a console manufacturer, this highlights the need to diversify. Especially when deep into a hardware cycle at a time when investment is ramping up for the next big device and its corresponding launch lineup.

Nintendo has mixed success in the past leveraging IP in various types of media. The last few months show it’s possible, between theme parks and film, proving there’s major upside as long as they instill that magic that has defined the company for generations and appeal to a multi-generational audience. Cross-media is a core factor behind what’s becoming a banner year for the publisher. And now with the announcement of a live-action Zelda flick in development, it will shape the company’s future income as well.

Here’s where I’ll look at that updated forecast, moving into the pivotal back half of the 2024 fiscal period.

Executives increased annual guidance for overall revenue by 9% to $11.2 billion. Operating profit guidance rose 11%, now expecting $3.55 billion. Additionally, it now expects to sell 185 million units of software during the full year, 3% higher than its initial forecast.

I honestly think the financial targets are still too conservative, based on the annualized numbers I referenced earlier. I think management will slightly increase revenue and profit estimates in its next report.

The firm also confirmed annual Switch hardware unit sales guidance at 15 million. That means between the holiday quarter and the first calendar year quarter, it needs to move 8.16 million more units. For context, last year’s December quarter alone saw sales of 8.23 million. While the Switch is a year older, I believe Super Mario Bros. Wonder among other title launches, a new Red Mario OLED model and a Super Smash Bros. Ultimate bundle can produce enough sales to beat the current estimate.

Even though I’m bullish, I’m slightly less upbeat than I was three months ago. I will slightly reduce my target, now expecting between 16 million to 16.5 million in the year ending March 2024.

2023 has been a huge year for Nintendo’s first-party lineup, across mainline Zelda and Mario titles alone, and I believe it has a decent supplemental slate for the holidays that can lead to financial targets being beat. Detective Pikachu Returns, WarioWare: Move It!, a remake of Super Mario RPG plus more content for Mario Kart and Pokémon titles will act as a second helping to the ongoing main courses of Zelda and Mario.

As for what’s ahead in 2024 and beyond, notably for the console transition, I’ll address those in a future article. For now, that does it for Nintendo’s latest quarter. Stay tuned this week for Sony’s results, and hop over to the earnings calendar to track everything this season.

Thanks for reading! Take care, all.

Note: Comparisons are year-over-year unless otherwise noted. Exchange rate is based on reported average conversion: US $1 to ¥140.96.

Sources: Bloomberg, Company Investor Relations Websites.

-Dom

Starfield Rockets Xbox to Best September Quarter Sales Ever in Microsoft’s Fiscal 2024 Q1 Results

DomsPlaying

Now that I’ve posted my last earnings calendar of 2023, it’s time to look at some actual results!

First up for the big three of the games industry was Microsoft, which posted its first quarter of fiscal 2024 numbers last night.

During this time frame, the Xbox business unit had a record first quarter sales performance. Quarterly revenue on gaming moved up nearly double-digits, generating almost $4 billion.

The clear driver was Starfield in September, a launch which fit the general theme of the Washington-based company’s strategy. Bethesda Game Studios’ space RPG pulled in Game Pass subscribers more than console buyers, a clear signal that this generation is unlike any other for the platform holder.

That’s because, while content and software sales moved up for Xbox, hardware spend actually declined in this same quarter of the year’s flagship game hit market. Starfield and all first-party titles for Xbox land on its subscription service day one, plus the publisher has been offering early access to its biggest titles. For a small fee, of course.

This translated to a boost in hours played and dollars spent by gamers during July to September period, even if they weren’t as interested in scooping up Xboxes.

“In our consumer business, PC market unit volumes are returning to pre-pandemic levels. Advertising spend landed roughly in line with our expectations,” said Chief Financial Officer (CFO) Amy Hood. “And in Gaming, strong engagement helped by the Starfield launch benefited Xbox Content and Services.”

The other headline news recently for Microsoft was the closure of its $69 billion deal for Activision Blizzard, as of mid-October. This subsidiary is now included in financial forecasts and will account for the bulk of the combined entity’s gaming growth during the upcoming holiday quarter.

Scroll down for a close examination of Xbox’s all-time Q1, industry peer comparisons, a discussion on Activision Blizzard’s impact plus a suite of predictions from both management and yours truly.

Based on the above slides and its filings, Microsoft reported gaming revenue of $3.92 billion in the latest quarter. That’s an all-time Q1 best, 9% above the former record holder last year of $3.61 billion.

This growth came in slight above the company’s estimate of “low to mid single digits,” attributed to out-performance of first party and a higher contribution from Game Pass revenue. This indicates that, at least on the content sales side, Starfield had a better debut than management thought it would and brought in more interest than projected.

Moving to the chart in the gallery above, despite this record quarter, Xbox’s $15.78 billion in trailing 12-month revenue is currently 3% below where it was at the beginning of fiscal 2023.

This modest downward trajectory for the annualized figure is certainly temporary, as you can see in the final column there which incorporates the second quarter estimate due to an Activision Blizzard boost, which I’ll cover in a later section.

Now that we know Xbox’s present annual revenue figure of $15.78 billion, we can map where it stacks up across big players in the industry. Sony’s in the lead with the PlayStation figure being over $27.8 billion, amplified by a currency impact and maximum console availability. Tencent accumulated $25 billion over its latest year, while Nintendo generated $13.46 billion.

Here’s where I remind everyone, especially the fanboys, of certain caveats on these comparisons. First, it’s early in the season and there will be updates throughout the coming weeks. Then, the yen has bumped up sales especially for Sony which is also much less profitable then at least Nintendo (Microsoft and Tencent do not report profit numbers for gaming). Plus, Activision Blizzard will augment Microsoft to at least $18 billion and more in the future, so everything is relative.

As I alluded, sales only tell part of the story. While we don’t know how much Xbox made when backing out expenses, we can infer some things from its broader category and the margin mix. Gaming is a part of Microsoft’s More Personal Computing (MPC) segment, which saw Q1 operating profit go up a whopping 23% to $5.17 billion. While expenses declined 1%, the firm cited how this was more driven by a better margin in Devices that was offset by “investments in Gaming” probably related to Starfield’s marketing push. Still, since it didn’t sell as many consoles, which are typically lower margin than software, I’d wager Xbox’s profit only reduced marginally.

I’ll now shift towards digging into results for the two major product categories: Xbox Content & Services and Xbox Hardware.

Essentially, the former had a great quarter while the latter was lackluster.

Xbox Content & Services spending moved up a healthy 13%, amassing $3.18 billion over the three months ending September. By my math, that’s the highest single first quarter for this segment in history. It comprised 81% of Microsoft’s total gaming revenue in Q1, versus 78% this time last year.

It also follows that, over the last year, Content & Services hit $12.55 billion, which is the second highest total ever behind only fiscal 2022 Q3 at $12.7 billion.

More than ever, the fact that content was over 80% of gaming sales when a traditional “system-seller” type game hit market signals the ever-growing movement away from console sales and towards ecosystem. Management wants people to subscribe to their service, to generate ongoing revenue, to bolster that bottom line, rather than one-time purchases of low margin hardware.

And that’s exactly what’s happening more and more this generation as the mix remains towards software and subscriptions.

When talking about the gaming division on the earnings call, Chief Executive Officer (CEO) Satya Nadella shared that Starfield has now attracted over 11 million players to date, up from 10 million as of September 20th.

Showing a more multi-platform skew, management mentioned that almost half of the hours spent on the title have been on PC. Plus, they said it led to a single day record for new Game Pass subscriber sign-ups on its launch date. Unfortunately, they didn’t give any specific figures behind this particular claim, or what the prior best day ever might have been.

I’ll now sound like a broken record, and not the good kind, when I write that yet again management did not share updated Game Pass subscriber numbers. Which is increasingly odd, notably during a monumental quarter with Starfield supposedly boosting the service. Microsoft would have us believe it’s still at 25 million. I’d imagine we might finally hear more after Activision Blizzard titles are integrated and it hits another big milestone because of that.

Flipping in the other direction in Q1 was Xbox Hardware, which saw 7% lower sales than 12 months back. That’s 5% worse than expected, based on backing into management’s prior guidance.

This happened right after a Q4 where it declined 13%, showing that not only were console sales down even leading into the year’s biggest exclusive software launch, they were even worse than Microsoft expected.

Combining the last four quarters, Xbox Hardware currently accounts for $3.23 billion. That’s down 15% year-on-year from the high of $3.8 billion earlier in this Xbox Series X|S generation.

Which, I believe, won’t necessarily phase management. Because console sales are on the back-burner more than they have ever been in the 20-year plus history of the brand.

This time period encapsulates, even amplifies, Microsoft’s strategy. It doesn’t have system-sellers anymore; it has Game Pass sellers. It doesn’t rely on console sales any more; it relies on subscription offerings and catalog consistency. Whether or not this will be sustainable over a longer timeline is the million, scratch that, billion dollar question.

Without unit shipments being reported publicly, all we have are estimates that really end up being closer to guesses. Last quarter, I had Xbox Series X|S at between 24 million and 24.5 million lifetime, thus below Xbox One’s 24.7 million at that same stage. Xbox Series X|S was still above the Xbox 360, which was at 20.3 million launch-adjusted.

What about now and the comparison to prior generations and peers? My best guesstimate puts Xbox Series X|S lifetime at 25.5 million or so. Almost definitely no higher than the 26 million that many estimate Xbox One had by fiscal 2017 Q1. As for current generation comps, Sony’s PlayStation 5 is at nearly 42 million, likely approaching at least 45 million by the time it reports next week.

Competitors are consistently outpacing Xbox in key regions, even during the debut month of Starfield. Circana’s September report on U.S. sales had it in second place behind PlayStation 5, which was also last month’s best-selling console across Europe according to a Games Industry Biz article.

Echoing the success of gaming, Microsoft overall amassed $56.5 billion in revenue in Q1, ending 13% higher than the year prior. Operating profit jumped a whopping 25%, to nearly $27 billion.

Similarly, Microsoft Cloud sales bumped up 24% to $31.8 billion. Nadella and Hood both cited Artificial Intelligence (AI) businesses along with its enterprise operating system and productivity offerings as providing substantial upside.

The Xbox unit just had an all-time July to September period, as predicted in earlier articles, due to the highest profile software it has all year alongside the attraction of a subscription service that offers a lower-priced entry to play that. Plus, an experience like Starfield brings in more PC players than usual because of its modding potential and that Bethesda longevity.

Looking ahead, this is the first official forecast we’ve had from Microsoft on the impact from Activision Blizzard. The firm’s historical comparisons and financial forecasting are both going to be skewed due to the inclusion of this new subsidiary for the foreseeable future.

Its immediate effect will be massive. Across Q2, which is also the holiday quarter ending December, gaming sales are expected to see a growth percentage increases in the “mid to high 40s” i.e. around 45% to 49%.

Out of that, executives said the net impact from Activision Blizzard’s inclusion was 35 points, or 35%. Thus, organic growth for Xbox in Q2 would be around 10% to 14%.

What would that look like in dollar terms? Nearly $7 billion in revenue for the quarter ending December, with Activision Blizzard contributing nearly all of the growth. That’s over a billion and a half better than Xbox’s best quarter of all time, and it means 12-month sales would breach the $18 billion mark.

The company said Xbox Content and Services would grow in the “mid to high 50’s” or almost 60% growth. This would equate to another record of $5.3 billion in quarterly content sales alone.

50 points, or 50%, of that will be from the acquisition. Notably, there’s November’s Call of Duty: Modern Warfare 3, knock-on from Diablo IV and legacy titles entering Game Pass. Something like Forza Motorsport will bolster organic growth, as will major third party launches like sports titles from Electronic Arts and Ubisoft’s busy late calendar slate of Assassins Creed Mirage, Avatar: Frontiers of Pandora and The Crew Motorfest.

While Microsoft doesn’t provide official guidance on Xbox Hardware, it’s easy to back into it, and I arguer it leads to an even bigger story. Management is signalling growth for console sales well into the double-digits, upwards of 22%, to $1.7 billion. That would be the best growth rate in two years, and it’s the aspect of this forecast where I’m the most skeptical.

Now that I’ve covered the financial results, what caused them and where Microsoft is going into this quarter and beyond, that wraps up my first big rundown of the season. Thanks everyone for reading, and hopefully I’ll see you back very soon for more articles and analysis. Stay safe, all.

Note: Comparisons are year-over-year unless otherwise noted.

Sources: Bethesda, Circana, Company Investor Relations Websites, Games Industry.Biz.

-Dom

Remnant II & PlayStation 5 Lead July 2023 Circana U.S. Games Industry Report to Solid Growth

DomsPlaying

As we hang onto the summer as best we can here in the Northern Hemisphere, people are still finding time to pick up and play games.

As it should always be!

Industry tracking firm Circana has posted its July monthly report for spending across the games industry in the United States, and it’s a good one with a few pleasant surprises.

July continued a positive trend of monthly growth lately, bouncing back to a year-over-year increase after last July’s decline. Total monthly spending moved up a modest 1% to nearly $4.2 billion. Circana attributed a boost from digital premium spend outpacing retail and add-on. Plus, subscription spending rose as well.

Gains were seen across two main categories of Video Game Content and Accessories, while Hardware was the only segment to see declining sales. The main drivers were a return to growth, albeit just slightly, for mobile alongside with sizeable launches in premium software, plus a resurgence for various older Call of Duty titles throughout the period.

The biggest July launch of all was a great one for Gunfire Games and Gearbox Publishing with Remnant II. This domestic performance echoes a fantastic global start for the follow-up to 2019’s Remnant: From the Ashes, an impressive run for a soulslike action series that’s become a darling of the industry’s middle tier.

There were two additional new launches charting during July in Nintendo’s Pikmin 4 and Exoprimal from Capcom, as the former outpaced its predecessors while the latter surprised me as I didn’t expect it to land within the Top 20.

For console sales, Sony’s PlayStation 5 can’t be stopped. It won July, just as it did during June and most of 2023 so far, on its way towards becoming the year’s top seller. Supply problems are a distant memory by now, and Sony is capitalizing on demand that’s still going for its latest generation.

“Hardware is no longer comparing to significant supply constraints,” noted Circana’s Mat Piscatella on social media. “[It’s] not likely to see big growth rates as we have over past months. Normalized demand curves may be back.”

Read below as I dig into last months’ numbers and provide predictions for August, the start of the year’s big commercial push!

United States Games Industry Sales (July 2nd, 2023 – August 2nd, 2023)

As mentioned in the intro, consumers spent 1% more on gaming last month than they did a year ago to upwards of $4.19 billion. Last July, sales had dipped almost double digits, meaning the latest result is a welcome return to growth for the industry.

During the year right now, overall spend is also up 1%. The current total is $30.68 billion, boosted by earlier performance in the Hardware category.

The largest contributor of Content rose 2% during July, to $3.72 billion or 89% of the monthly pie. Compare that to 87% of the total last year. Underlying this upward movement was improvement in mobile and key new software releases hitting market.

As I’ve written about over the last year and more, mobile has been lagging other areas of domestic spending. Now, according to Sensor Tower as part of the report, it’s bouncing back. Don’t get too excited, it hasn’t been doing that well. Spending came in less than a percent above July 2022, at 0.2% to be exact. This was partially due to shifts in the top earners, in which Royal Match led the charge, followed up by MONOPOLY GO!, Roblox, Candy Crush Saga and good old Pokémon Go.

Shifting to premium software, three new titles landed among July’s 20 best sellers.

The win for Remnant II parallels its global success, where it sold-thru over a million units to consumers during its first four days. I’d wager it’s well on the way to 2 million and beyond. The first game, as a new brand in an increasingly competitive landscape, took a bit to find its footing yet became a breakout hit at over 2.5 million copies lifetime, a great result for this sort of title that straddles the line between indie and AAA.

Following that up were two titles published by Activision Blizzard in Diablo IV, which I thought could win the month, in second alongside 2022’s Call of Duty Modern Warfare: 2 jumping back into the Top 3.

The next July release to chart was Pikmin 4 at #6. The first party exclusive to the Nintendo Switch began four spots ahead of its predecessor, which debuted in 10th place during August 2013 after hitting Wii U. I’ve said it before and I’ll say it again, this is yet another example of why I wish Nintendo included digital sales for these U.S. reports. I think Pikmin 4 had a legitimate chance at a Top 5 start, which would be fantastic for a series that’s not one of the company’s flagship offerings.

As much as I was surprised to see Remnant II win July, I might be even more shocked that Capcom’s Exoprimal managed to even chart. The multiplayer only dino-hunting shooter fought to 16th, which I’d call great for the new intellectual property that many critics called bare bones at best. Perhaps I underestimated the desire for fresh ideas, or the fact that people want to shoot dinosaurs. Either way, it’s a fine start.

One more minor story on the charts is how three Call of Duty games finished in the Top 20. Two legacy Black Ops titles, among others, experienced a ton of returning players because Xbox fixed matchmaking for their online components. (Might be related to that small deal Microsoft is finalizing..) It also shows the brand’s sheer dominance that a game from 2012 in Black Ops 2 garnered enough interest to grab July’s 13th spot.

Checking the annual ranks so far, it’s the same exact Top 10 as the first half of 2023 from back in June with minor shifts below that. The sole newcomer is Remnant II immediately at #18 after its strong launch, knocking Marvel’s Spider-Man Miles Morales out of the Top 20.

See below for the month’s and 2023’s full premium charts.

Top-Selling Games of July 2023, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Remnant II
  2. Diablo IV
  3. Call of Duty: Modern Warfare 2
  4. Hogwarts Legacy
  5. Final Fantasy XVI
  6. Pikmin 4*
  7. The Legend of Zelda: Tears of the Kingdom*
  8. Street Fighter 6
  9. Elden Ring
  10. MLB The Show 23^
  11. Star Wars Jedi: Survivor
  12. Mario Kart 8*
  13. Call of Duty: Black Ops 2
  14. Minecraft
  15. FIFA 23
  16. Exoprimal
  17. Marvel’s Spider-Man Miles Morales
  18. Marvel’s Spider-Man
  19. Dead Island 2
  20. Call of Duty: Black Ops 3

Top-Selling Games of 2023 So Far, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Hogwarts Legacy
  2. The Legend of Zelda: Tears of the Kingdom*
  3. Diablo IV
  4. Call of Duty: Modern Warfare 2
  5. Star Wars Jedi: Survivor
  6. Resident Evil 4 Remake
  7. MLB The Show 23^
  8. Dead Island 2
  9. Final Fantasy XVI
  10. Street Fighter 6
  11. FIFA 23
  12. Dead Space Remake
  13. Elden Ring
  14. Madden NFL 23
  15. Mario Kart 8*
  16. Minecraft
  17. The Last of Us Part 1
  18. Remnant II
  19. God of War: Ragnarök
  20. Pokémon Scarlet & Violet*

As for major categories, Hardware was the only to decline as it moved down 19% to $292 million for the month.

All three major platforms across current gen PlayStation, Nintendo and Xbox experienced declines, even with ample supply. This is partially due to a healthy comp last year when inventories were improving. At the time back in July 2022, console sales were up 12%.

It’s to the point where availability has normalized, plus there weren’t any true system-sellers or multi-platform juggernauts in July whereas past and future months contain more enticing software for buyers.

Still, for 2023 at present, Hardware remains trending way up. It’s showing 17% growth to $2.92 billion, compared to last year’s $2.49 billion across the same time frame. Signs point to last month being an anomaly compared to others, seeing as spending gains are in double digit territory through seven months.

PlayStation 5 repeated, as it has often this entire year, as the month’s best-selling console by both dollars and units sold. In fact, other than May and Switch’s win on the back of a new Zelda, Sony’s big box has led every month of 2023 by dollars generated.

Speaking of Switch, it took home second place in July by both metrics. Then, as usual in what’s become somewhat of a meme for sales folks, Xbox was in third. A boring meme, granted, but one nonetheless!

What this tells me the most is supply has officially returned to where it needed to be, just in time for a potential new Switch successor and perhaps enhanced, juiced up models for the PlayStation and Xbox. July was just a quieter month than usual lately on the demand side of things.

Our final sales grouping is Accessories, which grew 8% last month to $173 million. Within products here, Circana attributed the most growth to game pad spending.

Even with this upward contribution from July, spending on Accessories has turned ever-so-slightly negative for 2023 right now because of a big corresponding month last year. Annual sales are presently at $1.25 billion, or 1% lower than a year back.

The best-selling peripheral last month was again the PlayStation 5 DualSense Edge top-end controller. It’s also 2023’s top seller, bolstered by that premium price point.

As its namesake title returned to the top earners on mobile, and The Pokémon Company launched its Pokémon Sleep app, the Pokémon Go Plus started as last month’s 3rd best-selling accessory. In case you were curious, because I know I was, it’s a literal “hand-held” device that uses Bluetooth to track sleep, launch Pokéballs and snatch up those coveted monsters.

Because we gotta catch ‘em all, even when we’re asleep.

July often proves to be the calm before the big budget side of the industry tends to pick up starting in August and beyond. This past month was a good one from a sales perspective, inching up in the low single digits while showcasing series bests like Remnant and Pikmin in great positions. Sony continues its run in both hardware and accessories, seeing PlayStation 5 snatch win after win, ramping up after too much time being held back by outside forces.

Even something like Exoprimal beat my expectations, low as they were.

Before I go, it’s time to put some predictions down on paper. Or online. You know what I mean.

It’s a massive time incoming with the annual Madden launch kicking off the season, among others. The Buffalo Bills’ Josh Allen graces the cover of Madden NFL 24, a premium title which will be August’s top-selling thus continuing the long-running streak of Electronic Arts winning its launch month.

Then we have a lot of juicy titles that can and will hit the top ranks. First, Larian Studios delayed Baldur’s Gate 3 on PlayStation to September, so it’s only PC sales that will be included next month. Even so, it’s already among the highest concurrent players on Steam of all time, so I’m super upbeat on its prospects here. I’m thinking a Top 5 position.

There’s also a new FromSoftware game hitting market in Armored Core 6: Fires of Rubicon. While I don’t think it will get anywhere near the heights of Elden Ring, the knock-on effect of that title’s success combined with FromSoft’s pedigree will greatly benefit an otherwise niche series. Let’s call it Top 10.

As for new franchises, Electronic Arts has another launch in Immortals of Aveum. The fantasy first-person magic shooter is a real crapshoot, and I’m leaning cautious due to its release window around so many established games. I’m looking at a Top 20 debut.

As for re-releases, I’ll keep my rant about Red Dead Redemption hitting PlayStation 4 and Switch short. Just like the Wild West characters it portrays, this game is robbery being priced at 50 bucks. The only “saving grace” here is that Take-Two Interactive doesn’t share digital sales. I really hope it flops. Putting aside personal politics, I expect it won’t chart, and only would if downloads were included.

Even shorter will be my guess for top-selling hardware: PlayStation 5, yet again.

Separately, Piscatella reiterated his “low single digit percent growth forecast” for 2023 overall. It’s certainly on track, with plenty of heavy hitters left. That includes, as those of you following me on Twitter have known for a while, an annualized Call of Duty sequel with the same name as an earlier game in the franchise Modern Warfare 3 set to launch on November 10th. I fully expect it to be the year’s top earner.

Thanks for stopping by for my latest recap. I recommend Piscatella’s full thread for more. I’m sending all my best to those impacted by the devastating fires in Maui. Here is a good list of resources to send relief. Plus, giving love to those on the West Coast with this weekend’s tropical storm.

Be well, stay cool everyone.

Note: Comparisons are year-over-year unless otherwise noted.

*Digital Sales Not Included

^Xbox & Nintendo Switch Digital Sales Not Included

Sources: Circana, Electronic Arts, Gearbox Publishing, Nintendo.

-Dom