Tag: Industry

PlayStation Achieves Record Holiday Sales & Profit in 2022 Q3 & Raises PS5 Annual Hardware Target

DomsPlaying2 Comments

What a quarter for PlayStation. Talk about bucking the trend!

I’ve been writing recently how this past holiday will be a mixed bag for many consumer technology firms, including gaming hardware manufacturers and software publishers. Sony is both of these things, and management is masterfully navigating the murky waters of our economic environment.

This fact is clearly illustrated when it reported third quarter fiscal 2022 results earlier today in Japan, in which the overall business grew double-digits and the PlayStation business unit achieved record Q3 sales and operating profit. The prior record-holder was this same quarter last year.

Within the report, it showcased growth across all PlayStation product categories. Hardware output more than doubled since last year, as did retail software, and digital content rose substantially. As I’ll show in a later chart.

PlayStation 5 (PS5) hardware had its best quarter to date measured by shipments, by a wide margin. Sony shipped 7.1 million PS5 units between October and December, up a whopping 82% compared to last holiday’s 3.9 million. That brings lifetime PS5 unit sales to 32.1 million. It’s now outsold the Sega Genesis, which peaked at 30.75 million overall.

Not only that, Sony actually increased its annual hardware guidance! While PS5’s better availability is impressive given higher input costs and supply chain disruptions of calendar 2022, it’s worth noting the console is still tracking below PlayStation 4 (PS4) at this same point in the early life cycle.

Partially driving demand for the new console was a suite of AAA games around this time. Third-party hits Call of Duty: Modern Warfare 2 and annualized sports games plus a system-seller like God of War Ragnarök alongside a supplementary title like Gran Turismo 7 significantly bolstered software, as both physical units and digital downloads soared.

“We are seeing steady results from the various measures we have taken in terms of both hardware and software,” management said in prepared remarks. “And we believe that we have created positive momentum to re-accelerate the growth of the game business centered on the expansion of the penetration of PlayStation 5.”

Here’s a deeper dive into the numbers behind this all-time holiday season, then a look at the company’s guidance and my predictions. Including a new chart format for the category mix!

Across the broader corporation, as shown in the above slides, Sony generated 13% more revenue this quarter up to $24 billion. Operating profit however declined 8%, to $3 billion. That second figure was the second best result in company history in local currency, behind only Q3 last year.

Shifting focus to the PlayStation segment alone, which is called Game & Network Services (G&NS) in Sony’s reporting. Sales increased a staggering 53% to $8.8 billion. Operating profit rose a more modest, yet still impressive, 25% to $820 million.

PlayStation exhibited exceptional top-line and profit growth that led to both of these figures being all-time records. Now it’s partially due to foreign exchange movement in a volatile rate environment, yet it’s mainly due to improving underlying fundamentals in its gaming business. Better hardware sales due to supply being there and demand staying strong, plus a big boost from first-party software. Even rising costs related to network business and acquisitions couldn’t hold profit back.

This was an astounding quarter. Looking at product category sales, nearly all of them moved up double-digits in Q3. Quite literally off the chart, as shown in the last one in the above gallery. Hardware was the biggest contributor at 35% of the total, since it more than doubled since last holiday. Add-On Content was the next biggest segment at 21%, even if it “only” increased 5%. Digital software comprised 20% of the PlayStation business, improving its sales 35% year-on-year. Physical Software proved to be the biggest mover from a growth standpoint, more than tripling.

Factoring in this latest record quarter, annualized revenue for G&NS is upwards of $22.84 billion right now. That’s the highest in history, tracking towards a best-ever year of sales. In fact, it’s $3 billion more than it’s ever been. I can’t overplay how well gaming is doing from a revenue standpoint, approaching a ridiculous $23 billion.

Profitability over the last 12-month period is a bit more tempered, as annual operating income totals $2.11 billion at present. It’s certainly recovering from where it was last quarter, trending towards pandemic highs.

Running down a quick comparison to industry peers, Sony is still in second place from a revenue standpoint. Tencent reports in March; for now, its annual sales are around $25.8 billion. PlayStation slots in here at the $22.84 billion. In Microsoft’s report last week, which I covered here, revenue over the last 12 months equaled $15.56 billion. Lastly, Nintendo is at $13 billion, though it has also yet to report and will do so next week. Keep in mind that a combined Microsoft and Activision Blizzard entity could eventually compete with Sony for second place, though I’d estimate it’s not above $20 billion to $21 billion just yet.

Now I’ll dig more into additional info from Sony on unit sales, network results and engagement stats for its gaming vertical.

Full game software sales declined in Q3, from 92.7 million to 86.5 million. That accounts for both internal teams and external publishers, including bellwethers like Call of Duty, Madden NFL and FIFA.

For first-party titles, this is where the real boost occurred. It nearly doubled from 11.3 million last year to 20.8 million. The bulk was, of course, driven by God of War Ragnarök which started at 5.1 million units during its launch week in November and has since reached the 11 million milestone. It’s the fastest-selling platform exclusive in PlayStation history across both of these time periods, a ridiculous result for the sequel to God of War (2018).

Within software, digital downloads compromised 62% of total game sales on PlayStation. That’s the exact same figure as last year, and only down slightly from 63% last quarter. The aforementioned growth of retail sales certainly affected this split.

Sony’s rebranded PlayStation Plus service now has 46.4 million subscribers, down compared to last year’s 48 million. Still, it’s higher than the 45.4 million last quarter thus showing sequential growth.

The other major user stat of Monthly Active Users (MAUs) edged up a million in Q3 to 112 million. It’s also 10 million higher than Q2, since the holiday season tends to attract new users and returning players alike. Sony also cited the transition to current generation hardware as a reason for user acquisition. The percentage of that 112 million that were solely on PS5 moved up to 30%, or roughly 33.6 million individual accounts.

“Engagement metrics of users who transitioned from PS4 to PS5, such as their PS Plus subscription rate, gameplay time, and average spending amount are significantly higher than those when they played on PS4,” executives said. “So we will continue to focus on accelerating the transition of PS4 users to PS5.”

Sony points out that almost 30% of MAUs on PS5 are users that never had a PS4, thus it’s attracting various new players, and payers, to the ecosystem. An essential part of any console business.

Intriguingly, for PlayStation players, total gameplay time declined 3% versus last Q3. Compared to the quarter ending September, it was up 6%. Focusing strictly on the month of December, hours jumped 14% compared to November.

“We believe that user engagement is on a recovery trend due to the penetration of PS5 and the contribution of hit titles,” management said. Based on the way hardware is trending, how high revenue has grown and its excellent title lineup last year, I certainly see that same trend.

It’s hard to overstate how exceptionally PlayStation performed in the months between October and December 2022.

To secure record revenue and profit during this macro environment, when people are facing inflation and returning to other activities, it’s truly the exception within consumer tech and gaming. Quite literally moving the opposite direction of a major peer like Microsoft. Even Apple is facing revenue challenges as it reports 5% decline in sales just this afternoon. Related publishers around the globe are struggling to outpace last year’s results. I’m supremely impressed with the leadership executing on its strategies, namely how it secured enough consoles to satiate pent-up demand.

Moving into the last quarter of its current fiscal year, management provided updated guidance for a variety of numbers. It slightly reduced total sales guidance down 1%, then bumped up operating income by 2 percentage points. These now imply around $81.2 billion in revenue and $8.33 billion in profit for fiscal 2022.

As for PlayStation, management reiterated its annual sales forecast which would be a record of $25.6 billion. It also raised guidance for gaming operating profit by around 7%, now expecting $1.7 billion for the year mainly because of currency movement. I think the top-line figure is fine for PlayStation as a segment, though firmly believe that operating profit forecast will be easily achieved. It feels too conservative given the latest holiday performance.

On the flip side, management is being even more aggressive on its PS5 unit sales outlook for the year. It’s raising the already high forecast by a million units, up to 19 million. Which would bring lifetime shipments to 38.3 million. All I can say is: Wow. Talk about upbeat! Right now, PS5 sales for fiscal 2022 are at 12.8 million thru 3 quarters. Sony needs to ship a massive 6.2 million in the 3 months ending this March in order to accomplish this target.

Now, I thought they were out of their collective mind last quarter. And I remain my usual skeptical self, considering 6.2 million is more than literally any other quarter in the PS5 life cycle other than this past holiday season. Management’s confidence must be rubbing off on me, as I think Sony will get close: I’m bumping my annual forecast to 17.5 million to 18 million.

What else could drive results into March? Well, PlayStation VR2 launches in a few weeks though I’m tepid on its commercial upside. Virtual reality remains a niche market, and the cost to entry is high for a peripheral that requires a pricey base console. I expect 1 million units to ship in the quarter ending March, yet a marginal impact on the bottom line considering it’s also costly to make headsets.

There’s also Sony’s transmedia push, which is paying dividends for both gaming and its Pictures division. In particular, the collaboration with HBO on The Last of Us is a smash hit and having broader audience appeal beyond any expectation. It’s attracting massive viewership and driving sales of September’s console release of The Last of Us Part 1, which is also launching on PC before fiscal year-end, and June 2020’s The Last of Us Part 2.

Well, talk about a lot to cover! It’s been a busy season already. Thanks for checking out another recap. Head on over to the latest earnings calendar for more dates to come, and I’ll have a full rundown of Nintendo’s results after the company publishes them next week.

Until then, be safe everyone!

Note: Comparisons are year-over-year unless otherwise noted. Exchange rate is based on reported average conversion: US $1 to ¥141.7.

Sources: Company Investor Relations Websites, HBO Max (Image Credit), USA Today (Image Credit).

-Dom

Microsoft Gaming Sales Decline in 2023 Q2 Despite Xbox Monthly Active Users Reaching Record 120 Million

DomsPlaying2 Comments

First up on the new year’s earnings calendar is Microsoft, which reported its fiscal 2023 second quarter results last week.

Results were mixed in the holiday period for the software giant and its Xbox business, mostly expected coming off last year’s all-time highs. Just last quarter, gaming had its best Q1 ever.

That’s not the case for Q2, where normalization towards pre-pandemic levels has started in earnest. Even so, it was still one of the best quarters in Xbox history, which is important to keep in mind as headlines are often gloomier than reality.

In the three months ending December, Microsoft’s gaming revenue showed a double digit decline for the first time in three years. Mainly due to a sparse exclusive game slate, lower third-party monetization and ongoing hardware challenges. From a dollar standpoint, it was still the third best Q2 ever for Xbox, as I’ll illustrate soon. The sky isn’t anywhere near falling.

Executives tried to paint a picture around engagement and Xbox Game Pass while not providing any updated subscription numbers for its flagship service. On the bright side, they did share an updated figure for Monthly Active Users (MAUs) across the Xbox ecosystem as it passed a major milestone by year-end.

“In gaming, we continue to pursue our ambition to give players more choice to play great games wherever, whenever, and however they want,” said CEO Satya Nadella. “We saw new highs for Game Pass subscriptions, game streaming hours, and monthly active devices.”

I’ll now move into the underlying numbers for the latest quarter, then provide a look ahead to the back half of Microsoft’s fiscal year.

Between October and December, Xbox generated $4.76 billion in revenue which is 13% lower than the same time last year. That was in-line with guidance. While this number is the lowest it’s been in three years, it’s the third best Q2 in history only behind the latest two.

This historical context really illustrates the sort of impact quarantine spending had on the industry, as just last year Xbox recorded an all-time second quarter revenue high of $5.44 billion.

Executives pointed to this strong comparable as the main reason Xbox suffered declines across first and third-party content plus lower hardware sales output. I wouldn’t necessarily call it an outright disappointing holiday season; it’s just not nearly as good as last year.

One caveat is currency impact on this figure. You’ll see in the above slides that total gaming sales were down 9% in “constant currency.” This implies a 4% impact from exchange rate movement. I tend to report the overall figure because global companies must navigate these shifts, while also noting this particular point when fluctuations are especially drastic.

Taking into account the latest quarter, current annual gaming revenue stands at $15.56 billion. As shown in my chart, Xbox segment sales have been slowing lately after peaking around a year ago. It was bolstered by last holiday’s record quarter until now. This chart also keeps quarterly movement in context as it smooths out the results, displaying how well gaming has been faring versus the Xbox One generation.

Within these articles I like to run a quick comparison to industry peers, even this early in the season. Tencent currently has the most annual revenue from gaming, at upwards of $25.8 billion. Sony reached $20 billion. Here is where Microsoft’s $15.56 billion slots in, while Nintendo rounds out the list at $13 billion. If accounting for Activision Blizzard’s latest $7.4 billion in annual sales and assuming roughly $2 billion in redundancies and overlap, the combined entity could have between $20 billion to $21 billion in annual gaming output, potentially matching PlayStation depending on where exchange rates go.

Now, revenue isn’t the sole metric by which a division’s health is measured. Microsoft doesn’t share specifics on Xbox’s profitability, so we’re left to infer here based on its More Personal Computing (MPC) business segment results. Gross margin dollars reduced by 29%, driven by a mix towards lower margin businesses that include gaming. Expenses rose 6%, thus segment operating income dropped 47% to $3.32 billion. All of this implies profitability dropped in the quarter for Xbox, consistent with its lower sales output.

Moving over to category mix to show the underlying dynamics. Within the Xbox business, both sub-segments of Xbox Content & Services and Xbox Hardware experienced comparable double-digit declines as the business cooled.

The larger contributor Content & Services, which includes software and subscriptions, lowered 13% in the quarter. Right at company guidance. It accounted for $3.38 billion in sales, or 71% of Xbox’s total. Nearly the same contribution as last year, and lower than recent quarters since its hardware counterpart has been inconsistent.

During the last 12 months, Content & Services has generated $12 billion in revenue, making up 77% of annual gaming sales. It’s been at that same exact percentage for the last six consecutive quarters.

As has been tradition, Microsoft yet again didn’t share an update on Xbox Game Pass subscription figures. The latest of 25 million is way outdated, from back around September 2021. I often say that we learn just as much, if not more, from what a company doesn’t share. This is one of those cases. I assumed Microsoft would boast when it passed 30 million subscribers, so I assume it’s below that right now. In my predictions piece for 2023, I said it could reach that threshold by Microsoft’s fiscal year-end in June and move higher in the back half on the strength of new releases. I just hope Microsoft is more transparent, at some point.

Thankfully executives did provide another engagement stat: MAUs for the Xbox network overall. Finally. Two years ago, this figure crossed the 100 million user threshold. Now, according to Nadella, it’s at a record 120 million. Thus recently averaging 10 million per year in user growth and nearly double the 65 million achieved back in fiscal 2019. It makes sense that management would point to this within its strategy that emphasizes ecosystem over hardware, expanding its offering to more devices than ever and making a play that stacks up accounts as opposed to unit sales.

Rounding out the category mix with Xbox Hardware, this segment declined 13% to $1.38 billion. The slides cited both a lower average price and number of units sold compared to last holiday, which I’d call somewhat of a concern at this early life cycle stage. Also concerning is the dollar output, which is less than the second quarter in both 2018 and 2019 during the middle of last generation. It shows a few things: hardware is less important to the overall Xbox business than ever before, the lower-priced Xbox Series S is contributing a substantial share plus supply constraints continued into the quarter as competitors were able to better navigate the cost environment.

On an annualized basis, Xbox Hardware is tracking at $3.6 billion in sales right now. The lowest in six quarters. It bucks the trend of a traditional console cycle, where sales should be increasing in the early years. Note that the Xbox Series X|S family of devices launched in November 2020.

It begs the question: How many Xbox Series X|S consoles have shipped to date? Last quarter, I estimated between 17.5 million and 18 million. Given the revenue indicators and supply situation, I guess it’s approaching 21.5 to 22 million at this point, implying around 4 million shipped in the holiday quarter. This would be virtually in-line with Xbox One at this point in the life cycle (22.1 million). My estimate is partially because I notice Nadella is no longer boasting the family as the fast-selling in Xbox history. And it’s nowhere near its current generation counterpart. Sony’s PlayStation 5 recently passed 30 million sold-thru to consumers, and was already at 25 million lifetime shipped in September, showing strength in availability towards the latter parts of calendar 2022.

Fitting the general themes of macro pressure on tech in particular, Microsoft overall had its slowest quarterly growth in six years and missed analyst estimates. Top-line sales rose 2% to $52.7 billion, while analysts thought it would be above $53 billion. Microsoft Cloud alone increased 22% to $27.1 billion in sale, which met expectations. MPC was the only segment to decline, moving down almost 20% to $14.2 billion on PC market weakness and high output last year.

On the profit side, operating income declined 8% to $20.4 billion. Profitability was impacted by a $1.2 billion charge related to laying off 10,000 employees, or 4.5% of its workforce, which the company announced earlier this month. That’s a lot of talented people losing their jobs, notably in a shift towards artificial intelligence businesses, and I hope they are able to find success elsewhere.

General slowdowns hit both Microsoft and its Xbox division during the holiday period, even if it was still one of Xbox’s best quarters when compared to recent history. Higher Xbox Game Pass subscriptions propped up weakness elsewhere, especially the first-party game lineup, and hardware results reveal that the Xbox Series X|S family needs to ramp up supply as soon as possible.

I’ll finish up here with guidance for the next quarter, ending this March, according to Chief Financial Office (CFO) Amy Hood.

Management expects gaming revenue to decline in the “high-single digits.” Assuming it’s down 8%, that implies quarterly Xbox revenue of $3.44 billion. Its lowest in three years.

Xbox Content & Services revenue will decline in the “low-single digits.” Hood claims Xbox Game Pass user growth will outpace “lower monetization per hour” in both first and third-party games. It’s a corporate way to say subscriptions will rise while active engagement, and thus spending, will be down. Let’s assume the decline is 5%, implying Q3 sales of $2.86 billion from Xbox Content & Services.

Microsoft didn’t actually provide an outlook for Xbox Hardware. Based on the above, signals are pointing to another double-digit drop that might be upwards of 20%. The current quarter is a continuation of last year, where first-party output is light and the supply of Xbox Series X in particular will be hamstrung.

Still, the calendar will pick up soon as Xbox Game Studios will publish Minecraft Legends in April then Redfall in May. Thing is, I’m not expecting either of these to move the needle in a major way on the financial side. Certainly not as much as something like Starfield or Forza Motorsport, both of which are slated for this year without a concrete window. Personally I’d be surprised if Starfield makes it out by the fiscal year-end in June.

Speaking of June, Microsoft management reiterated on the conference call that, while its guidance doesn’t include any impact, they continue to anticipate the $69 billion Activision Blizzard deal will close by then. I’m way more skeptical on that front, as displayed in my aforementioned predictions article.

Thus ends my first big recap of 2023, in what will be a shaky quarter for many public companies across the games industry and related sectors. Check back soon for more analysis and a full rundown of results for platform holders Sony and Nintendo. Thanks for reading! Be well, all.

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

Sources: Company Investor Relations Websites.

-Dom

Seven Major Games Industry Predictions for 2023

DomsPlaying

Now that the calendar has turned to January, it’s time to say goodbye to 2022. Which means it’s also time to, yet again, claim that I can accurately predict the future!

As I’ve done in recent years, I tend to kick off the new year by listing out a few predictions for the games industry across the next 12 months. These expectations can range across a number of topics: hardware, software, services, acquisitions, workplace trends and the value of the global games market.

Before diving into the new piece, I like to check back to hold myself accountable for the prior year. Here were my main predictions for 2022, where I successfully called that there would be more unionization, Nintendo wouldn’t announce a new Switch, Sony would rebrand PlayStation Plus and the impact of NFTs and blockchain would be felt in various places.

Misses included the sequel to The Legend of Zelda: Breath of the Wild, now known as Tears of the Kingdom, launching (which it didn’t), the global games market would grow slightly (it declined slightly) and a new BioShock being announced (total long shot, I admit).

Focusing on the future, here’s a list of seven predictions, and a little bonus, for 2023. Let’s see how I fare this time around!

Microsoft & Activision Blizzard Deal Closes in Calendar 4th Quarter

I’ll rip the band-aid off right away. Apologies to everyone who is sick of hearing about Microsoft’s pending purchase of Activision Blizzard: This story isn’t going anywhere anytime soon. Especially now that regulators around the globe have sunk their teeth into the details. Rightfully so, for a deal worth upwards of $69 billion. Currently, the companies still expect the deal to close in June. Personally, I’m skeptical and think it moves back to around an October to December window.

Why? Inquisitive regional regulators in the United Kingdom and United States combined with a glacial legal system. The Competition and Markets Authority (CMA) in the U.K. will publish the results of its investigation in April. The U.S. Federal Trade Commission (FTC) is taking action to potentially block the acquisition, kicking off a legal battle that will commence trial in August. These things alongside delays due to likely appeals if the decisions go against Microsoft mean that I don’t think it meets the current estimate. I do, however, think it ultimately will close before year-end.

Nintendo Goes Another Year Without Announcing a Switch Successor

Continuing my main hardware prediction from a year ago, I’m not betting on Nintendo announcing any major Switch hardware in the upcoming four quarters. One of the best-selling consoles ever is still moving units quite well for this point in the life cycle. It’s trending towards being the top-selling console of 2022 in the United States by units according to The NPD Group as demand continues, especially from households that want multiple devices and a record-setting November start for Pokémon Scarlet & Violet.

While Nintendo reduced its fiscal year shipment target from 21 million to 19 million, plus the technology is certainly outdated, I don’t see much upside in executives revealing a new device in a year where The Legend of Zelda: Tears of the Kingdom and potentially other flagship titles (Mario? Pokémon?) hit market. The transition to a successor will take a delicate touch, notably when it comes to backwards compatibility with the current library of games and usage of accessories. I’m targeting an announcement for what I hope is called Nintendo Super Switch sometime in 2024, with a release in first calendar quarter of 2025.

Global Games Industry Value Returns to Growth & Passes $188 Billion

Last year, I was more optimistic on the global games market value than I should have been when I thought it could increase a bit. According to NewZoo, the industry’s annual value is trending down 4% to $184.4 billion. This is driven by downward pressure from mobile and console segments, declining 6% and 4% respectively. The weakness in mobile is what I didn’t anticipate, and this category has an outsized impact on the overall figure since it makes up half of the total. Then there’s the limited supply of hardware throughout most of 2022, which didn’t really recover until the fourth quarter.

I expect the industry’s worldwide value to bounce back towards growth over the next 12 months. I could see 2% to 3% growth, which would translate to roughly $188 billion to upwards of the $190 billion milestone. Underlying this recovery will be a reversal of trends including a mobile spending rebound, improved hardware inventory, demand for consoles continuing, PlayStation VR 2 and a much more robust AAA software calendar due to previously-delayed games hitting storefronts. Indicators point to strong console demand alongside titles from major publishers, especially Xbox Game Studios, including various holdovers from the past couple years such as Hogwarts Legacy, Star Wars Jedi: Survivor, Street Fighter 6, Final Fantasy XVI, The Legend of Zelda: Tears of the Kingdom and, hopefully, Starfield.

PlayStation 5 Wins Best-Selling Console in the U.S. Yet Misses Sales Targets

While we won’t know until this week’s full-year report from The NPD Group, PlayStation 5 is currently on track to be 2022’s best-selling console in the United States by revenue. GfK Entertainment said Sony’s latest was the top-selling device in the United Kingdom by units. I expect PlayStation 5 to outpace all peers and earn the win for both dollar sales and units in 2023 in key markets (other than Japan, where Switch is dominant). Supply data shows drastic improvement in the fourth quarter of 2022, and Sony’s own comments point towards further growth. Microsoft’s latest Xbox family isn’t generating as much in dollar sales because its high-end Xbox Series X is still tough to find, and Nintendo’s Switch is in its twilight years.

On the flip side, I’m skeptical Sony can reach its fiscal hardware shipment targets for the next couple years. I don’t see how it achieves a highly ambitious forecast of 18 million for the year ending March. At last count back in September, PlayStation 5 lifetime shipments were at 25 million. Sony announced during last week’s Consumer Electronics Show (CES) the PlayStation 5 family passed 30 million sold-through to consumers, implying at least 5 million shipped in the quarter ending December. That would bring the current year to 10.7 million, requiring upwards of 7.3 million during this month through March. Which isn’t going to happen. Going forward, speculation points to an even higher target for April 2023 to March 2024, where executives might guide to 30 million shipped in the year alone. Even if its suppliers are ramping up production as much as Sony claims, and consumers keep showing interest, that’s too lofty of a goal. I’m much closer to a 22 million to 23 million annual range.

Xbox Game Pass Price & Subscription Base Increases

Here’s a classic two-for, combining a couple of big Xbox predictions in a single entry. At first, these may seem at odds with one another since I believe both the monthly cost and overall user base for Xbox Game Pass will increase in 2023. Starting first with the bad news, it’s inevitable that Microsoft bumps the price of its subscription service. The last time Microsoft raised the monthly price of Game Pass was during 2020, when the PC version doubled from $5 to $10. Recently, Microsoft said full-game prices for Xbox Game Studios releases are going up to $70 this year. I’m thinking the Ultimate tier moves to $18, from $15, while the base version moves from $10 to $13 by next holiday season.

Even considering this, I bet the audience of Game Pass also grows in 2023. How many users did the service actually have in 2022? Sony claims it’s at 29 million. Microsoft told everyone it’s at 25 million almost a year ago. While it might be ambitious, I think Team Xbox will provide two updates on its flagship service during 2023. It can pass 30 million by its June fiscal year end, then achieve 35 million by December. There’s a number of benefits boosting the user base towards these milestones. It’s the prospect of first party projects like Starfield and Redfall, maybe a suite of Activision Blizzard titles, plus additional external partnerships especially with Japanese publishers that prove value will continue to rise even if the cost does too.

Special Year of Fighting Game Releases & Announcements

When it comes to genres that may define 2023, I expect fighting games to punch their way back into the spotlight. Relevance here will be boosted by a couple massive launches from legendary teams like Capcom and Bandai Namco alongside newcomers like Riot Games, in addition to select announcements of future titles. Starting with games set to launch, Capcom will produce another mainline entry in its Street Fighter series with Street Fighter 6 in June. Based on anecdotal evidence from its beta testing, people are way upbeat on this one after the disappointing predecessor. Then there’s Tekken 8 from Bandai Namco, which debuted a new trailer at The Game Awards and executives said could launch in 2023. Adding to the calendar might also be Riot Games’ Project L, an exciting twist on the League of Legends universe.

In terms of announcements and reveals, SNK said in August that Garou: Mark of the Wolves 2 is currently in development. Of course, the elephant in the room is Warner Bros’ NetherRealm, which hasn’t released a game since Mortal Kombat 11 back in 2019. If it sticks to the usual schedule, its current project should be Injustice 3. Back in October, NetherRealm’s Ed Boon said the team will share information “in due time.” I expect that time to be mid-year. Finally, I’m anticipating a surprise fighting game hit within the casual space, along the lines of last year’s MultiVersus. Could it be the return of PlayStation All Stars Battle Royale? Will Epic Games partner with every single brand and make the ultimate metaverse fighter? Which title will be the next to surprise the FGC and solidify 2023 as the Year of the Fighting Game? Your guess is as good as mine, though I certainly expect at least one breakout banger.

Amazon Games Makes Massive Studio Acquisition

First off, I have no real basis for this. There haven’t been rumors or speculation. It’s not based on inside information. It’s more of a hunch with the way Amazon Games has been aggressively pushing into the space, especially the past couple years with releases like New World and Lost Ark alongside a deal with Glowmade for a game based on original IP. It’s collaborating with the likes of Bandai Namco on the MMORPG Blue Protocol plus Crystal Dynamics for a future entry in the long-running Tomb Raider series. It partnered with Riot Games to host a Valorant event. The multinational retail conglomerate also owns streaming platform Twitch, and its Prime Gaming service continues to offer incentives for gamers to keep up Amazon Prime subscriptions.

I think Amazon’s level of investment accelerates in the next 12 months, during which it might even outright purchase one of the remaining independent gaming companies. Targets could include the likes of Electronic Arts, Square Enix, Take-Two Interactive or even Ubisoft, the last of which already has an acting relationship for streaming service Amazon Luna. If I had to bet, I think Ubisoft is a prime candidate. From a cost perspective, it’s more attractive than the likes of Electronic Arts. Square Enix has been selling off assets and refocusing towards NFTs. Take-Two seems to pride itself on remaining independent with its 2K Games and Rockstar units. It sounds like Ubisoft has fielded offers in the recent past, so Amazon might very well be looking into a potential buy already.

Bonus: Bungie Announces & Launches Destiny Universe Transmedia Property

You know I couldn’t finish the list without a fun bonus prediction! I think there’s a really good chance that we see what non-gaming projects Bungie has been working on within the Destiny universe. It’s no secret the developer is ramping up hiring for its transmedia offerings, including adding former Riot Games animation director Derick Tsai to become Head of Development for Destiny Universe Transmedia. Plus, now that Bungie is owned by Sony, I’d imagine there’s active chatter amongst Sony’s film and television divisions to adapt Bungie’s popular science fiction IP into different types of media.

To make this prediction better, I bet Bungie both reveals and launches a transmedia property based on Destiny in 2023, whether it’s a movie or show. The game has rich lore and great characters which I think could translate well into an episodic format. Similar to how the live game does seasonal content and weekly story drops. I’d love to see its world represented outside of gaming, exposing the excellence that is Destiny to an even broader audience than ever before.

Note: Comparisons are year-over-year and monetary values are quoted in US Dollars unless otherwise mentioned.

Sources: Foureyes Furniture on YouTube (Image Credit), Getty Images, GfK Entertainment, NewZoo, The NPD Group.

-Dom

MultiVersus Fights to Victory During 9th Straight Month of Sales Declines for U.S. Games Industry in July 2022 NPD Report

DomsPlaying

Summer is trending towards its end here in the States, and spending on video games is showing similar signs of laziness.

As I’ve written about recently, publishers and developers are generally seeing declines from highs of the last couple years when they benefited from more restrictive quarantine measures. This is reflected in today’s monthly sales report from The NPD Group, which showed another period of lower spending by consumers across all of gaming.

With an almost double-digit decline in total spend during July, the games industry experienced its ninth consecutive month of contraction. It’s worth keeping in mind that last year was an all-time high for July spending, so it’s nowhere near a doomsday scenario.

This is attributed to a variety of factors, namely a normalization towards pre-pandemic levels and leaning towards other entertainment options. Purchasing on subscriptions like Xbox Game Pass and PlayStation Plus, continues to be the lone bright spot. Losses elsewhere, notably mobile experiencing its worst decline of 2022 to date, prove to be weighing down the results.

Out of Video Game Content, Hardware and Accessories segments, only Hardware was able to generate any sort of monthly growth.

In what I’d call the surprise upset of the year, character fighter MultiVersus emerged victorious for overall software sales. This free-to-play game from Warner Bros managed to snag the top spot away from 2022 heavyweights like Elden Ring and Lego Star Wars: The Skywalker Saga solely due to people purchasing its founder pack.

Positive signs on the console front continued for Sony’s PlayStation 5 as it led hardware ranks last month when measured by dollar sales, bolstered by improved stock at retail. Which is reassuring, even if temporary, given global chip cost is still increasing and supply chain disruptions are still rearing their ugly head.

The NPD Group’s Mat Piscatella shouted out a couple items of note on Twitter, namely the aforementioned improving supply for hardware and an “impressive” start for Xenoblade Chronicles 3 on Nintendo Switch which debuted in fourth place on the software list.

Look below the fold, so to speak, for a full recap of July’s monthly sales report.

United States Games Industry Sales (July 3rd, 2022 – July 30th, 2022)

When compared to the record $4.57 billion in monthly earnings this time last year, total consumer spending on gaming dipped 9% in July to $4.18 billion. The gallery above displays a handful of handy images digging into the specifics. I’d point attention to the trend chart showing the past few years, clearly displaying this latest amount is nearly identical to that of July 2020.

Expanding to an annual figure for more context, aggregated 2022 sales are currently down 10% to $30.46 billion. This was upwards of $33.86 billion in the seven months ending July 2021.

The biggest contributor was Video Game Content, which counts software and related purchasing, hitting $3.67 billion during July. That’s roughly 88% of overall spending for the month. It’s also off 10% from last year’s $4.1 billion.

Mobile is traditionally the main factor within Content. Unfortunately, mobile just experienced its worst monthly decline of the year to date. This was vast under-performance, considering historical seasonality indicates this is when mobile spend should actually be doing well. While the report didn’t share an exact dollar or percentage movement, I’d call it a yellow flag that’s worth monitoring as we move more into the back half of 2022. Top mobile performers, in order, were Candy Crush Saga, Roblox, Coin Master, Pokémon Go and Evony: The King’s Return.

Also a part of Content, premium games boasted three newer releases within the top eight of July’s best-sellers.

The shocker here again being July’s leader in MultiVersus, which hit open beta with only days left in the tracking period plus was the best-selling title on the Xbox platform list. It’s reminiscent of 2017’s Fortnite Battle Royale, which started its reign in beta form and remained that way for a while. The reason a free-to-play game like MultiVersus was even on the list, let alone led, was the strength of its Founder’s Pack offering things like characters and in-game currency. Combine a low barrier to entry with solid gameplay and optional monetization for an estimated 12 million players right now and that’s a recipe for solid earnings.

This also means Warner Bros published two of the Top 3 titles within the premium ranks, seeing as Lego Star Wars: The Skywalker Saga moved down one spot to third place. The sheer consistency of this 3D action adventure is notable, maintaining a strong position since starting out back in April.

Sandwiched between those as July’s runner-up was, of course, Elden Ring. Which has been, and will be, a constant force on the U.S. charts. Just yesterday, publisher Bandai Namco shared how From Software’s latest surpassed yet another sales milestone, reaching 16.6 million units sold globally as of June. That’s up 3.2 million since March’s 13.4 million total. I expect it to achieve 20 million next quarter as it will compete with Call of Duty: Modern Warfare 2 for this year’s domestic chart-topper.

The second new release to chart in July was Xenoblade Chronicles 3, making it to #4 even without its digital sales counted. That’s the best start for any title in the series from a ranking standpoint. Its predecessor Xenoblade Chronicles 2 ranked #16 back during a heavy holiday month of December 2017, plus the original didn’t make the Top 10 back in April 2012 when it launched in North America. This year’s entry was also Switch’s best-seller during July.

Digimon Survive was the only other new entry on the overall chart, achieving eighth place to start. This is quite the accomplishment for the visual novel slash tactical RPG also published by Bandai Namco, considering it went on sale with only a couple days left in the July tracking period.

As for other movers, Electronic Arts’ F1 22 stood out as passing other titles into the Top 10 during its first full month of sales. Overwatch and Nintendo Switch Sports dropped outside the Top 10 while two older Call of Duty titles in Black Ops Cold War and 2015’s Black Ops 3 shuffled into the Top 20, showing a clear consumer appetite ahead of mid-September’s showcase for this year’s military shooter.

With respect to 2022 so far, the Top 10 list was unchanged as Elden Ring, Lego Star Wars: The Skywalker Saga and Pokémon Legends: Arceus remain as best-sellers. I expect that to change in August. Without a doubt.

Here’s a full rundown of the best-selling software during July and 2022 right now.

Top-Selling Games of July 2022, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. MultiVersus
  2. Elden Ring
  3. Lego Star Wars: The Skywalker Saga
  4. Xenoblade Chronicles 3*
  5. Call of Duty: Vanguard
  6. MLB: The Show 22^
  7. Mario Kart 8*
  8. Digimon Survive
  9. Minecraft
  10. F1 22
  11. Kirby and the Forgotten Land*
  12. Super Smash Bros. Ultimate*
  13. Animal Crossing: New Horizons*
  14. Overwatch
  15. Pokémon Legends: Arceus*
  16. Nintendo Switch Sports*
  17. Call of Duty: Black Ops Cold War
  18. Far Cry 6
  19. Call of Duty: Black Ops 3
  20. Monster Hunter Rise

Top-Selling Games of 2022 So Far, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Elden Ring
  2. Lego Star Wars: The Skywalker Saga
  3. Pokémon Legends: Arceus*
  4. Horizon Forbidden West
  5. MLB The Show 22^
  6. Call of Duty: Vanguard
  7. Gran Turismo 7
  8. Kirby and the Forgotten Land*
  9. Mario Kart 8*
  10. Madden NFL 22
  11. Minecraft
  12. Nintendo Switch Sports*
  13. FIFA 22
  14. Marvel’s Spider-Man Miles Morales
  15. Monster Hunter Rise
  16. Super Smash Bros. Ultimate*
  17. Animal Crossing: New Horizons*
  18. Call of Duty: Black Ops Cold War
  19. Mario Party Superstars*
  20. Dying Light 2: Stay Human*

The only large segment to gain in July was Video Game Hardware, moving up a solid 12% to $362 million in consumer spend. I believe this is the best result since way back in July 2008, when it reached almost $450 million during the height of Nintendo Wii fever.

Funny what can happen when people can find boxes at retail!

Consoles sales are still currently down year-to-date, albeit Hardware is the only category to remain in single-digit decline territory. During the first seven months of 2022, spending totaled $2.5 billion or 7% lower than the $2.67 billion at this point last year.

Just as it did back in June, PlayStation 5 generated the highest amount of dollar sales compared to all other competitors. Xbox Series X|S came in second place, as I confirmed with The NPD Group directly. Both families generated double-digit gains in revenue compared to July 2021, which is reassuring at this stage in the cycle given where supply has been the past two years.

This is great sign for these manufacturers individually and the general potential of the domestic industry here in 2022, implying better inventories and ongoing demand. The economic equation has been out of whack for too long, leading some to believe that scarcity was leading to increased levels of buyer interest. Personally, I maintained the demand side has been consistently high since late 2020. It’s just time for supply to catch up, hopefully over a longer time frame rather than a temporary boost.

If measured by unit sales, Nintendo Switch topped the category again during July. Similarly, PlayStation 5 was the runner-up by this metric. Same as June, in both regards.

The major takeaway for those that track these things closely is supply constraints might very well be easing. Slowly. Or the refrain could be temporary. With the semiconductor situation globally where experts are still projecting 10 to 15% price increases, I’m hesitant to be too optimistic in this area. What’s great is the supply chain seems to be firming up. That’s on display with PlayStation’s results here plus something like Valve increasing production of its Steam Deck handheld. Consumer electronics are hitting the market.

Along these lines, Sony is quite upbeat on the remainder of this year into early next year for PlayStation 5, which recently hit nearly 22 million in lifetime shipments. It recently reiterated what I think is an ambitious 18 million units sales target for the fiscal year ending in March 2023. Right now, the current generation of hardware is lagging its predecessor, though executives are signaling strength to the market. I hope that turns out to be true, even if my forecast is in the 15 to 16 million range. As a reference, Sony shipped 2.4 million units during April to June which is up slightly from 2.3 million a year back.

Nintendo is more conservative on its aging Switch hybrid as compared to prior years, setting an achievable target of 21 million for its fiscal year ending at the same time. Granted it’s at over 110 million units lifetime, with only a couple years left before its successor in my opinion as I don’t expect another mid-generation refresh or any sort of “Switch Pro XL HD” version.

The remaining category of Video Game Accessories moved down the most during the month, dipping 22% to just under $150 million. Now, everything in perspective. This is against another record-high for a July month last year when it reached $190 million. Thus, while it’s more than a 20% decline, the comparable period last year was the strongest ever.

When accounting for the year to date, Accessories spend is now just above $1.2 billion. That’s also showing the most precipitous decline of the three categories at 15% lower than last year’s $1.41 billion.

Running in parallel to the Hardware segment during July, a PlayStation product led the charge. The PlayStation 5 DualSense Midnight Black edition was the top-selling accessory, retaining its monthly lead from June. Sony’s controllers, both current generation DualSense and DualShock 4, have been consistently winning the past few months.

Still, the Xbox Elite Series 2 controller maintains its stranglehold on the annual period so far based on generating more revenue per unit because of its premium price tag. It’s been leading year-to-date for a while now.

Accessories isn’t the most glamorous of topics, I’m wondering when we’ll get a virtual reality headset check-in from NPD Group any time soon. In particular, the Meta Quest price increase kicked in earlier this month. Which, even with a dip in demand, might cause dollar sales to rise. I’d still expect a game pad to lead, mainly because of negative reaction from consumers to any sort of price bump in an inflationary environment.

For those of us tracking the U.S. games industry closely, the themes of 2022 were well intact during July: normalization, inflation, supply challenges and lighter spending compared to strong comparables. The release calendar was still quite light, even with a surprise like MultiVersus and a solid start for more niche titles in the West like Xenoblade Chronicles and a Digimon visual novel.

Now, August is when things will really pick up on the premium software side. It’s the perennial start of the games industry’s commercial swell before pushing into the pre-holiday competition.

As it does every year, a new Madden game will kick off the late summer sales rush. Madden NFL 23 fully launches today from Electronic Arts, featuring the late great John Madden on its cover. Regardless of its reviews and reception, this franchise will always be a commercial juggernaut leading into the football season. I’m expecting it to lead August’s ranks, and easily at that.

The other brand new AAA launch for August is Saints Row incoming next week on a multitude of platforms. Volition’s latest in the long-running open world franchise is a reboot this time, so it’s somewhat of a wild card when it comes to sales. I think it’s releasing at the perfect time, with no Ubisoft or Rockstar open world debuting alongside, which will provide a noticeable commercial benefit. Published by Deep Silver, I see Saints Row starting in the Top 5 on August’s overall software list.

Otherwise, Nintendo’s slate is light as a feather without any major games of note. Soul Hackers 2 from Atlus will be out soon, and I could see an appearance in the Top 15. PlayStation also launched its Marvel’s Spider-Man Remastered on PC, which could very well fling back onto the charts.

Considering how stock might go, I’m forecasting another PlayStation 5 dollar sales lead in August. July’s numbers and anecdotal evidence all show a continually improving supply situation for Sony and its peers. Plus, a major multi-platform sports title like Madden hitting market means there’s going to be more casual folks yearning for the hottest new generation console. That said, I’ll wager Nintendo Switch keeps its unit sales win streak alive even without any first party bangers.

That’s a wrap on this past month’s analysis. I highly recommend checking out Piscatella’s thread on social media here because he highlights more on the platform side and various details. As always, thanks for visiting. Be safe and healthy out there!

*Digital Sales Not Included, ^Xbox & Nintendo Switch Digital Sales Not Included

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

Sources: Bandai Namco, Sony Corp, The NPD Group.

-Dom

Nintendo Announces Switch Lifetime Hardware Sales Pass 110 Million as Revenue & Profit Dip in 1st Quarter 2023

DomsPlaying

First it was Microsoft. Then it was Sony. Now it’s time for Nintendo to get in on the action, reporting its first quarter fiscal 2023 (already!) financial results out of Japan today.

Like trends seen at other console manufacturers, Nintendo’s numbers were mixed with a sprinkling of positive highlights and major milestones. The Kyoto-based manufacturer and publisher is experiencing normalization back towards pre-pandemic levels, facing the impact of a high comparable last year, hardware supply challenges, inflationary pressure plus a lighter lineup of summer blockbusters.

During the three months ending June, Switch passed a major milestone in terms of its global unit sales. It’s now become only the third home console ever to surpass the 110 million units shipped threshold, sharing such rarefied air with Sony’s PlayStation 2 and PlayStation 4. Even amidst chip shortages going into its sixth year on market, the Switch is persevering.

Even so, Nintendo’s financials proved to be weaker than the same time last year. Both revenue and operating profit experienced declines, the latter in the double-digit range. Gains due to a weaker yen and Switch OLED’s higher contribution couldn’t outweigh pressure from chip shortages and people returning to experiential spending elsewhere. It’s also important to keep in mind how the last two years have been outliers, in many respects.

“Positive factors included the depreciation of the yen and the addition of Nintendo Switch OLED Model with its high unit price to the hardware lineup,” executives shared in the company’s presentation. “But hardware production was impacted by factors such as the global shortage of semiconductor components, resulting in a decrease in hardware shipments and subsequent decline in overall sales.”

This is partially due to lower software unit sales, as Switch saw less than half as many “million-sellers” in this year’s fiscal Q1. New releases centered on casual sports, as both Nintendo Switch Sports and Mario Strikers: Battle League hit during this window, and both became million-sellers. Kirby and the Forgotten Land continues its excellent performance, becoming the best-selling game ever in the mainline Kirby franchise. Like usual, Nintendo’s software results were bolstered by ongoing momentum from the likes of Mario Kart 8, Animal Crossing: New Horizons and the healthy Ring Fit Adventure.

Nintendo, and I, expected this sort of movement from last year’s highs based on things like the general release slate and various macroeconomic factors. Which is why the company reaffirmed annual guidance around sales, profitability, hardware and software units. I’ll write a bit later about my own forecasts given this framework.

There’s not a moment to waste! It’s time to slide right into the numbers. Get ready for two whole galleries of images, the first from Nintendo’s presentation and the second a grouping of my own charts displaying key financial indicators.

During this April to June time frame, Nintendo generated around $2.37 billion in revenue or 5% lower than last year when measured in local currency. Operating profit totaled $784 million, representing a 15% drop on rising expenses mainly associated with Switch marketing and game development.

It’s a classic mean reversion I’ve written about for similar results recently, a dip towards more normalized spending after two years of substantial boosts from the pandemic. While COVID and its variants are still present, there are more people vaccinated which means they are turning to other types of entertainment outside the house. That is, when they can afford it. People’s hard-earned cash isn’t going as far lately as many countries suffer from the worst inflation in decades.

There’s also the more technical element of yen depreciation, which ends up hurting Japanese companies whose primary business is conducted overseas. This leads into Nintendo’s latest regional breakout which saw 44% from The Americas, a number consistent with last year’s split. Then it’s Europe at 26%, up from 24%. It follows that Japan now represents only 20% of Nintendo’s business, down from 22%. This means that only one-fifth of its revenue is gained locally, meaning a weaker yen has a significant effect on its sales.

Now I’ll dig into product categories underlying Nintendo’s quarterly output. Software and related content comprised 56% of Q1 revenue, up from 53%. It follows that Switch hardware made up the remaining 44%, down compared to the 47% a year ago. What this indicates is hardware is losing ground at a more rapid pace than software, as the latter benefits greatly from ongoing events or downloadable content for legacy titles. If it wasn’t for the Switch OLED model, this skew would be even more towards software.

There are two charts in the below gallery showing the trend of quarterly revenue and profit, where we see the declined compared to recent years however still trending above that from fiscal 2019. Then there’s the two charts which smooth out these results by showing trailing 12-month figures, as I add up the latest four quarters. Trailing annual revenue is right near $13 billion for Nintendo, severely hampered by the yen weakness when converted to dollars. Operating income over the last year is $4.43 billion. This helps keep the overall business in context, rather than focusing strictly on shorter-term movement.

Using these recent annual figures, I’d like to compare Nintendo’s results to industry peers in Tencent, Sony and Microsoft. I will preface this by saying the conversion from yen is really taking a toll on Nintendo and Sony right now. Tencent’s $33 billion in annual gaming revenue is untouchable, though it’s the only one of these that hasn’t reported this quarter and I expect it could decline. Sony’s $21 billion from PlayStation is up next, then Microsoft’s Xbox revenue of $16.22 billion comes in third. If Microsoft’s accounted for Activision Blizzard, which it won’t until next year, it would rival Sony’s output. Which means Nintendo’s revenue is on the lower end at $13 billion. However, Nintendo’s $4.43 billion in operating profit over the last 12 months is higher than PlayStation’s $2.44 billion.

Focusing now on Nintendo’s console business, Switch shipped 3.43 million units globally during the quarter. That’s down 23% from the 4.45 million in Q1 of fiscal 2022. It’s the lowest number of Switch hardware shipments since 3.28 million in January to March 2020.

The base model felt the most precipitous drop, moving down 60% to 1.32 million of the quarterly total. Switch Lite posted a 48% dip, shipping 590K. Which means the Switch OLED model was the best-selling in the family during the last three months, moving 1.52 million boxes. That brings the lifetime total of just Switch OLED to 7.32 million since October 2021. This was precisely Nintendo’s intention, to shift buyers towards the fancy, higher-priced OLED.

Overall, Switch lifetime shipments now total 111.08 million. Compare that to lifetime sales of 89 million at this same time in calendar 2021. In an ironic twist, Switch is now the third home console AND the third portable device to pass the 110 million mark. PlayStation 2 and PlayStation 4 reached 155 million and 117 million, respectively. Separately, on the handheld side, Nintendo’s own Nintendo DS achieved 154 million while Game Boy/Game Boy Color settled at almost 119 million. For now, the PlayStation 4 is in the Switch’s sights, especially since Sony stopped reporting its prior generation hardware figures just this quarter.

As referenced in an earlier slide, sell-through to consumers for the quarter ending June declined for the second year in a row. While the company didn’t specify the exact amount, the trend-line is clear at this point in the life cycle. Especially given the tremendous impact from Animal Crossing: New Horizons back in March 2020, when sell-through of Switch consoles peaked.

Even amidst lower global hardware sales, Switch is still holding up among its counterparts in its biggest market. That’s according to the Q2 2022 report from industry tracking firm The NPD Group, an often cited source here at the site. Switch was the best-selling console in the U.S. during April to June when measured by units, and is still the year’s best-seller by this metric as I wrote earlier in the month. This dynamic makes sense given the Switch’s more attractive pricing and consistent availability at retail, plus supply challenges having an outsized effect on new generation consoles.

Switching over to Nintendo’s software sales for the quarter, it’s a bit brighter than its hardware counterpart. In that it didn’t see as big a decline from a unit standpoint.

Total game shipments in the period ending June declined to 41.4 million, down 9% from the prior year’s 45.29 million. Namely because it was a quiet time for those million-sellers: only four games sold this amount in the period alone, and none of them were from third parties. Compare that to 9 this time a year ago, 7 from Nintendo and the remainder from external partners. So, while there are select titles hitting this threshold, there were less of them amidst a sparse release calendar.

Because of this, lifetime software unit sales for Switch reached 863.59 million. That’s up from 892.18 million back in March, and 587.12 million back in June 2021. Might it cross 900 million by September? (Yes.)

Nintendo decided to kick off the summer with two sports titles during the three months ending June, launching both Nintendo Switch Sports and Mario Strikers: Battle League.

Nintendo Switch Sports scored 4.84 million shipments in its debut quarter. It’s tricky to compare this to prior mainline Sports releases, the last major one being Wii Sports Club in 2014, itself a remake of the original 2006 Wii Sports which launched alongside the ever-popular Wii console. There’s also Wii Sports Resort that released in 2009 at 1.61 million. We could also compare to Wii Fit, which started at 3.6 million. Any way you slice it, it’s a strong start to a title Nintendo expects could keep up momentum over time as more content rolls out.

Mario Strikers: Battle League spent less time on sale after its mid-June launch, shipping 1.91 million copies since. It’s the first mainline Mario Strikers title in 15 years, back when Mario Strikers Charged accumulated 1.71 million in its first quarter. That puts this latest game slightly higher than its predecessor’s initial sales.

The last flagship Switch game of the quarter was Fire Emblem Warriors: Three Hopes. This one hit market during the final week of June and is co-published by Koei Tecmo. Nintendo hasn’t publicly shared any results for it just yet.

As for earlier games, Kirby and the Forgotten Land continues its expansion, which is natural for Kirby. It’s scooping up sales left and right, amassing 4.53 million units to date after selling-in another 1.88 million in fiscal Q1. During its first 15 weeks on sale, it’s already sold-through over 4 million copies. That’s the best cumulative sales to consumers ever for the series, already outpacing the lifetime total of 2018’s Kirby Star Allies.

The best-selling first party Switch game list is unchanged at the top. Mario Kart 8, of course, somehow sold another 1.48 million to bring its lifetime total past the 46 million mark, settling at 46.82 million. Animal Crossing: New Horizons is at 39.38 million, while Super Smash Bros. Ultimate fought up to 28.82 million.

Fan favorite Ring Fit Adventure remains in the Top 10 best-selling on the platform, moving 450K units up to 14.54 million. It’s creeping up on a couple Pokémon games, I’d wager it can move into 8th place on the lifetime Switch sellers list by year-end.

Speaking of Pokémon, for 2022 to date in the U.S., Pokémon: Legends Arceus remains on the best-selling premium list, currently catching the third spot as of June. That’s according to The NPD Group, and it doesn’t even include the game’s digital portion. The aforementioned Kirby and the Forgotten Land and Mario Kart 8 are presently 8th and 9th, respectively.

Another growth avenue for Nintendo last quarter was digital sales of software, rising 16% to $679 million. That comes out to roughly 29% of its total revenue. Nintendo also shared that more than half of software sales are now digital, at 53% of the total. This is up from 47% last year, partially due to downloadable content like Animal Crossing: New Horizons Happy Home Paradise and the Nintendo Switch Online + Expansion Pack offering.

Unfortunately, there’s no new data on Nintendo Switch Online subscription count. The most recent update from the company was 32 million in September 2021. Management did state that sales from this online service are “showing growth,” just didn’t indicate by how much.

And as we’ve seen many times before, Nintendo’s engagement stats are lacking. Its “Annual Playing Users” metric is now up to 104 million, compared to 102 million last quarter. To me, this doesn’t mean much other than people that buy a Switch turn it on at least once in the last 12 months. Not the most descriptive of metrics.

It’s a decent start to the new fiscal year for Nintendo, seeing drops where expected on the hardware side and maintaining solid results for both new games and ongoing software spending. It’s too early for the forecast to change, even given the amount of uncertainty that exists on the supply side plus game release dates moving around soon.

“Due to delays in the procurement of components such as semiconductors this year, we have not been able to conduct production as planned.” management said. “However, we expect procurement to gradually improve from late summer towards autumn, giving us a clearer outlook regarding production for the remaining calendar year. In preparation for the holiday season, we will leverage appropriate means of shipment, and work to deliver as many Nintendo Switch systems as possible to
consumers in every region.”

As a quick reminder on its guidance, Nintendo anticipates sales will decline in the single digits this fiscal year to roughly $12.34 billion at the current exchange rate, a figure in dollars that could improve if the yen improves. Operating profit is expected to take a bigger hit, dipping 16% to under $3.9 billion. Which would be the lowest result since the pandemic begin, yet still above levels prior to that point.

It’s on the conservative side, which is where I’m at as well. When there’s this many unknowns, both at a macro level and within the games industry, I tend to be cautious. I think it’s prudent for executives to do the same, especially for a company like Nintendo which isn’t as diversified as other consumer technology peers.

I continue to believe there won’t be any substantial new Switch iterations over the next few quarters. Instead, Nintendo should be working more on a successor than a model change. As for units, I’m reiterating my forecast of 20 million to 21 million which is a bit lower than Nintendo’s 21 million guidance. Right now, I’m slightly more bearish than management.

Another portion that Nintendo left unchanged is the guidance of 210 million software units selling in the year ending March 2023. Nintendo reiterated that stance, which I lean towards being a bit high unless a couple key titles hit market in this time frame.

Short term Xenoblade Chronicles 3 launch a few days back. Kirby’s Dream Buffet is a smaller title slated sometime this summer. Next up, there’s a pair of “third in the series” entries in Splatoon 3 and Bayonetta 3, launching in September and October respectively. Out of these, I’m way upbeat on the latter, the first mainline Bayonetta game since 2014.

I expect Pokémon Scarlet and Pokémon Violet, which are introducing all new pocket monsters, could potentially break records for early sales for the franchise on Switch and overall upon debuting in November. Granted, there’s been a lot of Pokémon lately. That won’t stop the series from selling, especially when there’s a new generation to collect.

The Legend of Zelda is the proverbial, hm.. wild card of the bunch. Will there be a new version of something like Windwaker soon? Might Nintendo put out a Switch version of Twilight Princess? That would be well and good, and certainly attract demand. It really comes down to whether the fabled Breath of the Wild sequel hits by March 2023. At least for now, it remains listed as Spring 2023 in Nintendo’s reporting. If I was to guess, I’m mildly confident it’s out this fiscal year.

Finally, there’s also Advance Wars 1+2: Re-Boot Camp and Metroid Prime 4. Both stayed as to-be-announced in Nintendo’s presentation. If anything, I’d wager the former has a better chance of hitting this fiscal year because it was scheduled to be out already. I don’t see the latter until the back half of calendar 2023, the earliest.

With its latest hardware sales milestone and a lot of good games before its life cycle ends, it’s still an exciting time to be a Switch owner. Especially for fans of JRPGs, sports games and Pokémon. Investors may be wearier, though shouldn’t let declines from all-time highs distract from Nintendo still being in its best financial shape since the Wii era.

Thanks for visiting the site and checking out this analysis. Feel free to drop a comment here or on social media. Enjoy the remainder of earnings season everyone!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported average conversion: US $1 to ¥129.66.

Sources: Company Investor Relations Websites, The NPD Group.

-Dom

Microsoft’s Xbox Sales Reach New Fiscal Year High in 2022 Despite Fourth Quarter Declines in Content & Hardware

DomsPlaying4 Comments

It’s here. My first big recap article of this latest earnings season!

In case it wasn’t clear from my recent calendar post, late July signals the start of that season. Let’s kick it off with Microsoft’s fourth quarter fiscal 2022 results, which means I’ll cover both quarterly and annual figures. The more, the better!

This latest 3-month period featured somewhat mixed results that capped off a historic year for the company’s gaming division, where it achieved the best ever fiscal revenue for Xbox as a brand.

As anticipated, gaming revenue declined in the quarter ending June 2022, dipping 7% to roughly $3.45 billion. Like many results lately in the industry, it sounds a lot worse than it was. This number is the second best Q4 in Xbox history, trailing behind only last year’s massive $3.71 billion spike.

It’s one of those “good enough” scenarios, falling perfectly in-line with the company’s, and my, expectations of a mid-to-high single digit decline. Either a big beat or epic miss would have been much more newsworthy.

What’s important is the impact on fiscal year revenue from Xbox, which moved past $16 billion for the first time ever. That’s yet another all-time year for gaming at Microsoft. It’s the sixth straight fiscal year where Xbox has achieved record sales.

Underlying this growth was upward movement in Content and Services, which houses software sales along with the likes of Xbox Game Pass and cloud offerings. A constant here has been claims from management that Xbox Game Pass subscriptions have been steadily increasing, although the team still hasn’t shared an updated sub figure since the 25 million I wrote about back in January.

On the other hand, Xbox hardware sales have stagnated over the latest 12 months which resulted in a double-digit decline during the year. Which is curious, considering comments from Chief Executive Officer (CEO) Satya Nadella indicate the family of devices is selling better than ever.

“We’ve sold more consoles life-to-date than any previous generation of Xbox and have been the market leader in North America for three quarters in a row among next gen consoles,” Nadella said in his prepared remarks on the earnings conference call.

The declining revenue along with high unit sales indicate a major talking point to me: There’s a high proportion of unit sales coming from the lower-priced Xbox Series S. Which fits with mounting evidence and anecdotes that these are much easier to find and plays from a manufacturing cost standpoint because they are less expensive to make. Plainly, Microsoft and its suppliers can’t produce enough high-end Xbox Series X boxes to grow hardware revenue. I expect high input costs to continue, thus this trend will keep up into the new fiscal year.

Now I’ll dig into the underlying numbers and highlight key trends from this report.

Peeking first at the above slides from Microsoft, they show that 7% decline in quarterly gaming revenue which gets us to that $3.45 billion figure. Not bad considering Xbox achieved a best-ever Q4 result this time last year!

The main reasons for lower sales proved to be people spending less time and money on the platform over those 3 months, which impacted purchasing of both first-party and third-party software. The main bright spot was growth in Xbox Game Pass subscriptions. I’ll go more into these segments in a bit.

Expanding to a longer time frame is my chart, which shows 12-month trailing sales figures for the Xbox business unit. This shows a couple major points.

First, if we focus strictly on each fourth quarter, it displays that record high fiscal year from Xbox: $16.22 billion between July 2021 to June 2022 compared to the prior record holder of fiscal 2021 at $15.37 billion.

Subsequently, the full chart illustrates last quarter was the first decline for trailing annual gaming sales since back in Q2 of fiscal 2020. That initial rise back then corresponds to quarters leading into the start of quarantines during the pandemic, and the figure has since leveled off right around $16 billion lately. Still, it’s only a 2% decline from last quarter’s all-time best. Which is something I’ve expected given the strong prior years and macroeconomic forces at play, including inflation.

Note: These dollar totals are based on growth rates over the prior year. Microsoft has yet to publish its 10K filing, I’m confident the math will be very close.

Where does this put Xbox sales right now in comparison to major peers in the games industry?

Since Microsoft is the first to report, I’ll use the latest annual figures for the likes of Tencent, Sony and Nintendo. Tencent is the clear leader of the pack, aggregating to annual sales of $33 billion. Sony is up next, reaching $24.4 billion. That number will refresh later this week when the company reports on Friday. That leads into Microsoft’s $16.22 billion, which will increase when the Activision Blizzard deal closes to somewhere between $23 to $24 billion depending on redundancies and cost-savings. Lastly, Nintendo is close to Microsoft’s current figure, hitting $15 billion in yearly sales.

The main caveat I’ll note when comparing across the industry is how revenue is one of many metrics used to gauge financial strength. I’d prefer profitability when available, however Microsoft does not report this granularity for Xbox alone.

That doesn’t mean we can’t glean anything on Xbox’s profit contribution from this recent report. The broader segment of More Personal Computing (MPC) experienced an operating income decline of 5% as expenses rose 8%. Microsoft called out Windows, Search and news advertising as main drivers of this weakening profit dynamic, which indicates that gaming’s contribution likely remained consistent. Which I’d say is good news, especially for the cost of making consoles.

For the quarter ending June 2022, both of Xbox’s main segments of Xbox Content & Services and Xbox Hardware suffered declines. Although the latter was more precipitous, neither was very concerning to me because of where we are in the broader cycle plus supply conditions being nowhere near normal.

Starting with Content & Services, this segment contributed 6% lower sales than a year ago. Which, like total Xbox revenue, was in-line with the company’s guidance and my own expectations. This equates to $2.77 billion in Q4, implying it contributed around 80% of the total. Another way to consider this is 4 out of every 5 dollars spent on Xbox was on software, downloadable content, subscriptions and non-hardware purchasing.

In fact, the latest annual contribution from Content & Services is a big positive for the Xbox brand. It’s now above $12.5 billion, or 77% of the total, a dollar figure which is actually up 3% compared to the prior year. That means despite weakness in the fourth quarter, Content & Services had its best fiscal year in reported history.

The main factor, of course, is Xbox Game Pass momentum and its proven impact on spending habits for ongoing subscribers. While executives refuse to share anything beyond the 25 million figure, I estimate it’s closer to 30 million by now. I’d wager it hasn’t breached that milestone. Because otherwise Microsoft would have said so!

There’s also the element of offerings like Xbox Cloud Gaming plus recent partnerships with companies like Epic Games and Samsung. Microsoft is benefiting from rounding out its ecosystem play and expanding how and where people play, which has a tangible effect on revenue growth even as individual title sales may slow.

“We’ve partnered with Epic Games to make Fortnite available for free via browser,” noted Nadella in an example of this strategy. “Over 4 million people have streamed the game to date, including over 1 million who were new to our ecosystem.”

Hardware is proving to be the more challenging business line for Xbox, declining 11% in the quarter to under $680 million. That’s the second lowest output in the past seven quarters, no doubt impacted by higher margins and continuously low availability of the premium Xbox Series X version.

Along the lines of its counterpart, the annual numbers are more reassuring. Microsoft generated $3.7 billion from Xbox console sales in fiscal 2022, which is up from $3.2 billion previously. That’s a gain of nearly 16%. This is mainly due to excellent performance during the initial stages of this fiscal year, meaning hardware has trailed off recently.

That’s not to say demand isn’t there. It’s mainly that Xbox is selling its lower-priced SKU, which doesn’t boost the top-line as much. Last quarter, I posited that lifetime unit sales of Xbox Series X|S could be between 14 million and 14.5 million. After this latest period, I’m estimating it at 16 million to 16.5 million.

It’s unfortunate we don’t know for sure, especially since Sony and Nintendo are more transparent.

The last numbers I’ll cover before wrapping up are for Microsoft as a whole. The firm generated $51.9 billion in revenue, up 12%. Operating profit reached $20.5 billion, or an increase of 8%. Quarterly sales from Microsoft Cloud moved past $25 billion for the first time ever, jumping 28% year-on-year.

Focusing on the More Personal Computing (MPC) business unit, it was responsible for $14.4 billion in sales. This means Xbox, at $3.45 billion, made up almost a quarter of the segment’s total.

These results are quite staggering as the company benefited greatly from hybrid working models and enterprise cloud usage. Still, quarterly revenue and earnings both missed analyst consensus estimates.

During the full fiscal year, Microsoft posted $198 billion in revenue and $83 billion in operating profit. It’s hard to even understand these numbers!

Now to look ahead, let’s focus on gaming within the broader company.

According to Chief Financial Officer (CFO) Amy Hood, here’s the rundown of guidance for the first quarter of fiscal year 2023, which runs from this July to September. Note this does not include any impact from the Activision Blizzard deal, which it still expects to close by June 2023.

Gaming revenue is forecasted to decline in the “low to mid single digits” driven by a drop in first party software. Content & Services has that same exact guidance. Though the management team does anticipate Xbox Game Pass subscriptions will grow again and thinks Hardware will rise as well, albeit didn’t provide any more specifics.

Let’s assume “low to mid single digits” means a dip of 3%, that should be a good barometer. This implies total quarterly revenue from Xbox of around $3.48 billion, or the second best Q1 on record. Then, for both Content & Services to decline and Hardware to increase, the former must decline 4% or more. Which would follow that Hardware can increase a percent or two and the math still works out.

Personally, I do expect a slight decline in total Xbox sales during the current quarter. There’s a handful of major 3rd party titles, including a new Madden game in August, and Xbox Game Pass will certainly have a few great additions. It’s just last year’s high was powerful, it remains a tough comparison. I’m not so sure about Hardware gains, that’s where I’m skeptical. I’m expecting flat to slightly negative contribution there unless something changes with the split of Xbox Series S to Xbox Series X.

On a bit longer of a timeline, where’s the growth other than the traditional means? There’s the clear upside of bringing Xbox Cloud Gaming to other television brands outside of Samsung. Then the substantiated plus rumors of the team developing a dongle-like device like a Google Chromecast or Amazon Fire TV Stick. And, of course, people calling for Xbox to make a handheld now that both Nintendo and Valve have active portable gaming devices.

“As announced last year, we’ve been working on a game-streaming device, codename Keystone, that could be connected to any TV or monitor without the need for a console,” a Microsoft spokesperson said to Windows Central, who first reported on the cloud stick’s development.

“We are constantly evaluating our efforts, reviewing our learnings, and ensuring we are bringing value to our customers. We have made the decision to pivot away from the current iteration of the Keystone device. We will take our learnings and refocus our efforts on a new approach that will allow us to deliver Xbox Cloud Gaming to more players around the world in the future.”

So, I’m a believer in the expansion of cloud and whatever this Project Keystone turns out to be. I don’t expect the dongle to hit market this fiscal year, so that will impact future time frames. And I really don’t think an Xbox handheld fits with its direction, for a multitude of reasons that I’ll probably write about at some point! What I do expect is for Xbox Game Studios to ramp up its output in 2023, featuring titles like Starfield and Redfall plus some surprises too.

That concludes Xbox’s results this quarter. I’ll be back soon with articles on other major gaming companies, and updates on social media throughout the coming weeks. Thanks for reading and be safe all!

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

Sources: Company Investor Relations Websites, Windows Central.

-Dom

Lego Star Wars: The Skywalker Saga Leads U.S. Game Sales & Nintendo Switch Reaches New Milestone in April 2022 NPD Group Report

DomsPlaying

It feels like I just posted my March recap, and here’s April! Time flies when you’re having fun, or getting old.

Existential dread aside, this morning The NPD Group was back with its latest monthly games sales report documenting consumer trends in the United States. While folks are spending less on the games industry compared to last year, there’s still plenty of successes to highlight.

Total sales across Video Game Content, Hardware and Accessories categories dipped 8% during April, which means spending has lowered year-on-year for six consecutive months. This is also the second straight April month with lower sales after last year’s 2% decline. Hardware was the only category exhibiting growth, while Content and Accessories both experienced double-digit dips.

Within the largest category of Content, mobile saw worse-than-expected negative momentum mainly due to softness in Google Play activity. On the premium side, Lego Star Wars: The Skywalker Saga led the aggregate chart. It’s the first game to dethrone Elden Ring since February, which remained at the second spot just ahead of MLB The Show 22. As opposed to last month’s bevy of new games hitting the charts, April’s overall software list only featured two new entries.

Performance within the Hardware segment was split depending on the metric being used. Nintendo Switch topped April’s console sales when using units, a metric by which it’s also the year’s best-seller so far. Just like back in March. As a result of this consistency, Switch passed PlayStation 4 on the all-time best-selling home console list. It’s now in fourth place behind only PlayStation 2, Xbox 360 and Nintendo’s own Wii.

However when using dollar sales as the measure, PlayStation 5 took home the win in April. Sony was finally able to secure enough inventory to move up the ranks, though Xbox Series X|S is still 2022’s top-selling hardware by dollars right now.

“Despite a nice hardware bump, the market couldn’t get back to growth as content and accessories lagged,” said The NPD Group’s Mat Piscatella. “Perhaps we’ll see some benefit from that hardware lift next month. In any case, [the] market remains well above pre-pandemic baseline.”

Long-time readers know I like to maintain perspective when writing about monthly or even quarterly sales. Seeing a decline since prior year isn’t necessarily substantial news or a sky-is-falling scenario. The consecutive months on this negative trajectory are representative of a few things, then of course there’s those pockets of positivity for individual games and consoles.

First, quarantining bolstered sales substantially the past couple years. Easing restrictions and some semblance of normalcy means a certain level of reversion is expected. Then there’s retail supply, still hampered by a semiconductor shortage and manufacturing woes. Finally there’s the distressing and growing impact from inflation, which is painful for most folks and can hamstring discretionary purchasing decisions.

Keeping this context in mind, I’ll move into my complete analysis and a detailed rundown of April’s results.

United States Games Industry Sales (April 3rd, 2022 – April 30th, 2022)

As displayed in the above gallery, total consumer spending during April fell 8% to $4.34 billion. That means annual spend to date is also down 8%, to $18.26 billion.

I think the most telling graphic here is the line chart showing spending over time for each of the past four years. It gives clear context on pandemic impact and how the current level compares to earlier periods. For instance, until last month, each month of 2022 was trending above the corresponding one during these years except 2021. This past April’s spending is the lowest April has been in three years, but not by much.

The largest category of Content includes software, add-on, mobile and subscriptions. Spending here lowered 10% to $3.84 billion. That means it comprised more than 88% of April’s total.

The key driver within this part is mobile, which has been in a downward trajectory for months. Normally the report says when it exceeds $2 billion, and it didn’t this time. So I assume it’s below that threshold. Even so, select titles are showing strength which implies people are still playing, albeit spending at a lower clip. Candy Crush Saga, Roblox, Coin Master, Evony: The King’s Return and Royal Match were the top earners.

Moving into premium titles, the aforementioned Lego Star Wars: The Skywalker Saga led the rankings overall and every single individual platform chart as well. Including Nintendo Switch, as it was the first third-party title to top that chart since Monster Hunter Rise in March of last year. This performance across platforms led to the adventure title from Warner Bros. achieving the single best launch month dollar sales for any Lego game in tracked history. It’s immediately the second best-selling title of 2022 at present, behind only Elden Ring.

Speaking of Elden Ring, it was number two on the overall chart in April. Into its third month on market and it’s already achieved an astonishing accomplishment: The open-world soulslike has now outsold November 2021’s Call of Duty: Vanguard in the U.S., making Elden Ring the top-selling premium game of the last 12 months. This is virtually unheard of in the States, where Activision Blizzard’s military shooter perennially dominates sales charts. It’s a combination of relative weakness in Call of Duty lately and the stunning quality of FromSoftware’s latest masterpiece, which reached 13.4 million units globally in March according to publisher Bandai Namco. It’s even more by now, the true definition of a sales giant.

After an early access period led MLB The Show 22 to #4 in March, it advanced up to the third spot in April and moved up to 5th on the year’s best-sellers list after debuting outside the Top 10. While this performance isn’t as high as last year’s entry, which led its initial month, it’s still a quality showing. Intriguingly, it didn’t appear in the Top 10 on Xbox yet from an engagement standpoint, Xbox is its leading platform by player count. It’s a clear display of the Xbox Game Pass effect, as this year’s title was again available on the service at launch. It’s also worth noting this report doesn’t include digital sales from Xbox for this particular title, which of course impacts platform ranks.

The last new release on the overall chart was Nintendo Switch Sports, which really had only two days on sale during this time period. It still scored an impressive fifth place on the overall chart. Within the Nintendo list individually, it ranked third behind Lego Star Wars: The Skywalker Saga and Kirby and the Forgotten Land. It’s another title, like all of those published by Nintendo, that doesn’t account for digital downloads. May’s result will give a better indication, as I expect it to be quite successful.

That covers the new releases, and most other movement on the charts featured familiar names from the prior month. Kirby and the Forgotten Land is holding strong, as is Horizon Forbidden West. Then there’s Mario Kart 8 which will never, ever stop selling. Most of the year’s Top 10 is the same save for the entry of Lego Star Wars: The Skywalker Saga. Check below for a full look at April’s ranks plus 2022 so far.

Top-Selling Games of April 2022, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Lego Star Wars: The Skywalker Saga
  2. Elden Ring
  3. MLB The Show 22^
  4. Kirby and the Forgotten Land*
  5. Nintendo Switch Sports*
  6. Call of Duty: Vanguard
  7. Horizon Forbidden West
  8. Mario Kart 8*
  9. Gran Turismo 7
  10. Pokémon Legends: Arceus
  11. Minecraft
  12. FIFA 22
  13. Call of Duty: Black Ops Cold War
  14. Super Smash Bros. Ultimate*
  15. Marvel’s Spider-Man: Miles Morales
  16. Animal Crossing: New Horizons*
  17. WWE 2K22*
  18. Mario Party Superstars*
  19. Madden NFL 22
  20. Tiny Tina’s Wonderlands*

Top-Selling Games of 2022 So Far, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Elden Ring
  2. Lego Star Wars: The Skywalker Saga
  3. Pokémon Legends: Arceus
  4. Horizon Forbidden West
  5. MLB The Show 22^
  6. Gran Turismo 7
  7. Call of Duty: Vanguard*
  8. Kirby and the Forgotten Land
  9. Madden NFL 22
  10. Mario Kart 8*
  11. FIFA 22
  12. Marvel’s Spider-Man: Miles Morales
  13. Minecraft
  14. Dying Light 2: Stay Human*
  15. Monster Hunter Rise
  16. Mario Party Superstars*
  17. Animal Crossing: New Horizons*
  18. Super Smash Bros. Ultimate*
  19. WWE 2K22*
  20. Call of Duty: Black Ops Cold War

Hardware was the main bright spot of April from a growth standpoint, boosting up 16% since last year to $343 million. Even so, it’s still down for the first four months of the year in aggregate. Sales of consoles year-to-date reached $1.54 billion, or 9% lower than the same period in 2021.

This April figure is somewhat reassuring, considering spending on this segment declined 30% this time last year. It indicates better availability, at least for certain platforms as The NPD Group called out PlayStation and Xbox increasing supply. This year has been a wild one for hardware; a different console has led each of the first three months. Demand is thriving, so consumers are buying whenever inventories pop up. Something like the Xbox Series S in particular is proving attractive because of its price point.

Still, it was actually the PlayStation 5 that showed up in April. Sony’s massive new console led last month on dollars generated as more stock hit shelves, a similar story as other regions including Europe based on data from local providers. Other than January, which was the last time PlayStation 5 topped the list, it’s been a somewhat dry year for Sony and its supply chain. As I wrote just this week, the company announced the platform passed 19.3 million units shipped globally and is now lagging its predecessor considerably.

Not to be overlooked, Nintendo Switch was April’s best seller by units. It’s the same for 2022 to date as Nintendo’s hybrid console continues to attract interest going into its sixth year on sale. In the States, lifetime Switch sales have now outpaced PlayStation 4 to become the fourth best-selling home console of all time. PlayStation 2, Xbox 360 and Nintendo Wii, in that order, are the only home platforms with more units sold domestically.

Xbox Series X|S rounds out this category as it secured second place during April by both dollar and unit sales. Similar to March, Microsoft’s family of devices is currently the year’s best seller by dollar sales. Microsoft has been most consistent on the production side, plus of course benefits from higher average revenue per unit for the premium Xbox Series X model.

I know that’s a lot to digest for hardware, since the report includes multiple metrics. Suffice to say there are at least minor indications of greater supply popping up, however it’s not yet a trend until it keeps happening. We still need to closely monitor the semiconductor shortage and input costs to see if it becomes an upward trend in overall supply movement, rather than one-off monthly spikes.

The third and final category of Accessories unfortunately didn’t track alongside hardware in April, instead showing some weakness compared to a year back. Monthly spending here fell 10% to $151 million. It’s currently the only segment in a double-digit decline for the year as a whole, moving down 15% to $743 million.

In a shocking upset, the PlayStation 4 DualShock 4 Wireless controller in black was April’s best-selling accessory. You read that correctly. That’s last generation’s PlayStation game pad leading a month in the second year of this current console cycle. Perhaps there were discounts leading to this upside? Though this report is mostly based on dollar sales, so there has to be some sort of advantageous average selling price for Sony in order for it to win.

I can’t remember the last time a PlayStation 4 game pad led the category.

Expanding a bit, the Xbox Elite Series 2 wireless controller, which has led all months except this past one, is still the best-selling accessory for the year right now. As it has all year, bolstered by its extravagant price tag.

Lately, it’s proving difficult for spending on games to keep pace with the highs of recent years. Especially early last year, which saw months of historic highs. Six months of monthly declines and we’re seeing this movement away from the ballooning amounts of spending during the pandemic due to restrictions of going out plus stimulus money at the time.

Softening is expected right now, even if it’s challenging to report on a downward trend. It’s just a matter of magnitude as spending normalizes, plus buyers face inflation pressure for essential goods which limits additional cash flow. There’s also the allure of spending on different types of entertainment as more people get out of the house in which they’ve been cooped for a while.

“We’ve also seen an extended run of months showing year-on-year declines,” Piscatella wrote. “[The] video game market is facing a return to experiential spending as well as higher prices in other areas of consumer spend. Tough combo. Will require the bigger games to really pull the market.”

On those AAA projects, the latest news cycle revealed how 2022 is shaping up to be another year of delays. Starfield. Redfall. Suicide Squad: Kill the Justice League. The next The Legend of Zelda mainline entry. Stalker 2: Heart of Chernobyl is on hold due to Russia’s invasion of Ukraine. And I’m not sold on God of War: Ragnarok hitting this calendar year, as I’ve said many a time on social media.

Focusing strictly on the potential for May’s monthly report, it’s a very light month for new software that isn’t a remake, re-release or indie launch. I’m expecting another month of spending declines, except perhaps for consoles. Evil Dead: The Game and Sniper Elite 5 are probably the highest profile releases on the calendar. I’m not sure the Top 10 will have any new entries, let alone the Top 5.

Which means it’s a major opportunity for carryover titles to promote new content or have events that keep players buying. This ties in with the subscription play, a staple in Microsoft’s suite of course and Sony’s strategy with its PlayStation Plus reworking starting in June. Games like MLB The Show 22 and Nintendo Switch Sports will have a lot more days on sale than last month. Lego Star Wars: The Skywalker Saga has a good chance at leading again, as does Elden Ring. I’m not the most upbeat on Call of Duty: Vanguard right now, but it will certainly secure a solid position.

My best guess is Elden Ring returns to number one. With the caveat that if Nintendo included digital, I’d probably bet on Nintendo Switch Sports.

As for Hardware, throw a dart at the wall and take a guess. Xbox Series X|S on dollars. Nintendo Switch again on units. Those are my dartboard guesses, at least.

Now that I’ve come to the end of this month’s coverage, I highly recommend perusing Piscatella’s Twitter thread for more details on platform rankings and additional commentary.

It’s been a supremely busy week for the games industry and business nerds. I’m both exhilarated and exhausted. I hope you enjoyed the articles, I plan to have more in the coming weeks. Thanks for reading. Until next time, be well!

*Digital Sales Not Included, ^Xbox Digital Sales Note Included

Comparisons are year-over-year unless otherwise noted.

Sources: Bandai Namco, The NPD Group, Warner Bros Interactive.

-Dom

PlayStation 5 & Pokémon Legends Arceus Headline Third Straight Month of Declines for U.S. Games Industry Sales

DomsPlaying

In the first monthly sales report for the U.S. games industry in 2022, Sony’s PlayStation 5 and Nintendo’s Pokémon Legends Arceus headlined a month slightly down from the record result of early last year. It was the third straight month of year-on-year declines, after 1% in December and 10% during November before that.

Industry tracking firm The NPD Group shared its January 2022 U.S. games industry spending report, announcing how total consumer spend dipped a modest 2% to $4.68 billion. Compare that to last year’s all-time high of $4.8 billion. While hardware as a category saw double-digit growth even amidst a challenging supply situation, it wasn’t enough to outpace slower content and peripheral spending.

It seems there was a post-holiday hangover within two of those three major categories.

For Video Game Content, weaker mobile spending and fewer new games led to a single-digit monthly decline. Even a major Pokémon launch and PC re-releases of popular franchises like Monster Hunter and God of War couldn’t push the software category over the edge. This also signaled potentially lower ongoing spending on microtransactions (MTX) and additional content.

Video Game Hardware repeated as big gainer from a growth standpoint, boosting more than 20% versus January 2021’s amount. Sony’s PlayStation 5 took center stage, as it often must strictly based on its size, leading January’s console market by both units sold and dollars generated. This is the first time since September 2021 where Nintendo Switch didn’t lead on units sold. In fact, Microsoft’s Xbox Series X|S beat out Switch for second place.

Now, the key is this early in a generation, especially this one because of chip shortages, this is nearly all dictated by supply in the market. Like an animal going into hibernation, Nintendo stocked up during the holidays. It’s clear PlayStation, and to a lesser extend Xbox, recovered in the early part of the new year.

Last month, Hardware actually boasted the single best dollar spending during a January month in over a decade. And there’s a chance it could have been even higher, if only there was enough inventory!

“Hardware availability is still constrained, so we don’t know how high ‘high’ actually is when it comes to the console market,” NPD Group’s Mat Piscatella told GameDaily. “Several factors continue to impact the market that are difficult to predict. Things are still a bit chaotic. But when new titles are released, and when new hardware is available the market is responding positively.”

Note that year-to-date figures currently match the monthly, so January’s report features a smaller data set than usual. Everyone knows I like putting numbers in perspective. There won’t be any annual or trailing 12-month figures until maybe next month.

That said, let’s look into the numbers we do have.

United States Games Industry Sales (January 2nd, 2022 – January 29th, 2022)

In total, consumers spent close to $4.7 billion during the first month of 2022 which is 2% lower than last year. It’s still a quite good result, it just shows a reversion towards more normalized spending after long periods of stay-at-home restrictions. People are certainly still stimulating the games industry economy, mostly by buying new consoles, just not as much as they were during a record time in early 2021.

Within the broadest segment of Video Game Content, which accounts for mobile, software and related sources, sales hit $4.2 billion or 88% of the total. That dollar figure is 4% lower than last year, when it was $4.26 billion. (I’m not sure if that was a record at the time, it’s a possibility.)

The bellwether sub-segment here is mobile, which saw a decline of almost 7% during January. No dollar amount was given. This is expected weakening after the incredible growth of the last two years. It’s showing somewhat of a return to the “before times,” which seem so very far away. Main sales contributors during the month include Candy Crush Saga, Roblox, Coin Master, Genshin Impact plus Garena Free Fire.

Before diving into traditional software, I wanted to point out a relevant statistic. This is via The NPD Group’s Q4 2021 Games Market Dynamics report.

“Downloadable content (DLC), microtransactions and subscriptions accounted for just shy of 60% of non-mobile video game content spending in the U.S. in 2021. In 2016 this figure was well under half.” Piscatella shared on Twitter. What this implies is that 6 out of every 10 dollars spent in the U.S. within the Content category is ongoing purchasing rather than new premium releases. So often we focus on the latest and greatest, it’s actually the old that’s defining Content movement!

It’s still fun to call out new titles, of course. This was a quieter January than usual, bucking the recent trend of publishers kicking off the season with a leading release.

The early year’s flagship game launch was Pokémon Legends Arceus on Nintendo Switch. Even without digital sales, because Nintendo doesn’t report them. Other than its launch month spending not being a record, there’s not much historical context available in the report. So I looked back to see where each Pokémon Switch game ranked during their respective first months. Warning: It’s confusing.

During 2018, Let’s Go Pikachu and Let’s Go Eevee released during a much more hectic schedule in November and took 5th and 6th place, respectively. At the time, Let’s Go Pickachu recorded the second best launch month in series history for a single release behind only 2000’s Pokémon Stadium.

Sword & Shield debuted a year later in November 2019, with the former hitting #3 and latter at #5. Not only that, its double-pack was smack in the middle at fourth place. Combined together, Sword & Shield had the best U.S. launch ever for Pokémon, above 2016’s Sun & Moon.

Then there was Brilliant Diamond & Shining Pearl which launched only two months ago in November 2021 when it started at third place. It also landed just outside the Top 10 in this January, at #11. All this to say that it’s difficult to compare historically, and sounds like Sword & Shield still maintain the crown on Switch.

Back to last month, Activision Blizzard’s Call of Duty: Vanguard fell to number two ahead of its second season. Monster Hunter Rise from Capcom bounced way back to third place after a very lucrative PC launch.

Similarly, God of War (2018) received the PC boost as well with its fifth place finish, up from 146th in December. Yes, it does in fact pay to release games on multiple platforms! Elsewhere in the Sony camp, Marvel’s Spider-Man Miles Morales was up next in sixth place. With this latest finish, it’s now third in lifetime spending within Sony-published titles behind only 2018’s Marvel’s Spider-Man and the aforementioned God of War (2018).

The only new game to chart besides Pokémon Legends Arceus was Ubisoft’s Tom Clancy’s Rainbow Six Extraction, sneaking into the Top 10 at number nine. As a reminder, this first-person tactical co-op shooter also launched into Xbox Game Pass. The NPD Group didn’t provide any historical context for Rainbow Six titles. Tom Clancy’s Rainbow Six Siege started at #7 back in December 2015, competing against the year’s biggest hitters during a holiday season. So it sounds like Extraction didn’t fare as well.

In terms of other storylines, I’d say the absence of Grand Theft Auto The Trilogy – The Definitive Edition is worth noting though not without good reason. Its physical release was mid-December, except for Nintendo Switch which is actually out today. Just like how NBA 2K could be higher plus Grand Theft Auto and Red Dead Redemption no longer appear much on the charts, I attribute this to Take-Two Interactive not sharing any digital data. It’s difficult to infer anything in this context.

Here’s a look at the Top 20 premium software sellers for January 2022.

Top-Selling Games of January 2022, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Pokémon Legends Arceus*
  2. Call of Duty: Vanguard
  3. Monster Hunter Rise
  4. Madden NFL 22
  5. God of War (2018)
  6. Marvel’s Spider-Man Miles Morales
  7. FIFA 22
  8. Mario Kart 8*
  9. Tom Clancy’s Rainbow Six Extraction
  10. Battlefield 2042
  11. Pokémon Brilliant Diamond & Shining Pearl*
  12. Far Cry 6
  13. Minecraft
  14. NBA 2K22*
  15. Mario Party Superstars*
  16. Animal Crossing: New Horizons*
  17. Forza Horizon 5
  18. Halo Infinite
  19. Super Smash Bros. Ultimate*
  20. Call of Duty: Black Ops Cold War

Turning to Video Game Hardware, this segment experienced the only increase during January 2022. And it was a solid increase. Monthly consumer spend on consoles rose 22% to $390 million, compared to under $320 million last year. That’s the best January hardware dollar sales since $447 million earned in January 2009.

Naturally on the growth trajectory, because of where the industry is at from a generational standpoint. Nintendo Switch is still going strong five years later, plus PlayStation 5 and Xbox Series X|S are only in their 15th month on market.

Though I was genuinely surprised by the rankings last month.

Namely how PlayStation 5 took home the top spot by both units and dollar sales. A definite upset! The last time it led was before the holidays, in September. It’s not that I don’t believe in Sony’s latest console, it’s just I underestimated how many they could produce. (I wasn’t the only one.)

In fairness, it’s difficult to gauge where supply shifts from month to month right now. I expected Nintendo Switch to keep inventories going post holiday, and Sony’s recent report of slowing PlayStation 5 global shipments had me nervous.

Another unexpected outcome was Xbox Series X|S being runner-up. Which means Switch is third place. Maybe Nintendo shipped too many in the holiday quarter so Switch could pass Wii lifetime numbers, huh?

It seems there’s a sign of life within next generation console supply. Or perhaps it’s temporary? That’s the big question! Whichever company has its suppliers making more consoles, that’s the one winning here in the domestic report. Demand is certainly here, and consistently.

Our final segment is Video Game Accessories, which saw the most substantial decline during last month’s announcement.

Buyer spending declined 15% on Accessories to $185 million. It was $218 million in January 2021, which was a record January at the time. Not only that, all of its sub-segments established all-time January month highs this time last year. It’s the true definition of a difficult comparable. A decline like this is exacerbated by a strong prior period.

Leading the pack within accessories was Microsoft’s Xbox Elite Series 2 Wireless Controller as the best-seller. No doubt bolstered by that second place hardware finish for the Xbox Series X|S, plus I’d wager demand on the PC side. A hefty price tag doesn’t hurt, since these are based on dollars generated.

That’s the end of a quickie U.S. games industry sales article, focused strictly on the single month of January rather than expanding to 12-month figures. My apologies!

There’s still plenty to learn from an early year report like this. Content spending is ever so slightly down, which I see more as a movement impacted by mobile weakness than anything alarming on the premium side. If anything, a major Nintendo release like Pokémon props it up. Combine that with the large ongoing sales portion with DLC, add-on content and the like, the software category is holding pace.

February 2022 is a much busier time for releases, two months before many fiscal year ends. Dying Light 2 Stay Human already has 3 million players according to Techland. PlayStation exclusive Horizon Forbidden West and FromSoftware’s Elden Ring are launching as two of the most-anticipated games of the year.

I expect significant carry-on sales during the second month of Pokémon Legends Arceus. There’s also a good chance Destiny 2 pops back onto the list after launching its big Witch Queen expansion. I’m leaning towards Pokémon retaining the top spot, yet both Dying Light 2 Stay Human and Horizon Forbidden West have a legitimate chance. These three should make up the Top 3.

Hardware will be supply and supply will be Hardware, a segment at the mercy of chip manufacturers and parts suppliers in this inflationary situation. Piscatella seems to agree.

“We continue to be in a supply constrained environment,” Piscatella said to GameDaily. “The question is when that might change, and predictions are all over the place on that one. Is it later this year? Will it be 2023? Who knows? We’ve got a ways to go before anyone should expect to walk into a store and pick up a console of their choice off the shelf.”

Well, I will try to predict as best I can. I’m leaning towards PlayStation 5 repeating, then Nintendo Switch in second and Xbox Series X|S in third by a slim margin. It’s anyone’s guess!

Please check out Piscatella’s detailed thread here on Twitter and give it a like. See you next time in February, it’s sure to be a wild one.

*Digital Sales Not Included, ^Xbox Digital Sales Not Included

Comparisons are year-over-year unless otherwise noted.

Sources: GameDaily.biz, The NPD Group, Tom’s Guide (Image Credit).

-Dom

Xbox’s Best Holiday Sales Result Pushes Microsoft’s Annual Gaming Revenue to Record $16 Billion

DomsPlaying1 Comment

As I reported back in October, Microsoft’s Gaming division at the time saw its healthiest first fiscal quarter ever.

Now, it’s going one step further. On the strength of its first party lineup and growing subscription base, Xbox has just achieved its best holiday on record and blasted past a new milestone for annual sales, establishing a record 12-month figure.

Mere days after announcing the biggest acquisition in industry history in its purchase of Activision Blizzard, Microsoft is showing off why it’s pumping dollars so much into the space. Because it’s seeing great returns. During its 2nd quarter of 2022 financial report, Microsoft said Gaming revenue reached $5.44 billion during the holiday quarter.

That’s the single best October to December ever reported, 8% higher than last year which was the previous record holder of $5 billion. The main contributor to this record output was Xbox Content & Services, especially strong during the holiday season bolstered by flagship titles in the Halo and Forza series.

This performance also means annual Xbox sales for the Washington-based tech giant pushed passed the $16 billion milestone for the first time.

Combining the last four quarters of sales for Xbox reaches upwards of $16.28 billion. That’s 18% higher than December 2020 and 3% more than even last quarter, both of which included the launch of Xbox Series X|S. The fact that the rolling annual figure was this high shows payoffs in first party game development and key investments in partnerships for Xbox Game Pass’s extensive library.

According to Chief Executive Officer (CEO) Satya Nadella on the company’s conference call, the Xbox division saw both record engagement and revenue during the quarter. While he didn’t share specifics on the actual level of engagement or revenue, he did cite certain juicy tidbits I’ll dig into later.

Unfortunately, there was no appearance from newly-minted CEO of Microsoft Gaming Phil Spencer on the call or questions from analysts on anything related to the acquisition of Activision Blizzard. In fact, the only mention of the deal was reiterating what we already knew about its cost and closing during the fiscal year ending June 2023.

No worries. It’s time to move into the underlying numbers and corresponding reaction!

The above slides provided by Microsoft give a rundown of growth rates for Gaming and its sub-segments of Xbox Content and Services plus Xbox Hardware during the quarter ending December 2021. Namely, that 8% growth for Gaming leading to $5.44 billion in quarterly revenue which was in-line with the company’s expectations of high single digits.

Underlying this all-time number was double-digit growth in Xbox Content & Services, the sub-segment that includes software and subscription sales, which rose 10% in the quarter to around $3.86 billion or 71% of the total. Yet another record! Boosted by first-party launches like Halo Infinite and Forza Horizon 5 plus Xbox Game Pass expansion, this figure was especially impressive given its consistency around this time in late 2020.

On the conference call, Chief Financial Officer (CFO) Amy Hood mentioned there was “significant” growth for Xbox Game Pass subscriptions and first party software sales in the holiday quarter.

Why? According to Nadella, Halo Infinite has now attracted 20 million players since its staggered launch beginning back in November. It’s the largest start ever in the series that dates back to the original Xbox. Another thing that, hm, drove sales is how Forza Horizon 5 is now up to 18 million players after hitting the 10 million threshold within a week of launch in early November. These games also attracted subscription growth, the other key revenue contributor, as Xbox Game Pass now has 25 million members up from the last official figure of 18 million (with the latest rumor being around 22 million).

To me, this dispels a false notion that Xbox Game Pass isn’t properly monetizing its user base. Even those buyers that get in at a discount are sticking around, which generates ongoing revenue once the rate resets. The numbers back this up. I’d love to know more on the profit side, of course, but I work with what’s available.

Intriguingly, the 10% Content & Services growth was technically below Microsoft’s guidance of “mid-teens.” That’s because of weakness on the third party side. This signals under-performance of AAA multi-platform releases like Call of Duty: Vanguard and Battlefield 2042. Perhaps even Madden NFL 22 and other annualized sports titles. So while Call of Duty and Battlefield both were among the best-selling premium titles in the U.S. during 2021 as I wrote about here, this missed estimate implies a lower contribution to the bottom line of platform holders.

Taking a look at the above chart I’ve compiled, this is 12-month revenue going back over time for the gaming business. It helps to provide context in a couple of areas, and smooths out short-term fluctuations. The main thing it shows is the overall level of Xbox revenue over time. That’s the record $16.28 billion as of this latest period, compared to $15.86 billion last quarter then going back from there. Clearly the trend-line is on that upward trajectory since bottoming out in Q3 of FY 2020.

There’s also the split between Xbox Content and Services and Xbox Hardware categories. The green portion is for Xbox Content and Services, which most recently contributed $12.58 billion to the annual amount. The red portion is Xbox Hardware which is all physical gaming consoles under the brand. $3.7 billion this time. Both of those are also all-time highs.

Next up is Xbox Hardware. This sub-segment contributed the remaining portion of the record holiday quarter, growing 4% to almost $1.59 billion in revenue on the back of steady demand. It’s actually one of the few things in this report that wasn’t a record. That happened back in fiscal 2018’s second quarter, when hardware accounted for $1.78 billion. This year’s was still second best, so I’d say it’s doing alright.

To put it another way, the second holiday quarter for Xbox Series X|S generated almost $70 million more in dollar sales than its launch quarter did.

On the call, Hood shared how Microsoft is seeing continued buyer interest for both console models. Additionally she saw “better than expected” supply, which is a good sign considering the doom and gloom of the modern semiconductor situation.

This commentary and performance is mostly consistent with Spencer’s recent comments around Xbox Series X|S being the fastest-selling ever for the brand. Xbox Hardware is performing well during this early part of the generational cycle even in the fact of shortages, with Xbox Series S as the highlight because of higher availability. While we don’t have exact figures from Microsoft on hardware shipments globally, we do have an estimate from my friend Daniel Ahmad, Senior Analyst at Niko Partners, that it’s above the 12 million of Xbox One’s first year.

Here’s a telling experiment: What would Microsoft’s gaming revenue look like if Activision Blizzard earnings were considered? The latter hasn’t reported its last quarter yet, so I’ll use historical figures for a baseline in this thought experiment.

The most recent October to December revenue for Activision Blizzard was $2.41 billion. That means the holiday quarter for the combined entity would have been over $7.58 billion! For the full 12-month period, Activision Blizzard’s latest is $9 billion.

Which means, in aggregate, Xbox and Activision Blizzard annual revenue right now would be $25.33 billion. How does that compare to its major competitors? Well, it’s pretty impressive and much closer to the top-end than ever before, naturally.

I usually pull in figures for Sony and Nintendo as the three main console manufacturers. There’s also Tencent, the largest gaming company in the world, which is an absolute behemoth notably in mobile and the Asia Pacific region. So let’s see them all!

This is using annual and the caveat is Microsoft is the only one that’s reported this season so far. It’s still helpful to illustrate. Tencent’s latest strictly from its games business was $27.3 billion. Sony’s Game & Network Services segment hit $25.5 billion while Nintendo’s total sums to $14.7 billion, both using the exchange rates at their last reports. Which means Microsoft alone sits closer to Nintendo, while combined with Activision Blizzard it nearly surpasses Sony’s total and might even some day approach the untouchable realm of Tencent.

And that’s part of why Microsoft is willing to pay almost $70 billion for it.

As is tradition, I’ll quickly run down Microsoft’s overall results for the three months ending December before closing up.

Total revenue for the company rose 20% to $51.7 billion. It’s the first time quarterly sales topped $50 billion, pushed by an all-time high $18.3 billion revenue from its Intelligent Cloud segment. Operating profit moved up 24% to $22.2 billion.

Its results beat analyst consensus on both top-line revenue and earnings-per-share. Microsoft Cloud product revenue was a major highlight, increasing 32% to over $22 billion for only the second time ever.

We can learn a bit on gaming profitability from the More Personal Computing business unit margin movement and operating dynamics. This experienced 15% revenue growth to $17.5 billion. At $5.44 billion, gaming makes up around 31% of More Personal Computing. Operating income rose 22% to $6.36 billion, while expenses rose at a lower 17% rate partially as a result of gaming. It’s not perfect, but this can indicate sales contribution is outpacing costs.

It’s hard to overstate just how much the record revenue stats keep piling up for the Xbox business, reflective of Microsoft’s general strategy of user engagement and ecosystem establishment. This time it was first party software moving the needle, with major internal studios like 343 Industries and Playground Games leading the charge by pushing quality within key brands. The result is Xbox Game Pass literally paying off, thus generating opportunities for more future investment both organic and external.

Moving into the new calendar year, Xbox’s early 2022 exclusive slate is light during a quiet quarter for first parties. CrossfireX is a third party console exclusive from Smilegate and Remedy Entertainment launching in February, plus there’s indie partnerships hitting the platform throughout the coming months.

It is, however, quite the busy period for third party games with select titles like Rainbow Six Extraction available simultaneously on Xbox Game Pass. Dying Light 2, Elden Ring and Destiny 2’s The Witch Queen expansion all debut in February. There’s always the long tails from late year launches of Call of Duty, Madden, NBA 2K, Battlefield then other major ongoing games with seasonal updates like Fortnite and Apex Legends.

On the hardware side, Xbox Series X|S availability will continue to set the narrative. I don’t expect the higher end Xbox Series X to pick up stock any time soon, though I’m turning optimistic on Xbox Series S inventories based on recent trends and anecdotal evidence. Microsoft executives themselves said that hardware will continue to be impacted by supply limitations and didn’t provide guidance on growth expectations.

For the quarter ending March 2022, Microsoft expects gaming sales growth in “mid single digits” range. Assuming it’s exactly 5%, that’s $3.7 billion. For Xbox Content & Services, strong engagement and continued momentum will lead to increases in the “mid to high single digits.” Putting it around 7% then, this would generate $3.1 billion.

Guess what? Both would be fiscal third quarter records. The latter would even be the first time it’s passed $3 billion in a Q3.

“The other area obviously we’re seeing strength is in gaming,” Nadella highlighted during the analyst question portion of Microsoft’s earnings call. “We see the intensity of usage and the business model diversity around games, that increasingly the economics of gaming franchises is also radically becoming much more software-like.”

That certainly is the case, considering the multi-faceted approach where now, because of ongoing financial support in both areas, main contributors are actual first party software and Xbox Game Pass as a catalog of titles plus cloud experience.

Thus ends this quarter’s deep dive into Microsoft’s financials. I look forward to recapping other companies very soon! Be safe all, and stay healthy.

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

Sources: Daniel Ahmad, Microsoft, The NPD Group.

-Dom

Seven Major Games Industry Predictions for 2022

DomsPlaying

New year, new excuse to think we can predict the future!

In an annual series of articles I began last year, here is where I’ll document my biggest, sometimes boldest, games industry predictions for the 12 months ahead. It’s fun to guess, and honestly it’s even more fun to look back when all is said and done to see how wrong some of them were!

Speaking of looking back, out of my seven predictions for 2021, I’d say I got maybe half of them “right” when combining different elements. I said Switch would be the best-selling console in the U.S. during 2021, and that’s the trend based on reports from The NPD Group. I also thought Nintendo would debut a Pro model, when instead the company released its OLED step-up. Partial points?

I dubbed 2021 “Year of the Delay,” which was true in games and various industries due to both impact from coronavirus and chip shortages. My most substantial win was Sony and Tencent scoring major acquisitions, as both companies expanded reach globally with a number of investments. I saw the global games market value growing double-digits to upwards of $190 billion or more. Because of the aforementioned worsening supply and delays, Newzoo said the global value hit $180 billion on only 1% growth. It did say digital contributed 93%, right near my estimate of “above 90%.”

Otherwise, I guessed Rockstar Games would reveal its next title and how it wouldn’t be Grand Theft Auto VI. Technically it had the Grand Theft Auto: The Trilogy – The Definitive Edition, and there’s rumblings of a new Bully project, so I’ll take half credit? I spoke of the expansion of cloud gaming and projected that Amazon’s Luna service could be the standout. Cloud has grown in popularity and spending though I don’t think there’s necessarily a standout service right now, so I’ll say that’s a push. And lastly, Capcom still hasn’t announced a new fighting game which means I take the big L on that last one.

It’s now time to look ahead. I see a future where plenty of trends which started in recent times will accelerate such as services, cloud, mobile, consolidation, outing toxic work cultures, defining The Metaverse and even the dreaded blockchain and NFT barrage. Here are seven of my biggest industry predictions that, of course, will most certainly happen soon.

Workplace Culture, CEOs & Unionization

Starting with a downer, this is a sad prediction that hurts to write. I expect more disheartening stories of workplace toxicity and ongoing harassment at publishers of all sizes in 2022, following in the footsteps of Activision Blizzard, Ubisoft, Riot Games and others. It will always be difficult to hear victims speak out about stories of abuse and “boys club” cultures, however I do believe it’s a key step towards a better industry. The year will bring to light various stories and hopefully remove bad actors from powerful positions.

The downside is I anticipate both Activision Blizzard CEO Bobby Kotick and Ubisoft Chairman/CEO Yves Guillemot to remain in their respective offices. They and their leadership teams will claim things have changed. Even if that’s not much the case. (We’ll see.)

On the brighter side, I expect employees within at least one major publisher to work towards broad unionization plus a concerted shift towards hiring more women and people of color in executive roles. The industry is at a boiling point. A group of brave employees can, and I think will, unify under a common goal to bargain with leadership. It could serve as a beacon for others to bring demands to management, and potentially symbolize a shift in power dynamics. While I don’t know which company it will be, I do expect this can be the year where a unionization effort manifests.

Sony PlayStation Subscription Service Rebranding

This one is a slam dunk. (I’ll take what I can get!) With the success of Microsoft’s Xbox Game Pass service and rumors swirling of Sony’s response, I believe we’ll hear very soon about PlayStation’s rebranding of PlayStation Plus and PlayStation Now into a service allegedly code-named Spartacus. To firm up the prediction, I’ll list out specifics of how I think it could go.

At present, PS Plus and PS Now cost $10 per month individually. It’s messy. Spartacus will combine these, and I buy the rumored three tier setup with varying levels of service and price points. The first I expect to be priced at the current $10 since it’s essentially PS Plus. The second tier should have a catalog of prior and current gen software attached, so I’ll say $15. Then I can see a premier $20 per month service with the same online benefits and catalog plus a ton of older titles and cloud streaming available. Note: Xbox Game Pass base is $10 monthly while the upgraded Ultimate package is $15.

Going one step further, I think PlayStation will partner with either Electronic Arts or Ubisoft to bring EA Play or Ubisoft+ services simultaneously at launch of the rebranding in that highest priced tier. One or more pricing options will also have a console form of Discord bundled, as a result of the recent partnership between the two companies.

Then, here’s the biggie: I say at least one new first-party game will in fact launch into Spartacus during 2022. It might not be Horizon Forbidden West or God of War: Ragnarok. It could however be along the lines of a Destruction All-Stars which started on PlayStation Plus at launch in February 2021. Perhaps MLB The Show 2022. Or even Gran Turismo 7?

Nintendo’s Breathtaking Lineup & No New Switch

After surprising most talking heads by not releasing a new Switch “Pro” model in 2021, Nintendo opted for a slightly upgraded OLED iteration. The company also announced how its flagship sequel to The Legend of Zelda: Breath of the Wild is slated for release in 2022.

You know what? I believe them on Breath of the Wild’s follow-up. It will be out this year. (And absolutely should have weapon degradation because that’s a staple of what made the original so brilliant.) Consistent with my earlier call, I don’t believe it will launch alongside a new Switch model. Honestly Nintendo won’t say much of anything about new hardware during 2022, other than alluding to how its internal teams are always working towards the future. At most, I can see another accessory experience like Ring Fit Adventure or Nintendo Labo.

That’s because I think Nintendo’s hybrid handheld will have its second best year ever from a global unit sales standpoint. I’m targeting 25 million Switches shipped in the 12 months ending March 2022, slightly above Nintendo’s latest estimate of 24 million. That would be the best result since launch other than last year’s 28.83 million.

Elsewhere on the software side, I don’t think we’ll hear anything formal about the next full-fledged Mario Kart in 2022. While it’s clearly in development, I still say it will be tied to a Switch successor in 2023 or beyond. That said, I am calling for a major, dormant IP to make a return in 2022 for Nintendo with a mainline release. Let’s say it’s, at long last, EarthBound. Nobody is actually scoring these, right?

Finally there’s Metroid Prime for Switch, which I can see announced by E3 and released during the last quarter of 2022 to bolster Nintendo’s holiday period. Unfortunately, it’s probably not the full trilogy. It’s a remake of the first game. That way Nintendo can sell it for full price and still have two more similar releases in the future. It’s a business, after all.

Severe Impact of NFTs, Blockchain & Play to Earn Schemes

I dislike talking about this as much as the next level-headed pundit. In 2022, there will be plenty of chatter around blockchain games, non-fungible token (NFT) integration and so-called “Play to Earn” setups. Especially at the triple-A level. It’s driving investors wild. Anything that can make money, even if it’s temporary, will attract the attention of big budget publishers.

Diving into specifics, there’s flat out going to be tons of pitches around games built on the blockchain hand-in-hand with those that offer players NFTs for in-game items or cosmetics. Shoot, there already are. It’s only getting worse in 2022. Then there’s the corresponding rejection by core gamers against these things. That constant push-and-pull will partially define the industry this year.

I say *at least* three major global publishers will release their own full-blown NFT game, marketplace in an existing title or software specifically marketed as Play to Earn. One of them probably won’t even make it until the year-end. We’ll hear at least two or three stories similar to how S.T.A.L.K.E.R. 2 Heart of Chernobyl developer GSC Game World walked back plans for NFT usage after major backlash from its community. What about a game that smartly integrates these? I wonder if that’s even possible based on game development experts, so I can’t make that sort of prediction in good faith.

What I do know is this theme is going to be a nuisance all year. Could 2022 be the peak of blockchain and NFTs in gaming? That’s hard to say. It certainly does seem to be leaning towards short-term gains, however Bitcoin and cryptocurrencies aren’t going anywhere so I’d say buckle up.

Global Games Market Value Will Grow Low Single-Digits

How big will the global games market be when 2022 is said and done? Well, I think a little larger than it is right now. Similar to performance in 2021, I’m expecting a marginal increase. Under a 5% gain. Based on ending 2021 at roughly $180 billion, my target puts it between $182 billion to $185 billion on the upper end. I anticipate mobile will again be a driving force, gaining a similar single-digit percentage while console and PC will be slightly down or effectively even. Plus, digital split will remain above 90%.

Looking at hardware, Sony’s PlayStation 5 truly has an opportunity to surpass Nintendo Switch as the best-selling console in the U.S. specifically. However, I don’t think it will happen because of supply constraints expected to last until 2023. I’m leaning towards Switch repeating as the year’s top hardware. PlayStation 5 and Xbox Series X|S will have healthy years even given production challenges. I anticipate Sony will meet its annual console targets while just recently, Xbox leader Phil Spencer said this current generation is Xbox’s fastest-selling ever. With the availability of Series S in particular rising lately, I can see this continuing. (Just wish they would share actual numbers!)

On the consolidation side, we’ve already just witnessed the largest deal in gaming history with Take-Two Interactive overpaying for Zynga at $12.7 billion mere days ago. Over the next twelve months, I think there will be another “blockbuster” deal worth upwards of $5 billion to $7 billion. It could involve a Western publisher and Asian game studio. Maybe the other way around?

Yes, I’m being cautious on naming names because I want to sneak in some credit for this prediction this time next year! What I’m driving at is I expect a lot of investment in global expansion during 2022 for the top-end gaming publishers.

It’s Impossible to Escape The Metaverse

As much as many companies want to claim they are each creating one, we’re already living in a world filled with Metaverses. We have virtual identities established over years of existing online, our precious personal information aggregating into databases everywhere as we socially chat and make purchases from our devices. Lately it’s become the hot buzzword used by companies both within and outside of gaming trying to capitalize, and I expect The Metaverse to consume technology as a sector and especially the games industry during 2022.

I continue to believe that no one will agree on how to define The Metaverse, so it will remain a more nebulous concept for executives to use for pitch materials. Hardware manufacturers, social media giants and virtual realty players will all look for a slice of that metaphorical pie and try to capture users in their tailored version.

To coalesce this into an actual prediction, I’m thinking something like a half dozen games from publishers large and small will launch with The Metaverse as a “selling point” in the advertising deck. Meta, formerly Facebook, will certainly be one of them on their Quest family of devices. Epic Games will continue bringing as many brands as possible into Fortnite. At least a publisher or two will try to integrate virtual workspaces with online play, billing their experience as a “fun place to work.”

I do think there will be a game that comes out of nowhere in 2022 that captures the spirit of The Metaverse without actually advertising it as such, and for that reason it will become hugely popular. Like, Pokémon Go level of popular. Ironic considering how well that game integrates augmented reality elements. I don’t know who will make it, or who will publish it. Just that it will exist. You heard it here first!

New BioShock Will Be Revealed, Releasing in 2023

Time to have a little fun!

In what would be a monumental moment for my personal gaming tastes, I think 2022 is the year when we finally hear from 2K Games and its Cloud Chamber development studio on the next installment in the beloved BioShock franchise.

The fourth mainline game was announced back in 2019 when the team, which includes a number of folks who previously contributed to the older games, said it was several years away from release. The first-person, historical horror shooter is certainly well into development by now. Enough so that rumors are trickling about an Antarctic setting in the 1960s and a more open area design structure. Apparently it’s been dubbed code-name “Parkside,” and there’s even a rumored title of BioShock: Isolation floating about like the buildings in BioShock Infinite’s fictional Columbia.

In the past, I’d consider this more pie-in-the-sky than an actual prediction. With this fresh trickling of information alongside 2K parent company Take-Two Interactive sharing updated unit sales statistics (38 million to date for the series) on recent earnings reports, I’m feeling more confident than ever it will reveal the new BioShock this year. And schedule launch for sometime in 2023.

It has to happen sooner or later, right? Why not sooner!

That’s a wrap on my biggest predictions for the games industry in 2022. How many of these line up with yours? Are you willing to go on record with your boldest of predictions? Will this be the year of a spankin’ new Capcom (and maybe Marvel) fighting game announcement? Can I finally have my wish of hearing about BioShock?

Whatever happens, we have a lot to look forward to in gaming over the next several months. First quarter is a busy one for releases and the landscape will fill up over time. Here’s to another year!

Sources: Artturi Jalli (Image Credit), Bloomberg, Getty Images (Photo Credit), MarioWorld.com (Image Credit), New York Times, Newzoo.

-Dom