Annual U.S. Games Industry Consumer Spending Declines 5% in Final NPD Group Sales Report of 2022

Better late than never!

Data firm The NPD Group has shared its final games industry sales report for 2022 tracking spending in the United States. Within, it showed a modest sales decline since last year. Mostly expected during the start of a regression towards pre-pandemic values after an all-time best the prior year. There was resilience in the final quarter as bigger games hit market and supply concerns eased, minimizing the downward movement and making 2022’s $56.6 billion the second best year on record behind 2021’s $59.6 billion.

Not bad, all things considered.

During this piece, I’ll recap both the most recent monthly results and annual figures. Buckle up for an in-depth read.

December was one of the brighter reports compared to earlier months, ending a fourth quarter recovery that made full year figures look much better. The big holiday period was the second straight month where total spending increased, after a number of months either down or flat.

That’s even considering a very slight decline in the major category of Video Game Content, which measures software, mobile, subscriptions and related spending. Call of Duty, Pokémon and Madden NFL led the charge here, as often happens. For Video Game Hardware, the only category that grow in 2022 to a best-ever result, Sony’s PlayStation 5 console and Nintendo’s hybrid Switch both spent time atop the monthly rankings.

“Factors impacting 2022 spending included continued supply constraints of console hardware, a relatively light slate of new premium releases and macroeconomic conditions,” said The NPD Group’s Mat Piscatella.

As I’ve covered in the past, 2021 was the height of pandemic spending for many regions, including the States. 2022 proved to be the anticipated regression towards more normalized results, exacerbated by mobile weakness and inflationary pressure on people’s wallets. Still, Q4 showed there’s still substantial demand for big budget premium games and new hardware when it’s actually available at retail.

There’s also the cultural touchstone that was Elden Ring, nearly out-earning Call of Duty, which broke into the mainstream zeitgeist more than any FromSoftware game could ever do in the past. Combine that with annualized sports releases, a dual launch year for Pokémon and exceptional showings from Sony-published exclusives, and premium gaming helped offset mobile’s under-performance.

Check below for a full recap of each category last year and a look forward towards 2023.

United States Games Industry Sales (November 27th, 2022 – December 31st, 2022)

Total consumer spend on gaming within the U.S. rose 2% in December, to $7.58 billion. Driven by double-digit gains in the hardware category that more than offset losses elsewhere. This fits the growing trend along with October’s plateau and November’s increase towards growth.

That strength in the final quarter pumped up full year spending to $56.6 billion, which ended up being down 5% compared to 2021. Growth areas like console and subscriptions weren’t enough to out-gain losses in premium software and mobile, also hurting due to macro pressures like inflation.

The largest category of Content dipped a modest 1% in December, down to $5.55 billion. Which means it made up 73% of overall monthly spending, compared to 75% in November. Holiday demand and mobile regaining footing contributed towards the upside.

Speaking of mobile, this sub-segment returned to growth in December as geolocation, simulation, action and shooters gained ground. Still, 2022 became the first 12 months in tracked history where people spent less than the prior year on mobile. Shooters exhibited a most precipitous decline at 26% while casino gains proved popular, moving up 1%. Candy Crush Saga, Roblox and Coin Master were the year’s Top 3 earners here.

Call of Duty: Modern Warfare 2 repeated as December’s best-seller on the premium list, which it’s done each month since October’s launch. This led to Activision Blizzard’s military shooter earning the top spot on 2022’s overall rankings as well, as I predicted. That marks a staggering 14 consecutive years where a Call of Duty game was the country’s best-selling title.

Familiar faces continued on the premium best-sellers list for December as Pokémon Scarlet & Violet and God of War: Ragnarök generated the 2nd and 3rd most dollar sales, in that order. Elden Ring benefited from solid demand during the holiday season, returning to the Top 10 at #7.

Late year launches Need for Speed: Unbound and Crisis Core: Final Fantasy VII: Reunion started in 8th and 10th, respectively, a quite good showing considering the heavy hitters around it. The only other new title Callisto Protocol under-performed in 17th place, partially because its digital portion was not included. Even if downloads were considered, I’m skeptical it would have cracked the Top 10.

As mentioned before, Call of Duty: Modern Warfare 2 was the year’s best-seller. In fact, there were two Call of Duty entries among the Top 12 as people somehow retained interest in 2021’s Call of Duty: Vanguard. Then, Elden Ring and Madden NFL 23 rounded out the Top 3 for 2022. Sony’s PlayStation publishing arm had a sensational year with three single-platform games in the Top 13 and another developed title in the Top 10. God of War: Ragnarök finished ahead of bellwethers like Pokémon and FIFA while Horizon Forbidden West and MLB: The Show 22 scored Top 10 spots. Other observations include over-performance of Nintendo’s Kirby and the Forgotten Land floating to #14 and Sega’s Sonic Frontiers speeding up to #16.

Here’s a full look at the software lists for December and 2022 overall, including our first look at the top-grossing mobile titles.

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

  1. Call of Duty: Modern Warfare 2
  2. Pokémon Scarlet & Violet*
  3. God of War Ragnarök
  4. Madden NFL 23
  5. FIFA 23
  6. Sonic Frontiers
  7. Elden Ring
  8. Need for Speed Unbound
  9. Mario Kart 8*
  10. Crisis Core: Final Fantasy VII: Reunion
  11. NBA 2K23*
  12. Just Dance 2023
  13. Mario + Rabbids: Sparks of Hope
  14. Minecraft
  15. Super Smash Bros. Ultimate*
  16. Nintendo Switch Sports*
  17. The Callisto Protocol*
  18. Animal Crossing: New Horizons*
  19. Splatoon 3*
  20. Gotham Knights

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

  1. Call of Duty: Modern Warfare 2
  2. Elden Ring
  3. Madden NFL 23
  4. God of War Ragnarök
  5. Lego Star Wars: The Skywalker Saga
  6. Pokémon Scarlet & Violet*
  7. FIFA 23
  8. Pokémon Legends Arceus
  9. Horizon Forbidden West
  10. MLB: The Show 22^
  11. Mario Kart 8*
  12. Call of Duty: Vanguard
  13. Gran Turismo 7
  14. Kirby and the Forgotten Land*
  15. NBA 2K23*
  16. Sonic Frontiers
  17. Gotham Knights
  18. Minecraft
  19. Nintendo Switch Sports*
  20. Super Smash Bros. Ultimate*

Top-Selling Games of 2022, U.S., Mobile (Top Grossing):

  1. Candy Crush Saga
  2. Roblox
  3. Coin Master
  4. Royal Match
  5. Pokémon Go
  6. Evony
  7. Clash of Clans
  8. Homescapes
  9. Bingo Blitz – BINGO Games
  10. Jackpot Party – Casino Slots

The Hardware category is up next, as December generated upwards of 16% growth to $1.53 billion. I believe this might have been a record December month for the console category as inventories flooded the market during the holiday rush, notably from Sony’s suppliers. It also proves that demand is constant at this point in the cycle, which it really should be.

Expanding to the last 12 months as a whole, Hardware sales reached $6.57 billion, jumping up from $6.1 billion in 2021. The NPD Group did say this amount was an all-time best, an incredible achievement considering how slow this segment began the year.

PlayStation 5 leveraged better inventory to become the best-selling console by dollar sales during both December and 2022 as a whole. It was the first year since the new console generation in 2020 that Nintendo Switch didn’t lead on revenue. Big budget IP like God of War and Horizon plus a premium racing game in Gran Turismo 7 bolstered the console, alongside its higher price point that lifted up the revenue side. In the back half especially, Sony’s suppliers seemed to be the best at adapting in this supply environment to secure enough shipments to satisfy pent-up demand.

Even so, Nintendo Switch did win December and 2022 when measured by units, boosted by its more attractive cost and appeal to households that want more than one gaming device. While it didn’t have any pure flagship titles outside of Pokémon, a series which somehow launched two best-sellers in Pokémon Legends Arceus and Pokémon Scarlet & Violet, Nintendo always produces high quality titles that strengthen system sales as series like Kirby and Switch Sports amplified the lineup.

While the Xbox Series X|S came in third place during December and the year on all metrics, it held its own during a tough time for consoles. Microsoft continually cited how it had the best start of any Xbox console in history, albeit at a global scale. There were a few months in 2022 when it achieved second place, though its Series X model in particular seemed to be hit especially hard by supply challenges. The Series S doesn’t generate as much revenue, so Xbox doesn’t compete as much when it comes to monthly best-sellers even in its home market. Not to mention, its slate of first-party software was sparse, which didn’t help.

The general tone of the console business turned quite upbeat as the year went on, ending with a great December and up nearly double-digits for 2022. It’s also a positive sign of things to come, as I’m turning bullish on this portion of the market.

The final segment of Video Game Accessories saw the biggest declines during both December and 2022 as a whole. Last month, spending here dipped 2% to $503 million.

Unfortunately, The NPD Group didn’t share which accessory was the best-selling of the month. Lately it’s been a version of the PlayStation 5 DualSense controller, however there’s a chance that an Xbox game pad took home the win. I have a question out to the team for comment.

It follows that for the year, spending in this category fell 8% to $2.51 billion. Microsoft’s Xbox Elite Series 2 Wireless Controller ended 2022 as the year’s best-seller here, a popular upgrade choice for core players that benefits in comparisons like this because of a hefty price tag.

That’s a wrap on the final domestic sales report of 2022. It was a transitory year for the industry, as certain areas returned towards the mean while others under-performed. Mobile weakness, less premium AAA launches and a seemingly lower tie rate for peripherals all put pressure on the final figures. That said, historically it was still the second best annual spending in history so the industry is doing just fine. Easing supply concerns in the latter parts of the year and select premium titles helped keep the result high compared to prior years, even the likes of 2020.

“2022 finished strong, with improving performance in the category compared to a year ago following the May 2022 lows.” Piscatella said on LinkedIn. “With improving supply of console hardware – and a highly anticipated slate of new releases – 2023 looks like it could be a great year for the market.”

Looking ahead to the coming months, I wrote up a general 2023 predictions article earlier in the month. I’ll recap some of those points and touch on more domestic predictions.

When it comes to the overall consumer spending number for this year, I’m looking at virtually flat or an increase in the low single-digits. Assuming a 3% rise would bring 2023 sales to around $58.3 billion. I’m not anticipating another down year for mobile, and a more robust content calendar for AAA releases will bump premium output. Combine this with hardware availability and I’m thinking buyers will spend about what they did last year.

I’m forecasting Content will also be flat or up slightly. It starts with mobile, which should rebound, and continues with a busier software lineup than 2022. On the premium side, depending who you believe, there might be another annual Call of Duty title which I expect to be the best-seller if it does come out. Shoot, Call of Duty: Modern Warfare 2 could even repeat if it has a substantial expansion attached to it instead.

Other contenders include sports titles, of course. This year’s Madden game, in particular. In the next couple months, Hogwarts Legacy and Star Wars Jedi: Survivor will be massive and both will compete for a Top 5 finish. Nintendo’s major release is The Legend of Zelda: Tears of the Kingdom, slated for May, and should be Switch’s annual best-seller even if another Pokémon hits market. Sony’s flagship is Marvel’s Spider-Man 2, listed for launch in the Fall, which will set records for a PlayStation exclusive launch and will certainly be part of the year’s Top 5.

For Xbox, the story is Starfield which some people think will still be out before June. (Spoiler: It won’t.) It’s hard to predict where an Xbox Game Pass release ranks; I could see it as part of the Top 10. Elsewhere, Diablo IV will be a huge hit when it starts in June. I just don’t know if it competes for a Top 3 spot at the end of the day. Final Fantasy XVI is a wildcard. Ubisoft has a couple chances in Assassin’s Creed Mirage and Avatar: Frontiers of Pandora if they actually launch this year. Then there’s always a surprise or two.

Moving over to Hardware, it’s Sony’s year by a comfortable margin. I bet PlayStation 5 will be 2023’s best-seller on both revenue and units. It will lead most months by dollar sales, and split with Nintendo Switch on units depending on supply and titles i.e. May when Zelda debuts and whenever Marvel’s Spider-Man comes out. I also don’t expect a Switch hardware announcement, and I do think it will land in second place. Xbox can compete for second, I just remain hesitant on Microsoft’s conversion strategy.

Well, that about does it. What stands out to you during December and 2022? Surprised by any of the results? How did your predictions go? What’s in store for 2023? Drop a line here or social media!

I highly recommend checking out Piscatella’s thread on Twitter and the full report at the website here. Thanks for reading these throughout the year! Check back for the first recap of 2023 in a few weeks. All the best, everyone.

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

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

Sources: GeekWire (Image Credit), The NPD Group, Rokas Tenys (Image Credit), Video Games Chronicle.

-Dom

Monthly U.S. Games Industry Spend Increases for 1st Time in 2022 During November NPD Group Report

‘Tis the season.

Awards season? Well, technically yes. I’ll certainly be writing my Year-in-Review articles soon enough! And gaming’s biggest night in The Game Awards aired last week, showcasing the best of the year that was 2022.

What I really mean it’s when The Holiday Sale Season ramps up for video game companies and their efforts to push as much as they can to gamers everywhere. Any time people are shopping, I’m here to analyze sales results.

Because of that, today I’ll be recapping The NPD Group’s recent report on U.S. game sales during the highly-coveted month of November bolstered, of course, by Black Friday. It’s the time when manufacturers and retailers employ strategies to attract people to open those wallets.

And it was a very good month at that, especially in the context of 2022 so far. It’s the first month of the year in which monthly sales increased across the games industry. This is a huge data point given the general economic environment. It continued the strength from October, where buying leveled off after 11 consecutive months of declines.

Overall consumer spending on gaming rose 3% in November, signaling that easing inflation and better supply conditions for hardware proved to be tailwinds for the industry. Out of the three categories of Video Game Content, Hardware and Accessories, only Content saw a decline year-on-year mainly due to ongoing mobile weakness. Both Hardware and Accessories generated double-digit growth, the former boasting a substantial gain over last year’s figure.

There’s a few underlying reasons why November came in above expectations. First the release calendar has been stacked the past two months with commercial darlings, including the likes of Call of Duty from October then new titles in long-running series like God of War, Pokémon and, yup, even Sonic the Hedgehog!

Then, the improved stock of consoles, notably for Sony’s flagship PlayStation 5, is getting better at meeting consumer demand. Additionally, The NPD Group cited areas like non-mobile subscription spending, peripherals and digital full-game downloads on consoles spurring growth as well. All of these combined for a terrific month of higher sales.

On the premium software side, Call of Duty: Modern Warfare 2 continued its reign as the top-selling game during November, which it also accomplished the month prior around its debut. Just below that, three brand new games arrived within the Top 4: God of War Ragnarök, Pokémon Scarlet & Violet plus Sonic Frontiers. I’ll dive more into each later in the piece.

Within Hardware, PlayStation 5 was November’s best-selling console as measured by both dollars generated and units sold. Considering some discounting of its Xbox Series X|S competitor and the launch of mainline Pokémon games for Nintendo Switch, this win for Sony is quite impressive.

“I wasn’t expecting that we’d see any month with growth in 2022, but here we are,” said The NPD Group’s Mat Piscatella on LinkedIn. “Great new games sell really well. Would be great if more were released. The big uptick in new generation hardware supply sure helped too. Really fantastic month overall, especially when considering all the other market challenges out there.”

Here’s a look at the full report alongside my usual rundown. Get your hot cocoa ready!

United States Games Industry Sales (October 30th, 2022 – November 26th, 2022)

As shown in the info-graphic above, spending across all of gaming reached $6.29 billion in November, indicating the aforementioned 3% growth. Last year, this total was roughly $6.11 billion. For more context, November spending peaked at an all-time high back in 2020 when it reached upwards of nearly $7 billion.

Expanding to the year currently through 11 months, buying is still down 6% to $48.97 billion. Last year’s figure as of November was $52.19 billion.

The largest segment of Video Game Content hit $4.74 billion last month, or 75% of the total, which equates to a decline of 5%. In an ongoing surprise to those of us who track this regularly, mobile continued to drag down the category so much that things like premium games and other software-related sources weren’t able to offset its losses.

“Thanksgiving and Black Friday did not bring a reprieve as [mobile] spend during the week was down 5% year-over-year and 1% from 2020,” said Sensor Tower’s Dennis Yeh in the report. “Barring a meteoric (or catastrophic) final few weeks of 2022, annual U.S. mobile gaming spend should decease 1% – 2% from 2021.”

Mobile’s best-seller list was topped by the likes of Candy Crush Saga, Roblox, Royal Match, Coin Master and Clash of Clans. Indicators showed that casino, action and tabletop mobile titles ramped up in popularity during November, while role-playing and shooters were “struggling.”

Swapping to premium software, Call of Duty: Modern Warfare 2 repeated at the top spot during November and continues to be 2022’s leading seller. Activision Blizzard’s military shooter likely benefited from the launch of its Warzone 2.0 battle royale counterpart, plus it now has a full month of retail sales on the books. Nothing shocking about this particular result.

The first new release on November’s combined software list was God of War Ragnarök fighting its way to the 2nd spot. Comparatively, its predecessor in 2018’s God of War earned the top spot when it released in April of that year. Sony’s major exclusive for the back half of 2022 really only missed out on leading the month because it went up against the juggernaut that is Call of Duty.

PlayStation’s Game of the Year candidate is immediately among the Top 5 best-selling titles of 2022. This domestic success parallels its epic global start as the game shipped a staggering 5.1 million copies during its first five days. This is a record launch among first-party games in PlayStation history. Boy, that’s a whole lot!

Speaking of a great start, next up was the latest pair of Pokémon titles in Scarlet & Violet on Nintendo Switch which combine to reach 3rd place. A couple caveats being this includes full sales of both games, then excludes digital because Nintendo still doesn’t want to share that data. To compare against recent entries, Pokémon Legends Arceus started in first during (an admittedly less busy) January earlier this year while November 2021’s Brilliant Diamond & Shining Pearl also debuted in 3rd.

Pokémon Scarlet & Violet already occupy the 7th spot on 2022’s best-seller list. Beyond the domestic result, it’s a historic beginning for this game worldwide, shipping a whopping 10 million units within its first three days. That’s the fastest-selling on any Nintendo platform. Ever. Its monstrous launch set records for the series, Switch as a console and across Nintendo’s entire history!

Moving over to Nintendo’s 1990’s era rival in Sega, the #4 spot on November’s list went to Sonic Frontiers. It’s a rare appearance from the Blue Blur, as there haven’t been many mainline Sonic releases lately. Sonic Mania was a critical success back in 2017 then didn’t sell enough to chart at the time. This latest 3D platformer in Sonic Frontiers is turning out to be quite a fast seller, fittingly, moving 2.5 million copies worldwide within a month on sale.

Familiar names and big movers filled in the remainder of the overall ranks in November. Marvel’s Spider-Man: Miles Morales and Mario Party Superstars jumped back into the Top 10. The only other brand new title among the Top 20 was Tactics Ogre: Reborn slotting in at #17, which really is remarkable amidst plenty of big hitters.

Shifting to the 2022 list with just one month to go, Call of Duty: Modern Warfare 2 edges into first place. As expected. It’s the first time since Elden Ring dropped in February that FromSoftware’s masterpiece hasn’t held the year’s top spot. Past that, Madden NFL 23 has secured 3rd as Lego Star Wars: The Skywalker Saga moved down to 4th. MLB: The Show 22 seems to be impacted the most by new entries ahead of it, however it still retains a Top 10 position for now.

Check below for all premium software ranks for November and 2022 to date.

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

  1. Call of Duty: Modern Warfare 2
  2. God of War Ragnarök
  3. Pokémon Scarlet & Violet*
  4. Sonic Frontiers
  5. Madden NFL 23
  6. FIFA 23
  7. NBA 2K23*
  8. Gotham Knights
  9. Marvel’s Spider-Man: Miles Morales
  10. Mario Party Superstars*
  11. Elden Ring
  12. Animal Crossing: New Horizons*
  13. Mario Kart 8*
  14. Mario + Rabbids: Sparks of Hope
  15. Persona 5
  16. NHL 23
  17. Tactics Ogre: Reborn
  18. Minecraft
  19. Horizon Forbidden West
  20. The Legend of Zelda: Breath of the Wild*

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

  1. Call of Duty: Modern Warfare 2
  2. Elden Ring
  3. Madden NFL 23
  4. Lego Star Wars: The Skywalker Saga
  5. God of War Ragnarök
  6. Pokémon Legends Arceus*
  7. Pokémon Scarlet & Violet*
  8. Horizon Forbidden West
  9. FIFA 23
  10. MLB: The Show 22^
  11. Call of Duty: Vanguard
  12. Gran Turismo 7
  13. Mario Kart 8*
  14. Kirby and the Forgotten Land
  15. Gotham Knights
  16. Minecraft
  17. NBA 2K23*
  18. Nintendo Switch Sports*
  19. Marvel’s Spider-Man: Miles Morales
  20. Animal Crossing: New Horizons*

The biggest boost to overall spending last month came from Hardware as a category. Console sales rose a momentous 45% during November, reaching upwards of $1.25 billion. This is a stark contrast to the 10% decline during October, which was mainly driven by weakness in Nintendo Switch. Seems like Nintendo may have been holding shipments to attract buyers during the more competitive time frame, or people weren’t as interested until they began Black Friday and pre-holiday shopping.

This excellent monthly result means that 2022 sales have turned positive for Hardware. After trending down 2% as of October, this category is now up 6% for the year right now. It’s generated over $5 billion in sales through the first 11 months, compared to last year’s $4.74 billion.

Funny how that happens when people can actually buy a console if they want it! And the demand is certainly there, as strong as it’s been early in this generation.

Benefiting from a generous supply improvement, the PlayStation 5 earned the top spot in the segment during November by both dollars and units. By my count, that’s four months in a row where Sony’s newest generation has led the segment by both metrics.

Nintendo Switch came in second place by both metrics. While The NPD Group didn’t share growth statistics for individual platforms, like it had in recent months when Xbox and PlayStation families showed double-digit growth, I’d imagine that all three major platforms gained ground based on how the category fared.

After this latest monthly win, PlayStation 5 remains the best-selling hardware platform of 2022 in year-to-date dollar sales. Hanging in there in its own right, Nintendo Switch leads in units.

This dynamic of added availability, especially for PlayStation 5, combined with both an ongoing appetite and better buying power from consumers is providing a boon for hardware late in the year. The perfect time for it to happen for these manufacturers, because they are able to meet the demand during the crucial holiday months. Two years into the new generation, we’re finally seeing the supply side of the curve catching up to demand.

Another solid result during November’s report was Accessories, which often benefits when people spend more on consoles because they acquire peripherals and extra controllers. After moving down 8% back in October, this segment returned to positive territory last month netting $289 million in sales or 10% higher than this time in 2021.

That brings the year so far to $2 billion in spending on Accessories, which is currently trending down 9% due to weakness in earlier months.

Game pads and headset/headphone sub-categories in particular boosted Accessories as a whole during November. The top-selling peripheral last month was the PlayStation 5 DualSense Wireless Controller Galactic Purple, paralleling Sony’s win on the hardware side. While The NPD Group didn’t confirm explicitly, I’d bet Microsoft’s Xbox Elite Series 2 Wireless Controller remained the year’s best-seller due to its outsized price and revenue potential.

Taking everything from November, it was arguably 2022’s best sales result for the U.S. games industry. It’s refreshing to see sales growth again.

Last month was exceptional for consoles, as PlayStation and Xbox continue making up ground after a slower start plus Nintendo Switch is holding up well enough late into its life cycle. On the content front, mobile certainly presents a concern; for now, it’s premium sales of new and earlier games propping up that segment. And there was clearly a good amount of demand for peripherals late in the year.

Now, moving into the last month of 2022, it’s a crucial time that will determine where domestic sales end up for the year. I’m more upbeat than I was even a couple months back, even if I’m thinking we’ll see lower sales in 2022 than last year.

Which wouldn’t be bad at all. 2021 was a record year for domestic spending on games here after all, generating over $60 billion!

Unless December is a major surprise to the upside, I’m expecting total sales will be down for the year in the mid single-digits. Against last year’s $60.4 billion, assuming a 5% drop would bring 2022 to around $57.4 billion. This indicates a December month of roughly $8.4 billion, which would be an improvement since last year’s final month.

Even as a slight drop, almost $58 billion in spending would be a great result for 2022 given the economic challenges and downward pressure the industry has experienced most of this year. It’s not where the industry could be if supply constraints and a number of delayed games didn’t happen. The world is still dealing with a global pandemic during which working dynamics and supply chains shifted drastically.

As for individual predictions, again Call of Duty: Modern Warfare 2 will win December in the Content category. For 2022 in aggregate, I think the Top 3 top-sellers from November will hold serve and finish like that.

December will be much trickier for Hardware. Anecdotally I’ve been hearing more about Xbox Series X|S stock. We know Sony has been moving up its shipments. Nintendo is there for families and households looking for a better entry point. I’m guessing PlayStation 5 will lead December on both dollars and units, with Xbox Series X|S in second by dollars and Switch in second by units.

As for the year, PlayStation 5 will carry this late momentum to a win on revenue. Alongside, Nintendo Switch will take home the crown when measured by units.

So that’s the final thread I’ll be writing on NPD results during this calendar year, because December’s result will take place sometime in January. We’ll have to see how the predictions go, and if the industry surprises me as it often does!

If you want more on the report from The NPD Group, I recommend Piscatella’s thread that’s now on LinkedIn. He has more on platform charts and further details.

Hope everyone is safe and well going into the holiday season, and I’ll be back very soon with my Year-in-Review posts before diving into the new year. Thanks all for the continued support!

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

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

Sources: Newsweek (Image Credit), Nintendo, The NPD Group, PlayStation Twitter, Sega Sammy.

-Dom

Call of Duty: Modern Warfare 2 Leads Software in Stable October 2022 NPD Group U.S. Games Sales Report

Time is marching on through the latter parts of 2022, and with it comes the first monthly sales report of the fourth quarter from games industry tracking firm The NPD Group.

Ironically, considering it was the spooky season, October proved to be much less scary than most of the year as it broke a long-running downward streak. It’s the first month in exactly one year during which spending on games didn’t show a year-on-year decline, boosted by a new Call of Duty, improving hardware inventories and easing of inflationary concerns.

Overall consumer spending across the three categories of Video Game Content, Hardware and Accessories was flat year-on-year, as the largest category of Content moved up slightly. The Hardware segment dipped double-digits, primarily due to a decline in non-PlayStation or Xbox platforms, i.e. Nintendo Switch.

Not bad in general, considering this time last year was the best October on record!

It helps to feature what will likely be the year’s biggest-selling game in Call of Duty: Modern Warfare 2, which (expectedly) topped the overall software chart. That makes 15 consecutive years where a Call of Duty title won its debut month. Which is a staggering result for the annualized military shooter especially since many so-called experts have consistently, and incorrectly, called for its demise.

Not only that, as happens this later in the year, the premium software chart was sprinkled with a variety of additional new releases. October saw five new games rank within the Top 10, and three more between #11 and #20. In addition to the aforementioned Call of Duty, the likes of Gotham Knights, NHL 23, Mario + Rabbids: Sparks of Hope and Bayonetta 3 all generated enough revenue to start in the Top 10, driving Content spend upward despite softness in mobile.

Within Hardware, the PlayStation 5 continued its dominance in October, winning out by both dollar sales and units sold. As it has for three months now. What’s reassuring is how Sony’s family of PlayStation 5 devices along with Microsoft’s Xbox Series X|S family both generated double-digit gains. For four months running. Sensing a burgeoning trend now that supply is getting better? It just took a bit for this generation to get going, seeing as it began during a global pandemic and all.

“October growth in digital sales and subscriptions for console and PC video game content, driven in large part by the release of Call of Duty: Modern Warfare 2, was offset by declines in mobile content and hardware,” wrote The NPD Group’s Mat Piscatella on Twitter.

Signals in October and recent months point to a trend towards increased buying on premium software as the calendar became busier, demand meeting or exceeding console supply and spending bumping up because of it. Prices indicators overall are plateauing right now in the States, so spending power is better than it was earlier in the year. Even as folks are spending less on mobile, other areas are boosting the results.

Read more below as I dig into the domestic sales trends and list out the latest software rankings.

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

Looking at the above slides provided by The NPD Group, total monthly sales across the U.S. games industry stayed constant since last year at $4.27 billion. The green trend-line, which shows percentage change against prior year, has been moving mostly upwards since mid-year. I’d say this is the single most important takeaway from recent reports. Essentially, the rate at which spending declined in the back half of the year is improving.

Expanding to the first ten months of 2022 now, spending is still down 7% at $42.7 billion. This is mainly due to headwinds within Content as Hardware is showing a modest decline. There’s worse-than-expected output from mobile and a lighter premium software release slate until just recently in the fourth quarter.

Content as a segment, which includes software sales in addition to subscriptions and mobile, has returned to year-on-year growth, edging up 2% in October to $3.7 billion. Its contribution to overall sales was nearly 87%, compared to 85.5% this time last year. As for annual figures so far, Content has contracted 8% to $37.19 billion. That’s an improvement since last month, when it was trending down 9%, due to the October growth boosted by big budget new launches.

Mobile is traditionally the largest contributor within the Content segment. Unfortunately, last month’s report doesn’t shed much light into this other than to state spending was lower year-over-year. One tidbit from a GamesBeat article highlights how mobile spending could decline in 2022 for the first time in tracked history, an intriguing dynamic given how people are on the go more lately.

Within premium, October’s winner of Call of Duty: Modern Warfare 2 is also already the second best-selling game of the year, behind only Elden Ring. One element here is how Activision Blizzard employed a more staggered launch schedule for this year’s title, which seemingly attracted people earlier. Its story campaign dropped on October 21st while the full game hit market on October 28th.

This domestic debut fits the broader narrative of Modern Warfare as the premier sub-brand within the series. This year’s game, which shares a title with the 2009 classic, generated $800 million during its opening weekend and reached $1 billion in sales within ten days on market, becoming the fastest-selling Call of Duty in history and second fastest-selling game ever behind Grand Theft Auto V. (No wonder Microsoft is willing to pay so much for the publisher.)

Moving down the list, Gotham Knights snagged second place in what I’d call the biggest surprise of the month. Despite middling critical reception, the Warner Bros-published game clearly benefited from brand awareness as part of the DC Comics universe. Even without the Bat himself being playable. As a quick comparison point, Batman: Arkham Knight started atop the June 2015 software chart.

Then it’s the sports games, All from American publisher Electronic Arts. Both FIFA 23 and Madden NFL 23 dropped a couple spots respectively to 3rd and 4th. The next highest-ranked new title on October’s list was NHL 23, which scored 5th. This is a notable improvement compared to its predecessor, which dropped at 9th in October 2021.

Coming up next at #6 was Nintendo Switch exclusive Mario + Rabbids: Sparks of Hope. The collaboration between Ubisoft and Nintendo is a sequel to Mario + Rabbids: Kingdom Battle, a title that launched one spot higher in September 2017. (When, I might add, my beloved Destiny 2 was the month’s top earner.)

The final new game among the Top 10 last month was another Nintendo Switch exclusive in Bayonetta 3. Platinum Games’ latest in the long-running franchise is the first to launch on Switch, landing in 9th. It’s tricky to compare to prior games because they started on the failed Nintendo Wii U, which had quite the limited install base. One caveat is digital is not included for Nintendo-published games such as this one.

In terms of other new releases securing spots among the Top 20, there’s Star Ocean: The Divine Force at #14 and Dragon Ball: The Breakers at #16, while PGA Tour 2K23 teed off one spot lower at #17. And while it’s not a brand new title, Persona 5 experienced a massive jump up to seventh place due to its release on a variety of new platforms, including Xbox and Nintendo Switch.

Expanding to the current annual ranks, Elden Rings has held off Call of Duty: Modern Warfare 2 for the time being. Bandai Namco announced recently that FromSoftware’s latest reached an impressive 17.5 million copies sold globally. I expect this dynamic in the U.S. will swap come next month, when Call of Duty: Modern Warfare 2 will become the year’s best earner. Otherwise, FIFA 23 bounces into the Top 10, settling at #8, while Gotham Knights continues its impressive start being already the 14th top-selling game of 2022.

Here’s the full list of best-sellers for last month and the year through October.

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

  1. Call of Duty: Modern Warfare 2
  2. Gotham Knights
  3. FIFA 23
  4. Madden NFL 23
  5. NHL 23
  6. Mario + Rabbids: Sparks of Hope
  7. Persona 5
  8. NBA 2K23*
  9. Bayonetta 3*
  10. Elden Ring
  11. Mario Kart 8*
  12. Splatoon 3*
  13. Minecraft
  14. Star Ocean: The Divine Force
  15. Grounded
  16. Dragon Ball: The Breakers
  17. PGA Tour 2K23*
  18. Nintendo Switch Sports*
  19. NieR: Automata
  20. Super Smash Bros. Ultimate*

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

  1. Elden Ring
  2. Call of Duty: Modern Warfare 2
  3. LEGO Star Wars: The Skywalker Saga
  4. Madden NFL 23
  5. Pokémon Legends: Arceus*
  6. Horizon Forbidden West
  7. MLB: The Show 22^
  8. FIFA 23
  9. Call of Duty: Vanguard
  10. Gran Turismo 7
  11. Mario Kart 8*
  12. Kirby and the Forgotten Land*
  13. Minecraft
  14. Gotham Knights
  15. Nintendo Switch Sports*
  16. Saints Row
  17. Madden NFL 22
  18. Super Smash Bros. Ultimate
  19. FIFA 22
  20. Marvel’s Spider-Man Miles Morales

Console sales, which rose almost 20% in September, returned to a decline last month. Consumer spending on Hardware as a category declined 10% in October to $424 million. This happened despite solid double-digit growth for PlayStation 5 and Xbox Series X|S, implying that Nintendo Switch made up the difference on the downside.

Intriguingly this didn’t have a substantial impact on the trend for 2022 to date, as Hardware spend is currently $3.78 billion or 2% lower than last year’s $3.87 billion thru the same time frame. That’s only down modestly from a 1% decline as of September. This tells me that availability is still better than it’s been in a long while, even if Nintendo Switch is aging into the back part of its life cycle.

As I predicted would happen last month, I mentioned earlier that PlayStation 5 won October on both dollar sales and units. Sony has been able to shore up its pipeline and suppliers are outputting more boxes to meet demand, and those folks that want a PlayStation 5 are certainly buying when they find one. In my article on Sony’s recent rules, I noted that PlayStation 5 lifetime unit sales reached 25 million. While it’s currently selling at a slower pace than PlayStation 4, the company is way upbeat on the remainder of this fiscal year through March 2023.

One additional note from The NPD Group is Xbox Series X|S landed in second place during October, reaffirming my inference that Nintendo Switch is starting to saturate its potential audience.

On the year so far, PlayStation 5 continues its lead on dollar sales followed by Xbox Series X|S and Nintendo Switch, in that order. When measured by units, Nintendo Switch is still in the lead driven by its lower price point. PlayStation 5 is next, while Xbox Series X|S is in third by that metric.

This checks out, as the higher-priced current generation is making more money per unit sold than Nintendo’s older hardware. Not to mention, there’s more demand for the shiny new boxes. Though Nintendo does benefit from families and households buying multiple devices, a situation that will benefit it during this upcoming holiday period. The Switch recently passed 114 million units globally, still the third best-selling home and handheld console of all time.

In what I’d call the most disappointing result, mainly because it missed my more upbeat expectation after a solid September, Accessories experience 8% lower sales in October to $148 million. Apparently, a new game pad from Microsoft in the Xbox Elite Controller Series 2 Core wasn’t as attractive, maybe due to its pricing that’s above the likes of entry level controllers. Perhaps there were declines elsewhere that dragged the segment down.

Annual spending on Accessories for 2022 is currently down 12% from last year’s $1.95 billion, totaling $1.72 billion through the first ten months of this year.

During October, Sony’s PlayStation 5 Dual Sense Midnight Black was the month’s top-selling peripheral, a flip from September when it was the base level black Xbox Wireless Controller. Microsoft’s Xbox Elite Series 2 Wireless Controller is still tops for the year, as I confirmed directly with The NPD Group.

As far as monthly results go for commercial output of the domestic games industry, October was the steadiest in recent history. Prior to last month, we had seen 11 consecutive months of spending declines.

This sort of rebound is especially noteworthy since it’s compared against a record-breaking October last year. The Call of Duty effect is of course a big plus, alongside a great showing from Gotham Knights plus those annualized sports titles signaling a ramp up to the holiday shopping season.

Checking ahead to November, which includes the bellwether Black Friday period, I’m anticipating growth in overall domestic spending. Likely in the mid-to-high single digits. Mainly because of the better console inventories, massive PlayStation and Nintendo software launches and a chance for accessories to benefit from deals.

Even considering Call of Duty: Vanguard launching last November, I’m guessing the Content category will be flat or maybe a slight decline. I expect Call of Duty: Modern Warfare 2 will repeat as the top-seller, with both Sony’s God of War: Ragnarök and The Pokémon Company’s Pokémon Scarlet & Pokémon Violet close on its heels. Because the former includes digital, and it’s going to have a potential record-setting debut for a PlayStation exclusive, I firmly believe it can secure second place.

For Hardware, PlayStation 5 should take November on revenue as it will still retain its pricing. I’m much less certain on units sold. I think Nintendo Switch can win by this metric, given the incredible popularity of Pokémon as a franchise.

There we have the latest U.S. sales recap, and predictions as the year begins its end. I highly recommend checking out Piscatella’s thread here, a bittersweet one since apparently it will be the second-to-last NPD report on Twitter. The company is changing formats to a more formal press release style. You know I’ll still cover it here and on social media, regardless of how it’s announced!

Thanks everyone for taking the time to visit the site. Here’s wishing everyone a great November, and a Happy Thanksgiving to everyone that celebrates. Take care and be well!

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

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

Sources: Activision Blizzard, Bandai Namco, GamesBeat, Newsweek (Image Credit), The NPD Group, Sony Corp.

-Dom

PlayStation 5 Sales Reach 25 Million as Sony’s Gaming Unit Posts Record Revenue & Declining Profit in Mixed Q2 2022 Report

As the calendar turns to November, the ongoing earnings season across gaming, tech and media keeps on rolling. Those who follow my latest calendar post will know it’s only picking up steam!

Yesterday, Sony announced fiscal 2022 second quarter results. It’s the definition of a mixed bag, akin to receiving both an apple and candy bar while trick-or-treating! (I miss the spooky season already.)

Overall the Japanese consumer tech company saw improved sales and profitability. Within the PlayStation business, revenue rose in the double-digits to its best fiscal Q2 on record. However, operating profit saw a precipitous drop of nearly 50% in what was one of its toughest outcomes in recent memory.

Underlying this dynamic of good top-line growth yet decreasing profitability was favorable impact from exchange rate movement, as the Japanese yen is near its weakest point in decades. It’s also attributed to lower software output from external publishers. Then, for profit, better margins for PlayStation 5 hardware couldn’t offset high expenses from ongoing development and acquisition activity, namely the purchase of Bungie.

Speaking of hardware, PlayStation 5 lifetime unit sales reached 25 million after Sony shipped 3.3 million units in the quarter ending September. That’s the same exact quarterly shipment amount as last year. While it now outpaces Nintendo GameCube’s 21.74 million and the original Xbox at 24 million, it’s still hitting market at a much slower pace than its predecessor. Sony is upbeat on the remainder of this fiscal year at least, reiterating its 18 million shipped target. Which means it must reach 12.3 million in the back half. Read my predictions later in the piece to see if I agree.

As for engagement stats given the rebranding of PlayStation Plus during this quarter, it’s better than it first appears. From a subscriber and active user standpoint, things are looking down as both PlayStation Plus and Monthly Active Users (MAUs) across the network declined. However, Network Services dollar revenue is up double-digits. Which means the rebranding is attracting buyers that are spending more, and shedding those that aren’t interested in paying within the ecosystem. It’s actually been a win for PlayStation, despite a lower subscriber count.

“Production itself has been quite well,” said Sony Chief Financial Officer Hiroki Totoki. “We have the decline of MAUs and the other indices. The second quarter, more people are now going outdoors. And we have yet to get out of the negative cycles. PlayStation 4’s and third-party software sales have been rather sluggish. Catalog and historical titles have been declining. Against that, PlayStation 5 engagement is quite high.”

That said, here’s a deep dive into Sony’s latest numbers.

Sony’s consolidated results for the latest quarter are shown on the first slide above, and the remainder reveal insight into its Game & Network Services (G&NS) business.

Overall sales moved up 16% to $19.91 billion, while operating profit rose 8% to almost $2.5 billion. Both of these figures are best-ever second quarter results, as reported in Japanese yen. Even amidst a global scenario that’s experiencing economic slowdowns and rising inflation, Sony is proving to be resilient so far.

Now onto the PlayStation business. This unit improved quarterly revenue by 12% to a Q2 record $5.2 billion, contributing 26% of the company’s total. Operating income on the other hand was hit hard in the three months ending September, dropping 49% to $305 million.

On the top-line, these gaming results benefited from currency fluctuations even as sales of software not published by PlayStation softened. Profitability was drastically eroded by the aforementioned content sales drop and higher expenses amidst rising costs in general. There was a bit of good news sprinkled, as Sony indicated it’s losing less money on hardware in recent months.

Moving into the product sales split chart will help illustrate these talking points, showcasing what’s driving PlayStation right now. All categories were either flat or up, many of them in the double-digits. Intriguingly, Physical Software saw the biggest gain at 32%. Next up was Network Services, clearly benefiting from PlayStation Plus’ new tiered system (as cumbersome as it might be). Digital Software rose 14% while Hardware moved up 12% on better inventories. Add-On Content was the only source not to grow; though it also didn’t lose any ground, coming in flat for the quarter.

To help provide even more perspective, there are two additional charts showing the last 12 months of sales and profit for PlayStation. Summing up the last four quarters, Sony’s annual gaming revenue is currently nearly $20.3 billion. That’s the second best trailing 12-month revenue in PlayStation history, nearly identical to last year’s figure. On the flip side, the last year of operating income being under $2 billion is the worst in over two-and-a-half years. This clearly shows the challenge for Sony when it comes to gaming, maintaining profitability in a cooling economic situation as it pushes forward with big budget projects.

As I did in my recent article on Microsoft’s latest results, here’s a quick rundown of where PlayStation’s annual sales fit in the industry right now. I’ll mention the same caveat: when converted to United States dollars, the Japanese companies look a bit lighter than usual because of yen weakness. That said, Tencent’s $24 billion from gaming is tops. Sony maintains the second slot with its nearly $20 billion, while Xbox continues in third with $16 billion. Nintendo, which reports next week, was at $13 billion though that will likely move up.

Moving on from the financial side, here’s a closer look at Sony’s supplemental information highlighting even more recent stats for the G&NS division.

Full game software sales across PlayStation platforms totaled 62.5 million in Q2, which is down 18% or almost 14 million units since the same three months in fiscal 2021. This is partly driven by release slate, where last year saw titles like Ratchet & Clank: Rift Apart just before the quarter started then launches for both Ghost of Tsushima Director’s Cut and Deathloop. This year’s flagship was solely The Last of Us Part 1.

First party titles sold nearly a million less units in Q2 this year, at 6.7 million compared to 7.6 million. Even considering third party titles, mainly in the sports genre, content sales proved to be lighter. Digital split within full game software remained relatively constant, at 63% in Q2 versus 62% last year.

“When we compare software sales for this quarter with the same period of the previous fiscal year, we see sales of past library titles declined sharply, while sales of major new titles remained strong,” management said. “Users appear to be playing a smaller number of titles out of a desire to spend less money.”

Then there’s the element of subscription services and player engagement. PlayStation Plus ended September with 45.4 million subscribers, down 1.8 million since last year and 1.9 million compared with last quarter. This was mainly due to user engagement on PlayStation 4 performing worse than the company anticipated.

MAUs across the PlayStation network moved down to 102 million, seeing similar contractions against last year’s 104 million and Q1’s 103 million. Sony pointed out that total gameplay time rose “slightly” compared to the prior quarter, it declined 10%. Why? People have more opportunities to “go outside” now that COVID 19 infections are trending down. Basically, gamers are apparently touching more grass.

The last tidbit provided by executives during their prepared remarks is that PlayStation Plus subscriber ratio among PlayStation 5 general is “significantly above” that of PlayStation 4. Which makes sense, it’s a much more digital world now that’s open to paying for subscriptions like this and Xbox Game Pass. Sony’s latest rebranding and alignment of services shows its focus on attracting people to its ecosystem, so they can spend within it.

Thus concludes what I’d classify as one of PlayStation’s most divergent quarters in recent memory, presenting a clear divide between record sales and diminishing profits.

Sales growth is great to see, especially for Hardware and Network Services. I’d still argue that reigning in costs is much more important given today’s recessionary environment. PlayStation 5 availability is better than it’s been since launch and demand is certainly there on the consumer side. Its Sony’s expenditures on big budget projects, including PlayStation VR2 as a new peripheral, and buying of studios like Bungie that impacts the bottom line.

Management’s forward-looking guidance for the second half of fiscal 2022 reflects this same situation. First, it raised total company guidance for both sales and operating profit by 1% and 5% respectively. Then, it expects slightly higher sales from PlayStation however is forecasting 12% lower operating profit. This is much more in-line with my expectations.

As I mentioned above, PlayStation 5’s full year target is still 18 million units. Management claims that both material supply and logistical challenges have eased, thus it actually produced 6.5 million in Q2 and shipped around half of those to retail. I remain skeptical, keeping my previous annual estimate of between 15 and 16 million.

If it happens to meet the 12.3 million PlayStation 5 units required in the back half of fiscal 2022 to get there, lifetime sales would be 37.3 million by March 2023. Still below the 40 million of PlayStation 4 during the same time frame. It sounds like Sony’s target for fiscal year 2023 is 23 million, trying to make up ground on its predecessor. I think it will need more than that.

While Sony doesn’t provide formal guidance on software, I’m quite bullish on the next quarter and into the first calendar portion of 2023. Mainly because of two major new releases, one first-party and the other multi-platform. God of War Ragnarok hits market next week, and will rival or outpace the year’s biggest PlayStation 5 exclusives. As part of this report, Sony shared updated unit sales for God of War (2018): It’s now reached 23 million units, up from just under 20 million a year ago.

Then of course we have Call of Duty: Modern Warfare 2, what I expect to be 2022’s best-selling premium title. Yes, even considering the beast that is Elden Ring. Activision Blizzard’s Call of Duty franchise is on another level, especially its Modern Warfare sub-brand, seeing as this year’s title earned a record opening weekend of $800 million in sales to consumers. Considering PlayStation has a marketing deal in place, it benefits more than any other platform when the military shooter does well. Between that and PlayStation Plus continuing to fill out its offering, I’m upbeat on both software and add-on content sales in the coming quarters.

“We are actively pursuing various measures to further increase user engagement and re-accelerate the growth of our game business from both the hardware and software perspectives,” said Sony’s executives in prepared remarks. “We expect to see the results of these efforts contribute to sales and
profit in earnest from the second half of this fiscal year and next fiscal year.”

Finally, there’s Sony’s announcement today on the timing and cost of PlayStation VR2. The follow-up to its original virtual reality headset back in 2016 will launch on February 22nd at the lofty price of US $549.99 for its base model. This reflects the same sort of revenue and profit considerations as before: It’s a major barrier to entry considering users also need to own a PlayStation 5, which will push up sales, however margins will likely be small considering how much it costs to make each unit. I’m cautious on its commercial prospects initially, and think it will appeal more over time once more people own its corresponding console.

That’s a wrap on Sony’s latest results. What were your reactions? Any surprises? Do you think Sony can hit its financial and hardware targets by March? Drop a note here or social media and check back soon for even more coverage of gaming, tech and media. Be well, and thanks for stopping by!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported average conversion: US $1 to ¥138.2.

Sources: Activision Blizzard, Company Investor Relations Websites, Forbes (Image Credit), Michael Ng (Image Credit), PlayStation Blog.

-Dom

FIFA 23 & PS5 Score During 11th Straight Month of Declines for U.S. Games Industry in September 2022 NPD Report

The third quarter has come to an end, and with it brings the latest monthly report from The NPD Group on how spending on the U.S. games industry is faring.

Fittingly for a September, there’s all sorts of football happening this Fall. American or otherwise.

The latest FIFA title launched in this time frame, during which overall consumer spending across Video Game Content, Hardware and Accessories declined for the 11th straight month. Good news is last year was a record high for the industry and this September was only 4% lower, a better result than certain double-digit dips during the past several months.

As shown in a chart later, even if these spending declines are happening in succession, the trend-line is turning positive. Plus, 2021 is proving to be more an outlier during which pandemic-fueled spending peaked amidst low inflation and fewer general economic pressures.

Content spending, that on software and related sources like mobile and subscriptions, was the only category to decline last month. Mobile weakness had a lot to do with that, as did its outsized impact on the overall number because it’s the largest segment by a wide margin.

“Content performance was driven by a double-digit percentage gain in non-mobile video game subscription spending,” said The NPD Group’s Mat Piscatella on Twitter. “Which was offset by declines across other content segments.”

A bevy of new premium titles dotted the month’s best-sellers list. There were six new releases within the Top 8, to be exact. Many of them were sports titles, sequels or reissues. Among these, Electronic Arts’ FIFA 23 scored the software win in September, knocking its football counterpart of Madden NFL 23 down to second place.

Buying in the Hardware category continued to be a boon as this segment experienced double-digit growth now for three consecutive months. Catapulting this was PlayStation 5 as the top-selling device in September by both units and dollars. As I wrote during July and August, individual data points don’t constitute a reassuring trend. This latest month is starting to make me a believer that supply conditions are getting to where they need to be.

Now, general spending numbers from the first three quarters is still trending down overall as all three categories are currently showing declines. During 2022 to date, people have spent less on gaming than the year prior. This reflects both the historic run a year ago, people seeking entertainment in other areas in addition to macro effects such as inflation and the labor market.

Despite the gloomy headline, fitting for the impending spooky season, September’s report showed multiple reasons for optimism. See below for a full rundown of the numbers then a preview of next month’s action.

United States Games Industry Sales (August 27th, 2022 – October 1st, 2022)

In total, people in the U.S. spent just over $4 billion on gaming last month. That’s down a modest 4% compared to an all-time September high last year. Check the second chart above, in particular the green line showing year-on-year percentage changes, and it’s mostly looking up.

During the first three quarters of 2022, spending declined 8% to $38.4 billion. This movement was driven mainly by contractions in Content and Accessories categories against high comparables last year.

Content spending moved down 7% last month, the only category that wasn’t flat or higher. Its dollar amount reached $3.41 billion or roughly 84% of September’s total. This was mainly attributed to weakness in sources other than non-mobile subscription spending.

Mobile, the sub-category that dictates Content performance, continued to under-perform in September as spending dipped 5% according to Sensor Tower’s portion of the report. Underlying this movement was a worse-than-expected drop in “hypercasual” game installs, declining 40% year-on-year. Overall new installs were 3% lower than last September, marking the worst monthly output since February 2019.

There proved to be more positivity around premium software, as the launch calendar picked up during September due to annualized series. Unfortunately, there wasn’t much in the way of dollar comparisons so I’ll rely on historical rankings for at least some context.

As I mentioned earlier, FIFA 23 finished in first place during its debut month. The last soccer game from Electronic Arts to feature the FIFA branding before it switches to EA Sports FC landed one spot above its predecessor, which started at #2 in September 2021. Both titles had only a few days on sale, making the win for FIFA 23 even more impressive. Recently the publisher said this year’s title was the franchise’s largest global launch ever.

Just below August’s winner and September’s runner-up Madden NFL 23 was NBA 2K23 rounding out the Top 3, even without counting digital contribution because publisher Take-Two Interactive no longer shares it. This is the same position as NBA 2K22, which lost to the same two aforementioned sports series. Take-Two Interactive will certainly share more insight into this year’s launch during its earnings presentation in November, where I expect a potential record start.

Nintendo Switch exclusive Splatoon 3 showed up next, splashing its way to the 4th spot. It’s another title that doesn’t include digital, which means upside could be even higher. The last game launched back in July 2017, when it debuted atop the software list. Albeit during a less competitive window. If the latest game’s absolutely massive Japanese launch sales are any indication, I’m anticipating a record global launch for the franchise and one of the fastest-selling Switch games in its near six years on market.

Completing the slate of new entries on the software chart were The Last of Us Part 1, Teenage Mutant Ninja Turtles: The Cowabunga Collection and JoJo’s Bizarre Adventure: All Star Battle at 5th, 6th and 8th, respectively. While I expected a solid start for Sony’s “remake” of the legendary The Last of Us, the other two proved to be pleasant surprises. Especially JoJo’s Bizarre Adventure, a series mostly localized to Eastern markets.

Looking at the list of best-sellers during the first nine months of 2022, it’s mostly unchanged since August’s result. Madden NFL 23 boosts into the Top 3 from its Top 5 debut. FIFA 23 enters the year’s best-sellers list at #11 while, further down, Saints Row 2022 jumps a few spots into the Top 15.

Check the full lists below for September and 2022 so far.

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

  1. FIFA 23
  2. Madden NFL 23
  3. NBA 2K23*
  4. Splatoon 3*
  5. The Last of Us: Part 1
  6. Teenage Mutant Ninja Turtles: The Cowabunga Collection
  7. Saints Row 2022
  8. JoJo’s Bizarre Adventure: All Star Battle
  9. Elden Ring
  10. Mario Kart 8*
  11. Minecraft
  12. Marvel’s Spider-Man
  13. Lego Star Wars: The Skywalker Saga
  14. Super Smash Bros. Ultimate*
  15. Call of Duty: Black Ops Cold War
  16. Horizon Forbidden West
  17. Call of Duty: Vanguard
  18. Assassin’s Creed Valhalla
  19. MLB: The Show 22^
  20. Dragon Ball Z: Kakarot

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. Madden NFL 23
  4. Pokémon Legends: Arceus*
  5. Horizon Forbidden West
  6. MLB: The Show 22^
  7. Call of Duty: Vanguard
  8. Gran Turismo 7
  9. Kirby and The Forgotten Land*
  10. Mario Kart 8*
  11. FIFA 23
  12. Minecraft
  13. Nintendo Switch Sports*
  14. Madden NFL 22
  15. Saints Row 2022
  16. FIFA 22
  17. Super Smash Bros. Ultimate*
  18. Marvel’s Spider-Man: Miles Morales
  19. Animal Crossing: New Horizons*
  20. Monster Hunter Rise

Here’s the shining bright spot in September’s announcement: Hardware purchasing, which rose a fantastic 19% to $490 million. Clearly heading in the right direction after July’s 12% move and August’s 14% jump, now boasting a steady three months straight of double-digit gains. Both PlayStation 5 and Xbox Series X|S families experienced similar double-digit growth.

Because of this recent spurt, Hardware was nearly flat during the first three quarters of 2022. Spending eclipsed $3.36 billion, just under the $3.41 billion in the same period last year.

This recent move is a great signal for supply easing. There are more consoles being produced, which is leading to better inventories at retail. Demand is holding up its end as well, which should continue throughout the fourth quarter holiday season and into next year.

PlayStation 5 led the pack in September by both units sold and revenue generated, same as it did in August, proving that Sony’s family is consistently improving in output leading into the back stretch of 2022. Nintendo Switch came in second place by units, while Xbox Series X|S generated the second highest dollar sales.

What’s important about this upward momentum in Hardware is how it’s happening in light of various headwinds for consumers. While inflation is somewhat easing in light of a hawkish Federal Reserve increasing interest rates, it’s still quite high. Indicators had shown discretionary spending shifting towards non-gaming activities, though console acquisition is bucking that trend. My read is that’s mainly due to pent up demand for new generation boxes.

Plus, easing inflation will have a positive impact on both sides of the equation; Better buying power and lower input costs. I expect the impending earnings season will reveal similar improvements for console manufacturers. (Check back soon for my full calendar!)

Another encouraging sign from last month’s announcement was spending on Accessories, coming in flat year-on-year at $174 million. This smaller segment is showing signs of life! Or at least stabilization, given how it’s the best monthly performance in almost a year.

“This is the first month since October 2021 in which Accessories spending did not experience a year-on-year decline,” Piscatella noted.

The NPD Group dug a bit into the fundamentals here, stating that Game Pad buying was up in September, which rose enough to offset slower Headsets/Headphones output. Backing this up, the base model Xbox Wireless Controller in carbon black was the month’s top-earning peripheral.

Still, year-to-date spend on Accessories was still down in the double-digit range because of how poorly it performed in earlier months. First nine month spend dipped 13% to $1.55 billion. While the report didn’t state it outright, I assume the year’s best-seller remained Microsoft’s Xbox Elite Series 2 Wireless Controller.

Taking this past month as a whole, there’s a lot more to like than not with the domestic sales report. Even given the headline of 11 straight months of declines. Since the trend is improving, especially for Hardware and new premium launches, the bright spots are mounting. Supply has been the story, and that narrative is slowly getting better.

How did my predictions from August go? I thought Madden NFL 23 and Splatoon 3 would fare better, mainly underestimating the upside of FIFA 23. I also got PlayStation 5 winning on dollar sales correct, although I thought Nintendo Switch could lead on units. We’ll call that a half-win!

October is the start of the fourth quarter push, and always a great time to be a sales analyst.

Of course, Call of Duty: Modern Warfare 2 is the bellwether as it launches this week. It will be the month’s best-seller, even with just a couple days on market. In a clear marketing stunt to drive early buying, pre-orders now have early access to its campaign mode.

October will also be highlighted by a couple new Switch exclusives in Mario + Rabbids: Sparks of Hope and Bayonetta 3. Both of these will benefit from the Switch effect, likely landing in the Top 7. Overwatch 2 had a massive start after shifting to its free-to-play early access model, attracting a whopping 25 million players within ten days, so I’m curious to see how this translates on the charts. A Top 3 finish isn’t out of the question, depending on purchasing of its Watchpoint Pack.

PGA Tour 2K23 can be a quiet success, though without digital I’m cautious on a Top 10 start. Gotham Knights will be shaky at best, its commercial lack of success paralleling its tepid critical reception. A Plague Tale: Requiem launched into Xbox Game Pass, so I’m not sure of its upside on the premium charts. I remain upbeat on the sports titles from recent months, especially Madden NFL 23 as the football season progresses.

If PlayStation 5 supply continues, and I expect it to happen, I’m betting it leads on units and revenue again. Partially due to Sony’s marketing deal with Activision Blizzard for Call of Duty.

And how about a rare prediction for Accessories! Microsoft continues to pump out Xbox controllers, highlighted by its more cost-friendly Xbox Elite Controller Series 2 Core starting in September. Then there’s Meta Platforms launching its high-end Meta Quest Pro headset in October. I’m quite upbeat on the category, and think it could show mid single-digit growth.

“Things are definitely moving in the right direction,” Piscatella said. “Looking forward to 2023, I’m optimistic.”

I tend to agree! We’ll see everyone back soon for my earnings calendar extravaganza and more articles focused on the industry. In the meantime, I recommend Piscatella’s detailed thread here.

Thanks for visiting! Be well, all.

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

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

Sources: Electronic Arts, Gizmodo (Image Credit), Nintendo, The NPD Group, Meta Platforms.

-Dom

10th Straight Month of Declines for U.S. Games Industry in August 2022 NPD Report Features Wins for Madden NFL & PlayStation 5

Apparently, because we can’t stop time, Summer’s close to its end here in the Northern Hemisphere. I hope you’ll take a brief moment to embrace the cool air that hits this time of year while watching your favorite football squad and reading through this latest blog of sales updates!

As it does every month, The NPD Group shared its report on consumer spending across the games industry earlier in the week. This time, it’s for August, which proved to be another down month fitting with a recent trend. Still, compared to the all-time record high of last year and considering various headwinds, it’s actually a really good result.

Spending across the three major categories of Video Game Content, Video Game Hardware and Video Game Accessories declined for the tenth consecutive month in a row, albeit a modest 5% dip to $4.1 billion. Compare that to over $4.3 billion in August 2021, and I believe this was the second best August result in tracked history. Not bad, right? Essentially, domestic sales are still in the midst of reversion towards pre-pandemic levels, and last month was slightly above this same time in 2020.

The Content segment’s contribution was down, which had an outsized impact because software and the like make up such a large portion of the domestic total. Even a hard-hitter like Madden NFL 23, which was predictably August’s best-selling premium title, and a Saints Row reboot couldn’t offset losses elsewhere, most notably in mobile.

Hardware was the standout in August, proving to be the brightest spot and yet another indication that availability is slowly improving. Especially for the latest generation of consoles. PlayStation 5 was August’s best-seller by both dollars and units. Importantly, both PlayStation 5 and the Xbox Series X|S family experienced double-digit gains compared to prior year, just as they did during July.

Now, one data point doesn’t make a trend. Neither does two. It’s still quite reassuring to see retail inventories going up for both Sony and Microsoft when all we’ve been hearing the past couple years is about supply issues.

Making sure to keep everything in perspective, gaming sales for 2022 are down 9%, with two of its categories in Content and Accessories showing double-digit drops. Again, we’re comparing against strong numbers this time last year. Plus, the industry is still facing pressure from inflation and spending on other entertainment verticals. This sort of stagnation was generally expected this year, and there’s still huge commercial success stories like Elden Ring even during a downturn.

“This is a huge positive shift in the previous market trend,” said The NPD Group’s Mat Piscatella to GameDaily. “Of course, this has been helped by the improved supply of new console hardware. And that’s really the key question going into the holiday.”

Now I’ll take a closer look at August’s numbers, starting first with the overall figures then diving into each category. Also see below for a complete list of the month’s best-selling games.

United States Games Industry Sales (July 31st, 2022 – August 26th, 2022)

During the month of August, consumers spent upwards of $4.1 billion across the games industry, down 5% versus the same time last year. This was mainly attributed to a slowing in software, mobile and related sales, since hardware was the sole area of gains.

Spanning 2022 to date, total sales are currently $34.6 billion. This is tracking 9% lower than the same eight months in 2021, when it was over $38 billion.

Content represented the largest portion, earning $3.59 billion in August or 87.5% of overall spending. This number was down 6% year-on-year and occurred despite a major release in the Madden NFL franchise, a perennial top-seller here in the States.

That’s because mobile continued as the biggest factor, facing its second consecutive month of double-digit declines. Mobile sales dipped 10% in August, highlighting how people aren’t spending as much time or money on mobile platforms right now. This spending dip was felt by both major stores as Google Play sales dropped 22% while Apple’s App Store experienced a more modest 1% decline. The NPD Group didn’t share the top-earning mobile titles.

The big story for premium games was yet another great start for football. And no, I’m not talking about the New York Football Giants being undefeated early in the season. It’s how Madden NFL 23 debuted as August’s number one. That marks a staggering 23 straight years that Electronic Arts’ pigskin series has kicked off its debut month with a win. Talk about a long run! This hot start makes it immediately the 5th best-selling game of 2022 so far.

Below that was an under-the-radar Saints Row reboot, ranking second in August. Intriguingly, this open world crime series from Volition is used to being the bridesmaid: August 2013’s Saints Row IV began in second during its first month, also behind that year’s Madden NFL title. Before that, Saints Row: The Third achieved 8th place in November 2011. This year’s game wasn’t well-received from a critical standpoint and had a lot of technical issues, though clearly benefited from its release window for a solid start.

2018’s Marvel’s Spider-Man jumped up the chart as the month’s biggest mover, leaping to third place from its prior rank of #84. Why? Well, because Sony is finally, slowly, opening its exclusive portfolio to PC players. The game’s remastered version hit PC storefronts last month. It was the top-selling game on Steam among those tracked by The NPD Group. Even Horizon Zero Dawn went from 28th up to #12, proving that the more platforms, the better for buyers.

In terms of new releases for August, the remaining best-seller was Soul Hackers 2 slotting in at #15. Which is a solid position for Atlus’ stylish role-playing game, appealing to a broader audience in the West. When a port for its predecessor hit Nintendo 3DS back in 2013, it understandably didn’t chart.

Taking a look at the 2022 rankings thus far, the only updates were caused by Madden NFL 23 kicking certain titles down the list. The Top 4 remain untouched: Elden Ring, Lego Star Wars: The Skywalker Saga, Pokémon Legends: Arceus and Horizon Forbidden West. At present, there are two franchises both with two titles among the Top 20: Call of Duty and Madden NFL. Familiar faces, indeed.

Check below for the full lists then further down for console performance and peripheral sales in August.

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

  1. Madden NFL 23
  2. Saints Row 2022
  3. Marvel’s Spider-Man
  4. Elden Ring
  5. MultiVersus #
  6. Mario Kart 8*
  7. Minecraft
  8. LEGO Star Wars: The Skywalker Saga
  9. MLB The Show 22^
  10. Xenoblade Chronicles 3*
  11. Digimon Survive
  12. Horizon Forbidden West
  13. Call of Duty: Vanguard
  14. Far Cry 6
  15. Soul Hackers 2
  16. Super Smash Bros. Ultimate*
  17. Gran Turismo 7
  18. Kirby and the Forgotten Land*
  19. The Elder Scrolls V: Skyrim
  20. Pokémon Legends: Arceus*

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. Madden NFL 23
  6. MLB The Show 22^
  7. Call of Duty: Vanguard
  8. Gran Turismo 7
  9. Kirby and the Forgotten Land*
  10. Mario Kart 8*
  11. Minecraft
  12. Madden NFL 22
  13. Nintendo Switch Sports*
  14. FIFA 22
  15. Marvel’s Spider-Man: Miles Morales
  16. Super Smash Bros. Ultimate*
  17. Monster Hunter Rise
  18. Animal Crossing: New Horizons*
  19. Call of Duty: Black Ops Cold War
  20. Mario Party Superstars*

I’m happy to report prospects for Hardware are looking up. Which is especially hopeful for those in the market for a shiny new console trying to beat the holiday rush.

Hardware was the only main category that grew during August, generating $375 million in sales or 14% higher than a year ago. Which tends to happen when people can actually buy consoles. Signs point to better inventories and the demand being there to meet it.

“Supply for PlayStation 5 and Xbox Series consoles has been improving in recent weeks,” said Piscatella. “However, we still aren’t seeing full distribution, so there is still some latent demand to be met. It’s very difficult for me to say whether or not we’re seeing the end of supply constraints or a temporary respite before we move into the holiday period and seasonal demand starts to play a role.”

That’s the question, right. Are these temporary upticks that will fade once higher input costs impact manufacturers? Have suppliers shored up the supply chain enough to keep retail stock consistent? Will we see enough PlayStations and Xboxes for Americans to buy in the fourth quarter?

For now, we use the data available and try to project. PlayStation 5 took home the top spot in August by both dollar sales and units. As a reminder, while PlayStation 5 topped July by revenue, Nintendo Switch led by units. This indicates that the latest monthly win for Sony wasn’t just a result of higher average selling price; it’s a byproduct of better general availability.

Going further, that stat of how both PlayStation 5 and Xbox Series X|S displayed double-digit year-on-year growth in August is key. It’s happened now for the second month in a row. When it’s occurring not just for one manufacturer, and not just for one month, we can maybe start to project out an improved supply scenario.

Between this, rumors of Sony potentially updating the PlayStation 5 hardware soon, Valve continuing to produce its Steam Deck handheld at a more rapid pace than expected and Microsoft’s CEO Satya Nadella talking about how Xbox Series X|S is outpacing every prior Xbox generation, there’s evidence mounting that manufacturers and their suppliers are finally ramping up output.

However, it’s nowhere near the end of supply-side concerns. Hardware as a category is still down in spending for 2022 right now, off 4% to $2.87 billion as of August. PlayStation 5 keeps its lead as the year’s top-selling platform by dollars, while Nintendo Switch is still on top when measured by units. There’s plenty to look forward to here, while also acknowledging the risks still in the market, especially when it comes to inflationary pressure and semiconductor shortages.

Rounding out the big segments is Accessories, which experienced the largest spending drop of the bunch in August. Purchasing on peripherals and related products declined 18% last month, to $138 million.

The NPD Group report attributed these losses to slowdowns for both game pad and headset sales. Sony’s PlayStation 5 DualSense Controller in Midnight Black was the top-selling accessory, same as July.

In aggregate for 2022, spending on Accessories is down 14% to $1.38 billion. Microsoft’s Xbox Elite Series 2 Wireless Controller tops the year’s list to date, which the premium game pad has done for quite some time now.

Really, it’s been somewhat of a lull for new product launches within this segment. That will change here in the near future, as both Sony and Microsoft announced upcoming controllers. Sony debuted its PlayStation DualSense Edge around a month ago as a premium offering to go along with its base DualSense model. No word yet on release date.

Then, in early September, Microsoft revealed a couple new products in its Elite series: The “Core” model in white, which is a lower-priced entry in the premium space. Not only that, Microsoft shared that it will open up its Design Lab controller customization options to its Elite series of premium game pads starting later this year.

Both of these product lines should provide a noticeable boon for Accessories in the coming months, and I’m extremely upbeat on the DualSense Edge in particular.

Even with the multiple months of declines lately for U.S. games industry spend, there’s a lot to like about The NPD Group’s most recent report. August 2021 was a historic time for the domestic industry, recording an all-time sales high. This time around, it was only the second best August ever.

Content, notably mobile, is still stacked up against high comparables. I was more upbeat on mobile than I probably should have been, and recent results prove that it’s not immune to slowdowns. Especially as people see other places to spend on entertainment.

What’s most reassuring is the continued evidence of an upturn in console supply. Plus, there are still plenty of folks who haven’t upgraded to the newest generation, either because they couldn’t find one or didn’t want to do so. The fact that there’s better availability is a promising sign going into the back stretch of 2022.

Speaking of, why not close out with some September predictions?

Within premium software, there’s a good amount of potential best-sellers from the list of new launches: The Last of Us Part 1, Splatoon 3, NBA 2K23 and FIFA 23 chief among them.

If Take-Two Interactive was still sharing digital split, I’d bet the house on NBA 2K23 scoring September’s win. Nintendo also doesn’t share downloads, so I’m shaky on Splatoon 3 even considering its tremendous start in Japan of 3.45 million units in three days.

Then there’s FIFA 23, representing the secondary form of football around these parts. Last year, FIFA 22 outranked NBA 2K22 during their first month on sale. Could there be a repeat?

Well, I’m actually thinking Madden NFL 23 goes back-to-back and scores September’s top slot. Then, Splatoon 3 will be right behind it followed by a combination of FIFA 23 and NBA 2K23. PlayStation’s The Last of Us Part 1 will be in the Top 7, I’m just hesitant on its upside.

What this all really means is September will be a fun one for software sales nerds!

Within consoles, I’m guessing PlayStation 5 earns top marks on revenue and Nintendo Switch sells the most units. Primarily because Splatoon 3 is the closest thing the Switch has had to a “system seller” in years.

That brings an end to August’s recap and September’s predictions. I’d point you to Piscatella’s Twitter thread for more information about the report.

I’ll be on vacation soon, though happy to reply to any questions or comments here or on social media in the meantime. Thanks all for hanging out, and be well!

*Digital Sales Not Included, ^Xbox & Nintendo Switch Digital Sales Not Included, #Founder’s Pack Edition Sales Only

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

Sources: GameDaily, Nikkei Asia (Image Credit), Nintendo, 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

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

PlayStation 5 Lifetime Shipments Total 21.7 Million As Sony’s Gaming Business Sales & Forecast Decline in First Quarter 2022

After writing about Microsoft’s earnings earlier in the week, it’s now time to recap Sony’s fiscal year 2022 first quarter results.

Mixed as they were. Overall sales and profit grew for Sony overall, in part due to a weaker yen and boosts from the likes of Pictures and Music. However, sales within its PlayStation business declined amidst a variety of factors. This was mostly expected based on a high comparable last year, a limited suite of first-party exclusive games plus signs of a broader slowdown in discretionary spending.

Sony’s Game & Network Services (G&NS) segment sales declined in the low single digits over the last 3-month period, marking the lowest Q1 output since fiscal year 2019. Profitability took an even bigger hit, moving down almost 40%, due to general weakness in software plus increased spending on its pending projects.

Hardware proved to be the main bright spot, experiencing a double-digit revenue rise as PlayStation 5 reached 21.7 million in lifetime units shipped. That’s after selling-in 2.4 million boxes in the April to June period, up ever so slightly from last year’s 2.3 million.

Sony also reduced its financial forecast for the PlayStation business, revising downward both revenue and profit metrics while highlighting it expects a bigger decline in 3rd-party software sales. Profit will also be impacted by closing the purchase of Bungie, which went effective a couple weeks back.

Somewhat surprisingly, management reiterated its PlayStation 5 hardware shipment target at 18 million consoles for full year. I tend to disagree, personally. I believe Sony’s management is exceptionally bullish in the face of continued pressure from multiple angles, including supply chain and broader price pressure. I expect reduced guidance within the next two quarters unless input costs drastically improve.

“At this point in time, we have made no change to our 18 million unit sales forecast for PlayStation hardware in FY22,” said executives in the company’s prepared remarks. “But since we are seeing a recovery from the impact of the lockdown in Shanghai and a significant improvement in the supply of components, we are working to bring-forward more supply into the year-end holiday selling season.”

Time to move forward into recapping the underlying financials and make some fun predictions of my own!

First referencing the slides from Sony in the above gallery, these display how it generated $17.86 billion in revenue during the quarter which is up 2%. Operating profit rose 3% to $2.37 billion.

Both these set all-time highs for a first quarter, when measured in local currency. I’m using an average exchange rate to convert into dollars.

Given the environment these are very good, even if slight, gains. Granted, it’s worth reiterating how a weak yen will help top-line growth for global consumer companies like Sony.

That currency impact is on display within the PlayStation business, where its top-line would have been even worse if the exchange rate impact wasn’t as robust. Sony’s gaming division saw revenue dip 2% to $4.67 billion. With higher costs recently, operating profit declined a precipitous 37% to $408 million.

As the G&NS segment slide shows, the top-line revenue includes a substantial foreign exchange rate impact. It also accounts for a decline in both 1st and 3rd party software, a trend consistent with Xbox’s quarter as well. Compared to this time in 2021, people simply aren’t spending as much time or money on software and related content, even if they still have demand for hardware.

This exact dynamic is reflected in the product category slide from its supplemental information and the colorful chart I’ve compiled. Sales from Physical Software, Digital Software and Add-On Content all fell double-digits in the quarter. Hardware and Others, which includes peripherals and first-party game sales not on PlayStation platforms, boosted 12% and 28% respectively. Network Services is also proving to be resilient right now, moving up a modest 4%.

The two additional charts provided expand Sony’s reporting over the latest 12-month period, a method I use to smooth out results and provide better perspective on how companies are performing. It smooths seasonality and considers the last four quarters in aggregate. On the revenue side, PlayStation revenue topped $21 billion. Which is up compared to this time last year when it was $20.6 billion. Operating profit is also up year-on-year, from $2.33 billion in the 12 months ending June 2021 to $2.44 billion now.

What does that mean? Well, in the scope of recent years, these quarterly drops aren’t as damaging as they seem because the last few quarters have been abnormally high for the games industry. It’s that normalization I’ve written about before, as things like global inflation and folks seeking other forms of entertainment enter the picture.

In comparison to industry peers like Tencent, Microsoft and Nintendo, Sony’s current gaming output is near the top. Tencent’s recent annual figure is roughly $33 billion, continuing its reign as the biggest gaming company in the world by sales. Then Sony slots in next at $21 billion, which is lighter lately because it’s converted from a currency in free fall. Microsoft recently reported $16.22 billion, while Nintendo’s latest from last quarter is around $15 billion. The last two years have been a healthy time for the biggest publishers, manufacturers and developers, given all that’s happened, so some headwinds now are natural.

In addition to the financial metrics I love to highlight, Sony shared a variety of additional figures on software sales, digital contribution, services and engagement factors. All very important in gauging the well-being of PlayStation as a business.

First, I’ll talk software sales, the bread and butter of any gaming ecosystem. We already know that revenue from these sources declined in the double-digits, which is reflected in unit sales as well. Full game software on PlayStation platforms dipped 26% to 47.1 million units. Within that, first party titles (those published by PlayStation) lowered even further, down 39% to 6.4 million.

This period includes the second quarter for titles like Horizon Forbidden West, Gran Turismo 7 and MLB The Show 22. It could mean sales a few weeks out from launch are lower because people are playing less, which they are, or potential buyers are waiting until discounts because many new generation titles now start at a higher price point. Which extends the length of a title’s sales trajectory, though earns Sony less per unit sold over time.

Those gamers that are buying software for PlayStation platforms are doing so via its digital storefront more than ever. The number of digital game units sold compared to the total reached 79%, which ties an all-time high set back during the quarter between January and March 2020. To say it another way, fiscal Q1 had the same digital proportion as around the beginning of major quarantines during the early parts of the pandemic.

With respect to player count and engagement, it’s another mixed bag. PlayStation Plus memberships rose 1 million compared to last year’s number, currently reaching 47.3 million subscribers. It’s almost the same number as last quarter, down only around 100K. On the other hand, the key metric of Monthly Active Users (MAUs) showed weakness, going down from 105 million last year to 102 million now.

Sony’s explanation is that hours spent on the platform came in below estimates. Which fits with my expectation, given the release slate and other entertainment options.

“Total gameplay time for PlayStation users declined 15% year-on-year in Q1,” management said in its remarks. “Gameplay time in the month of June improved 3% compared with May and was down only 10% versus June 2021, but this is a much lower level of engagement than we anticipated in our previous forecast.”

This report also marks a bittersweet milestone, as Sony no longer reports hardware sales for the PlayStation 4. The 2013 console ends its historic run around 117 million units sold globally. That’s enough to be the second best-selling home console of all time behind only the PlayStation 2. Where does PlayStation 5 stack up against its predecessor right now? Well, PlayStation 4 had shipped 25.4 million by its seventh quarter on market, meaning PlayStation 5 is lagging by almost 4 million units. Congrats to everyone behind the PlayStation 4, one of the highest-selling devices across the history of gaming.

Stepping back to take it all in, Sony’s fiscal first quarter results were mildly impressive overall while expected temporary weakness hit the PlayStation segment. Three months ago, I wrote about being more cautious than Sony’s management on its gaming prospects for the coming fiscal year. So, this sort of decline fits with that hypothesis, which I’m continuing here.

“The results forecast we announced in May incorporated an outlook for the growth of the global economy developed in January as well as major risks contemplated at the time of the forecast such as the direct impact of the situation in Ukraine and the impact of COVID-19 in China,” executives noted in the company’s prepared remarks.

The highest profile aspect of guidance is PlayStation 5 hardware, where Sony stubbornly kept the 18 million unit sales target for the year ending March 2023. While the next couple quarters will feature software titles that can be system-sellers, my problem is how chip prices could rise in the double-digits over the remainder of this year, and shutdowns or lockdowns will continue to impact part suppliers in the pipeline. My current target is between 15 to 16 million sold this fiscal year for PlayStation 5, implying it still has upwards of 13 to 13.5 million to go.

I also want to address a question that arose during today’s earnings call. Per a transcription from Video Games Chronicle, executives were asked about the potential for a price increase for PlayStation 5. That’s right, an increase! In fairness, Sony has recently bumped up prices for certain items in its local Japanese market plus Meta increased the cost of its Quest 2 virtual reality headset by US$ 100.

Even given the challenges faced by electronic manufacturers right now, I think it’s potential product suicide to drastically raise prices on consumers that are already cash-strained. Especially when it comes to the PlayStation 5, which already sees inflated secondhand prices amidst rampant scalping and limited inventories. Thankfully, Sony Chief Financial Officer (CFO) Hiroki Totoki agrees, for now, and dismissed the question.

On the financial forecast side for the remainder of this fiscal year, Sony raised its sales estimate by 1% while simultaneously reducing its operating income projection by 4%. For PlayStation alone, it revised revenue and profit downward by 1% and 16% respectively. That PlayStation profit reduction stands out the most, factoring increased costs associated with closing Bungie and Haven Studios acquisitions.

I’d say I’m cautiously bullish on this update. Even with big blockbusters like Madden 2023, FIFA 2023 and the highly-anticipated God of War Ragnarök on the horizon in the coming months, I’m worried about those diminishing engagement hours, lower spend on ongoing content and, of course, stagnating hardware production. Uncertainty is the enemy of those who make predictions, so I’ll keep my tentative outlook and say I think we might see lower results.

One wildcard in this scenario is PlayStation VR2, which has a launch roadmap that’s apparently in full swing according to PlayStation Blog. I continue to be shocked by how soon Sony is showing the device, which I didn’t expect for at least another year or more. It seems like it’s been in development for a long while, though release has been pushed back given the difficulties of supplying PlayStation 5, which is necessary to run the headset.

I don’t know if it’s a wise decision to spend on making and marketing both PlayStation 5 and PlayStation VR2 during a holiday season where costs are moving up across the board, and consumers can barely find the console at retail. Does Sony intend to launch the peripheral before March 2023 to meet that fiscal year deadline? Can it match the US$ 400 price tag I think it needs to be attractive? Based on where it’s at in development, I can see it. Even if I don’t necessarily agree with the move.

Thus concludes another recap session during this busy earnings season. Hop over to my full calendar for more on when other companies are reporting in the coming weeks, and thanks for taking the time to visit the site! Be safe, friends.

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported average conversion: US $1 to ¥129.4.

Sources: Company Investor Relations Websites, Getty Images (Photo Credit), Meta, PlayStation Blog, Video Games Chronicle.

-Dom

PlayStation 5 Hits 19.3 Million Lifetime Shipments As Sony Reports Sales Gains & Sets Ambitious Annual Hardware Target

Now that I’ve posted about recent results from both Microsoft and Nintendo, it’s time to dig into the last of the “big three” console manufacturer this earnings season.

That would of course be Sony, which posted its annual results for fiscal 2021 on Tuesday.

During these 12 months ending March 2022, the Japanese consumer tech company saw positive momentum in both its overall business and PlayStation segment. Sales and operating profit for the firm in general each saw double-digit gains since last year.

Even amidst challenges on the hardware side, momentum hasn’t slowed much since a record holiday quarter for PlayStation. While growth rates hovered in the low single-digits, Sony’s Game & Network Services (G&NS) just achieved its second best trailing annual revenue and operating profit. This is especially impressive given the major demand spike last year during more restrictive quarantines in various markets.

Hardware is the headliner for Sony’s gaming business now that the current console generation has entered its second year. After shipping the expected 2 million PlayStation 5 consoles during the quarter of January to March, fiscal year shipments totaled 11.5 million. This was in-line with Sony’s guidance, which I’ll note was reduced from nearly 15 million just last quarter.

It follows that PlayStation 5 is now upwards of 19.3 million lifetime. It’s still not easy to find one and Sony’s suppliers are limited by part availability, which means it’s lagging its predecessor more than ever. At this point, PlayStation 4 had shipped over 3 million more units. It seems that more than its counterparts in the space, Sony is having a tougher time securing inputs.

Which is why I was a bit surprised by its forecast looking ahead to the next fiscal year ending March 2023. Sony’s management has set quite an ambitious goal of moving 18 million PlayStation 5’s over that time. It would be an increase of 6.5 million, and bring lifetime units to 37.3 million. Personally, I’m not nearly as optimistic.

Elsewhere in the report, Sony reported slight contractions in a couple engagement statistics. Both PlayStation Plus memberships and Monthly Active Users (MAU) declined since March 2021, signifying it’s lost players since the pandemic peaks. However on the financial side, Sony overall and PlayStation saw sales and profit increases which means those people sticking in the PlayStation ecosystem are spending money.

One area where PlayStation excels is first-party software. Its teams are responsible for some of the most critically-successful titles in the industry, thus enticing buyers to pay that premium price tag. So it makes sense executives call out plans to invest more in its game development resources and strategy of placing titles on other platforms, namely PC.

“Going forward, we aim to grow the game business by strengthening our first party software and deploying that software on multiple platforms,” said Chief Financial Officer (CFO) Hiroki Totoki during its earnings call. “

Buckle up, let’s see what’s driving Sony’s recent growth.

The gallery above contains various slides and charts based on Sony’s FY 2021 results.

For the company in total, fourth quarter revenue rose 2% to over $20 billion. That led full year sales growth of 10% to above $88 billion. In terms of operating profit, this was $2.33 billion or almost three times as much as the prior year. That substantial quarterly momentum was behind the annual profit jump of 26% to upwards of $10.71 billion.

G&NS is still the leading business by both sales and income when looking at segment reporting. Pictures and Electronics Products & Solutions (EP&S) grew the most, while Financial Services proved to be the only major business line to decline during this time.

Focusing on the PlayStation business alone, January to March sales increased a modest 1% to $5.9 billion. Operating profit nearly doubled to $777 million. Over the latest 12 months, gaming generated $24.4 billion in revenue which was 3% higher than prior year. Annual operating profit was effectively flat around $3 billion.

The top-line growth was attributed to an increase in hardware sales plus the impact from foreign exchange rate, outpacing a decline in mainly third party software. Sony stated it’s seeing better margins for hardware, contributing to that more consistent profitability. Which is good news in this environment of rising costs. It means when hardware is selling, on average its price point makes up for manufacturing expenses. This is consistent with Sony’s comments in the past that the standard PlayStation 5 edition became profitable after only a handful of quarters on market.

This dynamic is reflected in the product category chart, where annual sales from Hardware & Others grew 10% to $7.5 billion. Network Services boosted 7% to $3.6 billion. Digital Software & Add-On Content was the only sub-grouping to decline, though it wasn’t by much. It saw a 2% dip to $12.7 billion, and still comprises more than half of the PlayStation business. Underlying this was mainly a reduction in add-on content, implying a bit less spending on that type of downloadable content.

Per usual, I’ll run a quick comparison to major players in the games industry. Here’s what I wrote in my article on Nintendo, because it’s relevant here:

Tencent reports later this month, though most recently had an industry best $27 billion from gaming. Microsoft’s Xbox division posted $16.5 billion. Factoring the pending Activision Blizzard deal, it could be upwards of $23 billion to $24 billion depending on cost savings, etc. Unfortunately, both of these companies don’t break out profit from games. Nintendo’s recent results show revenue upwards of $15 billion. Thus, while Nintendo’s overall sales aren’t as much as these others, it’s currently more profitable than the PlayStation brand.

Moving onto a round-up of various supplemental updates from Sony’s materials, I’ll now talk software performance, player engagement, subscription movement and services output.

First up is software sales, as measured by copies sold. For the year, Sony reported declines in both total and first party games. On the whole, 303 million units sold across PlayStation platforms. Out of that, almost 44 million were first party games. Compare that to 339 million and 58.4 million respectively during last year. And it wasn’t really a lack of output. On the console exclusive side, titles like Ratchet & Clank: Rift Apart, Uncharted: Legacy of Thieves Collection, Horizon Forbidden West, Gran Turismo 7, Ghostwire Tokyo and Returnal hit this year. While lower year-on-year, first party software wasn’t as much to blame here.

It’s more releases from external publishers that are causing declines, and I wager softer performance of Call of Duty: Vanguard is the most significant contributor. While it’s still massive, the title is under-performing in the context of premium Call of Duty offerings. Perhaps the suite of sports titles that usually hit in the Fall, as well. And this latest quarter saw Elden Ring, which seems to be more successful on PC, plus Dying Light 2: Stay Human.

Now, it’s also a natural normalization of spending from pandemic highs. People are seeing higher prices elsewhere, thus limiting more discretionary spending. It’s not necessarily a doomsday scenario.

Digital split ended up being pretty consistent in the realm of software sales. Downloads made up 66% of all game sales during fiscal 2021, which is effectively the same as last year’s 65% figure. Lately then, this means 2 out of every 3 games sold on a PlayStation platform is downloaded as opposed to purchased via traditional retail.

Looking at Sony’s current main subscription of PlayStation Plus, memberships declined ever-so-slightly to 47.4 million. It was at 47.6 million in March 2021. The company recently outlined its rebranding plan, which will combine this service with PlayStation Now streaming capabilities into a set of PlayStation Plus pricing tiers. I think it’s overly complicated to have three tiers, and it’s not a true competitor to Xbox Game Pass in its form starting this June. Though I believe it can attract more subscriptions, so the end result should be a net positive. Even if I don’t think Sony is going far enough with what it’s offering.

Similarly on the engagement side, Monthly Active Users (MAUs) dipped in fiscal 2021. It started the year at 109 million, then ended up at 106 million. Management didn’t share much more in the way of engagement or play hours, so I have to infer that they were lower than a year ago. Which makes sense as I’ve talked about mean reversion and spending normalization.

Not to be forgotten just yet, PlayStation 4 made an appearance in the supplementary report with 100K units shipped during the fourth fiscal quarter. That brought its annual total to exactly 1 million consoles shipped, and pushed its lifetime figure to around 117 million. Based on Sony’s optimism around PlayStation 5 shipments increasing, this could very well be the last hurrah for its predecessor.

Considering the current consumer technology environment and where purchasing habits were at this time last year, Sony’s fiscal 2021 report is a triumphant one. Gains in both revenue and profit while battling headwinds from component shortages and rising inflation are worth celebrating. For PlayStation, hardware may be lagging historically and software sales are trending down, yet these are temporary situations. Financially this business is stable as ever, supplementing its traditional console sales with digital, service and add-on spending which will only increase as PlayStation Plus rebranding and partnerships with external publishers continue.

Before closing out, I’ll take a look ahead leveraging Sony’s own forecasts. It’s also time to throw in some predictions of my own!

Starting with that PlayStation 5 guidance of 18 million console shipments expected in the coming year. Management suggests the company will be able to secure enough parts, and at reasonable prices, to reach this elevated goal compared to the 11.5 million over the last 12 months. I believe they *think* they can, yet what will happen in reality is anyone’s guess. Even the smartest leaders can’t accurately predict the future when there’s this much uncertainty.

Personally, I don’t see what executives do. Reading the room using comments from chipmaker CEOs and industry experts, plus considering lock-downs in China, I’m much closer to 15 million or 16 million. More than most, I’m preparing for the semiconductor shortage to last into next year or more. The longer it goes, and if inflation continues with it, I predict Sony will reduce that forecast something like six months from now.

Flipping to financial forecasts, Sony is anticipating some robust top-line growth though guarding against pressures on the profitability side. The firm expects revenue to pass $101 billion in the year ending March 2023, which would be an increase of 15%. Even with that double-digit sales growth, it’s guiding towards 4% lower operating income of around $10.3 billion.

Sony is expecting a similar trend within G&NS where revenue will be higher yet operating profit should decline. In fact, revenue guidance is showing a substantial 34% jump to $32.6 billion which would be a record year for PlayStation. That reflects positive impact from hardware, peripherals, software and exchange rate impact. Still, much higher costs for game development and expenses related to acquisitions will drag down operating income by 12% to $2.7 billion.

“We plan to increase software development expenses aimed at strengthening first party software at our existing studios by approximately 40 billion yen ($300 million) year-on-year,” Totoki said. “And we have incorporated that impact into this forecast.”

Executives expect the $3.6 billion Bungie deal in particular to close before December 31st. If the G&NS segment excluded this acquisition, Sony claims operating profit would be virtually flat.

Taking a look at pending flagship software releases on the console exclusive side, the schedule is actually somewhat light for the next 12 months. Square Enix’s Forspoken was pushed from May to its current window of October. God of War Ragnarok is the big one of course, currently with a nebulous “2022” timing. I may be in the minority, I just don’t buy that the sequel to 2018’s masterpiece God of War will be out this year. However, I do see a launch between January and March 2023, in which case it will help boost sales this fiscal year. Then there’s titles like Marvel’s Spider-Man 2 and Marvel’s Wolverine from Insomniac that are still a ways out.

Then there’s the potential for PlayStation VR 2 during the coming 12 months. Sony’s been drip-feeding information on its next generation virtual reality headset in recent months, showing off its form factor, brand new controllers, advanced technologies and Guerilla Games’ Horizon Call of the Mountain project. Many industry followers think it will launch this year. I’m skeptical given it has to exist in the same supply conditions as the PlayStation 5 right now, though it wouldn’t shock me to see it out this holiday season.

Tangential to gaming is Sony’s transmedia push, seeing as the Uncharted movie has made nearly $400 million dollars since dropping in February. The company clearly has strength in IP ownership, and plans to leverage that in places other than just gaming.

“Following the success of the first movie adaptation of the popular PlayStation game title Uncharted in Motion Pictures, we are leveraging our game IP by proceeding with the adaptation of Ghost of
Tsushima
and The Last of Us into video content,” Totoki said.

Then there’s the constant swirl of rumors around potential acquisitions. Sony of course shouted out the Bungie and Haven Studios purchases. Could there be more in the near future? I’ve heard the rumblings about Square Enix after it sold various assets to Embracer Group. I’m thinking it remains independent and continues to partner closer with Sony. Which leaves other third parties still available. If I had to guess, I’d say another development studio or two will be next. And no, not FromSoftware!

Sony’s plans are ambitious and it expects to see substantial revenue growth in the coming year, even if high costs put pressure on its profitability. I believe top-line growth for gaming in particular will be limited if it misses the PlayStation 5 hardware guidance, so I’m more bearish than Sony’s leadership. It all depends where component cost and availability trend, and my estimates prepare for the worst.

Have any questions on today’s Sony recap? What are your reactions to the news and numbers? Do you think PlayStation VR 2 and God of War Ragnarok will be out this fiscal year? Am I crazy to think it won’t hit the 18 million PlayStation 5 target? Yell at me here or on social media, as always.

Oh. And always check my latest earnings calendar for more on gaming, media and tech company results. Have a great rest of the week and season, be well everyone!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported conversion: US $1 to ¥112.3.

Sources: Company Investor Relations Sites, KnowTechie (Image Credit), PlayStation Blog.

-Dom

PlayStation 5 Shipments Reach 17.3 Million as Sony Reports Best Third Quarter PlayStation Operating Profit Ever & Lowers Hardware Forecast

In what’s continuing as the busiest year in gaming news ever, Sony is back after announcing its $3.6 billion acquisition of Bungie to this time reporting its fiscal year 2021 Q3 earnings results.

An eventful one, it was.

In addition to providing updated figures on PlayStation hardware, software and engagement, Sony’s results showed that the gaming division recorded its second best quarter ever for top-line sales. Quarterly revenue exceeded $7.15 billion, which is second only to last year’s $7.77 billion.

Even further, operating profit rose 15% to $817 million in PlayStation’s single best operating profit for a third fiscal quarter. This is the coveted holiday period between October and December, which is most significant for consumer tech companies because of peak demand in various parts of the world. This record profit result and strong growth happened against a high comparable last year around the launch of PlayStation 5.

Right now, and in the immediate future, we know it’s availability dictating a lot of where the business is going. So these results are wholly impressive given this environment, which is continuously supply-constrained and facing delays on the software front. Behind the resilience is add-on content, an expansion in PlayStation Plus memberships plus a shift towards digital software.

On the hardware side, lifetime PlayStation 5 console shipments since launch are now 17.3 million after moving 3.9 million in this latest quarter. When compared to PlayStation 4, the brand’s fastest-selling console, that was at 20.2 million by this point. Its second holiday quarter was a strong 6.4 million, which is 2.5 million above PlayStation 5. It’s clear the current generation is starting to lag in a historical sense, facing various outward pressures amidst the semi-conductor crisis.

Oh, I guess this also means PlayStation 5 has officially passed the 13.56 million units that Nintendo’s Wii U reached across its lifetime. Add it to the list.

Because of supply concerns, Sony reduced its full year annual hardware guidance for PlayStation 5 to 11.5 million units. Previously it expected in-line with PlayStation 4 at upwards of 14.8 million. This implies only 2 million more PlayStation 5’s shipped in this quarter ending March 2022, which would also be below PlayStation 4’s 2.3 million in the corresponding period.

“Limitations on the supply of components are expected to continue going forward, but we are continuing to exert every effort to meet the strong demand for PlayStation 5,” said Sony’s Chief Financial Officer (CFO) Hiroki Totoki.

Here’s a full breakdown of the overall results plus PlayStation business segment, then the various supplementary statistics Sony shared. There’s even more color around the Bungie acquisition later in the article. Numbers, charts and more below!

For the company as a whole, both sales and profit metrics experienced double-digit gains and set new all-time highs for a fiscal third quarter.

Revenue increased 13% to $26.66 billion, while operating profit rose an impressive 32% to nearly $4.1 billion. Major growth in Pictures and Imaging & Sensing Solutions business segments boosted these historic results.

Drilling into Game & Network Services (G&NS), aka the PlayStation business, this is still Sony’s leading category by revenue at nearly twice as much as the next contributor in Financial Services. The PlayStation brand accounts for 27% of Sony’s sales and 20% of aggregate profit.

I’ve already mentioned the $7.15 billion in revenue, down 8% since last year, and $817 million in operating income during third quarter for G&NS. Slides from the company’s presentation cite declines in hardware, peripherals, first and third party software overtaking the impact of exchange rates on the sales side. Alternatively, lower expenses and better margins for PlayStation 5 spurred profit growth.

Those that have read my recap articles know what’s coming. Let’s frame these quarterly figures in context. There’s charts in the above gallery displaying trailing 12-month time frames for each of these.

Over the last four fiscal quarters, which is also calendar year 2021, PlayStation sits at almost exactly $24 billion in revenue. While down from the all-time high of $24.67 billion three months ago, it’s still the second best on record. Not too shabby. For operating profit, the most recent annual number is $2.56 billion and a slight increase over last quarter’s $2.45 billion.

The dip in trailing revenue makes sense, given the slowdown in hardware units and nearly every sub-category within the gaming business. The profitability bounce-back is more noteworthy, in my opinion. It reflects that amidst slowing production of hardware, there’s lower costs bumping up margins giving good impact to PlayStation’s bottom line.

The last of my charts in the gallery shows every product category within the gaming unit and where it’s been in recent quarters. My main observations are it’s the best time for digital software, the second best quarter for add-on content and even hardware, the latter two previously set during holiday 2020. There’s also the slow and steady upward trajectory of Network Services, proving that online play and the related software perks of PlayStation plus are keeping players in the ecosystem. The rumors around a potential combination of services into code-name “PlayStation Spartacus” would bolster this particular slice. I expect this trend-line to continue.

Now that Sony has reported, let’s quickly compare to industry peers. Pulled from my recent article on Microsoft’s results, here’s how it plays out. Sony’s trailing 12-month revenue of $24 billion still comes in below that of Tencent’s gaming businesses, generating $27.3 billion as of September 2021. Microsoft’s record $16.28 billion from annual Xbox sales is up next. If combined with Activision Blizzard, it would be $25.33 billion and actually could exceed Sony’s latest figure. Nintendo reports tomorrow, so I anticipate this figure to rise, however its latest for now is $14.7 billion. Keep in mind there’s impact from exchange rates of course plus Tencent won’t report until next month, though I like to show how each stacks up on a relative basis.

Beyond the fancy financials, Sony provided various updates on players, software and services within its PlayStation ecosystem.

Its online service PlayStation Plus tallied up 48 million subscribers as of December, slightly higher than the 47.4 million at end of 2020. On the flip side, Monthly Active Users (MAUs) across all PlayStation Network declined to 111 million from 114 million last holiday.

This implies that while paid users for PlayStation Plus are consistent, people are spending less time playing. No doubt impacted by last year being the launch of a brand new console, higher availability of vaccines recently plus more open economies. Gaming is still a go-to entertainment, of course. It’s just that folks are spending time on different media.

On the conference call, Totoki echoed this sentiment on engagement. “Total gameplay time of PlayStation users in December 2021 was 20% lower than the same month of the previous year, which was immediately after the release of the PlayStation 5,” he said. “But gameplay time increased approximately 7% from December 2019. For a quarter in which there were only a few major titles released, we think this was solid performance.”

I tend to agree, primarily because Sony is monetizing its base even as they spent less time gaming.

Full-game software sales also showed a downward trend year-on-year, declining to 92.7 million from the recent high of 104.2 million in fiscal 2020 Q3. First party title unit sales were 11.3 million, or 12% of the total, compared to 19 million and 18% of the total prior year. Partially reflective of the limited holiday lineup on the exclusive side, while major seller Marvel’s Spider-Man: Miles Morales hit market last year.

Consistent with digital software being its highest ever from a product category revenue standpoint, the split of digital full game sales is increasing. 62% of all software was digital download, compared to 53% last year. All three quarters this fiscal year have been at or above this same 62% figure. Basically, between 6 to 7 out of every 10 software units sold are now downloaded.

Because of known limitations on the PlayStation 5 production side, Sony is still chugging along manufacturing PlayStation 4 consoles. It shipped 200K of its prior generation box during the quarter ending December, resulting in lifetime sales of 116.9 million. At this rate, it might someday pass Game Boy’s 118.69 million. In a few years, hah.

Projecting into the future, it’s a challenging environment for the PlayStation from a hardware perspective though there are plenty of opportunities on the software and services side.

We’ve talked to death about high demand, low supply. My economics professors would be so proud!

Production and inventories aren’t getting better, as clearly displayed by PlayStation 5’s vast under-performance during a holiday quarter when unit sales have historically been much higher. Consistent with Sony’s formal guidance reduction, I’m lowering my estimate for PlayStation 5 shipments in the year ending this March. Last quarter, I was ambitious at 15 million. Even then I said confidence was waning. Now, I’m down to 12 million which would mean January to March has to reach 2.5 million.

Intriguingly, Sony lowered its fiscal year revenue outlook for the G&NS segment to $24 billion from $25.5 billion yet decided to boost its operating profit target from $2.86 billion to over $3 billion. This is a telling turn of events, signaling further cost reductions that will outpace lower dollar sales for PlayStation. Manufacturing less consoles does have the benefit of lower expenses, I suppose!

The last fiscal quarter ending next month will ramp up on the first party software side, as both Horizon Forbidden West and Gran Turismo 7 are slated to launch. There’s also third party console exclusives like Sifu and now Ghostwire Tokyo, announced today for March 25th. While releases like this won’t drive console sales as much as in the past because of inventories, it will benefit software sales, notably that digital content segment, plus player time investment.

Finally on the topic of acquisitions, Sony’s executives naturally did not comment much when asked about Microsoft’s industry-changing $68.7 billion purchase of Activision Blizzard and if they had plans to snatch up any large publishers.

They did, of course, talk about their major purchase in Bungie. While I didn’t dedicate an entire piece to it, I did want to mention Sony providing additional flavor around the deal, the resulting relationship and how it fits with the future of PlayStation as a brand.

Bungie, creators of Halo and makers of my beloved Destiny, was one of the largest private independent studios in the industry at over 900 employees. To me the main reason to me why it made a deal with Sony, as opposed to a traditional publisher or a software and cloud company like Microsoft, is the trans-media potential of crossover with film and television plus the opportunity to remain mostly independent.

On Sony’s side of the bargain, the upside is huge. One glaring weakness in PlayStation’s portfolio is a lack of live service and ongoing game expertise, which is crucial in 2022 going forward. Bungie provides that, both from a business model and technology standpoint. Along these lines, execs claims global revenue in the games industry from live services have been growing at an annualized rate of 15% since 2014 or the year Destiny launched.

“We intend to utilize these strengths when developing game IP at the PlayStation studios as we expand into the live game services area,” Totoki pointed out. “Through close collaboration between Bungie and the PlayStation Studios, we aim to launch more than 10 diverse Service Games by the fiscal year ending March 31, 2026.”

Alongside this movement towards games-as-a-service, Totoki also discussed the mid-term plan to grow first party software dollar sales to double its current amount by fiscal 2025. Between this internal acceleration of exclusive IP, pushing more into ongoing games with the help of Bungie’s knowledge plus the potential for a Xbox Game Pass-like service in PlayStation Spartacus, Sony’s gaming approach is looking more balanced than it’s ever been.

It does seem to be a good compromise and united.. destiny for both companies.

That’s a wrap on a mostly successful quarter for Sony, especially as a whole with those record results, even considering the lag in PlayStation 5 shipments and downward revision for certain items in the PlayStation division. Other areas are picking up the slack, proven by the record profitability exhibited within its gaming business. While its forecast is lighter for hardware and gaming sales, that operating income guidance increase is reassuring.

Did anything stand out to you in the report? What was the most surprising part? Do you agree with my forecast for hardware or are you more conservative like Sony’s management team? Feel free to drop a comment here or on social media.

Be safe and well. Thanks for reading!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on the reported conversion: US $1 to ¥113.7.

Sources: Company Investor Relations Websites, LEGDAY on Twitter (Image Credit).

-Dom