By Tae Kim
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Insert Coin. Pessimism about the health of the videogame industry is rising.
On Tuesday, GameStop, the largest retailer of videogames, reported a 31% decline in software sales in its fiscal fourth quarter. In January, Microsoft announced 1,900 job cuts across its Activision Blizzard and Xbox gaming units. A month later, Sony and Electronic Arts announced similar layoffs, along with several other studios worldwide. Some pundits and executives are starting to worry about a permanent slowdown in industry sales.
But I would not extrapolate from the current round of bad news. Many publishers overhired during the pandemic and mistakenly chased saturated categories -- including the ongoing multiplayer games that the industry calls "live services." (Think Fortnite.) I don't see a structural growth problem for gaming.
Yes, console game sales are likely to drop significantly this year, but that's largely a factor of timing around game releases. The industry is coming off a banner year. For instance, 2023's best-selling title, Hogwarts Legacy, sold more than 24 million units. Nintendo's The Legend of Zelda: Tears of the Kingdom sold 20 million units. Activision Blizzard's Diablo 4 was another major seller. All three of those games took years to make. There are no comparable releases in 2024.
After a lull in blockbuster titles this year, the industry should return to growth in 2025. Remember, great content drives hardware sales too. The biggest blockbuster of them all is Take-Two's Grand Theft Auto VI, which is scheduled to come out next year. GTA's franchise is unmatched in terms of sales; the last entry in the series sold more than 195 million copies. Even if the title is delayed a few months -- as some now fear -- it will eventually come out and drive a wave of console sales with it.
There are other big games on the way. In its last earnings report, Sony said there would be no major franchise first-party game releases during the fiscal year ending March 2025; that just means more is coming in the following 12 months.
When Nintendo releases its follow-up to the current Switch console, it's likely to launch with new games like Mario. The exact timing shouldn't really matter. Whether it's this year or early next, it will come out and spark new sales.
Beyond the mega franchises, there's some evidence that the gaming sector is holding up fine. Two small studios have already scored major unexpected hits this year. In February, Arrowhead Game Studios released Helldivers 2, which Cowen estimates has sold eight million units and generated nearly $300 million in revenue. Palworld, a Pokemon-like game with guns, that was made by a small Japanese studio, has sold 12 million copies on the PC, equating to hundreds of millions in sales. Finally, earlier this month, Hasbro announced that its Monopoly Go mobile game generated $1 billion in revenue in three months, passing $2 billion in total over the last ten months.
The bottom line is that interest in videogames is as strong as ever. Publishers that make high-quality games, rather than chasing trends, will do just fine.
I'm looking forward to buying the next flurry of games from Nintendo, Sony, and Take-Two. 2025 will be stacked. For now, gamers can catch up on last year's backlog.
Just a short note: I'll be on book leave for the next three months. My colleagues will be ably handling the Barron's Tech newsletter until I return in July.
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Write to Tae Kim at tae.kim@barrons.com or follow him on X at @firstadopter.
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March 27, 2024 16:15 ET (20:15 GMT)
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