The DeanBeat: Gamescom can restore your confidence in gaming as the economy slows

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As I attended the Gamescom and Devcom events in Germany this week, I saw so many opposing trends that were both discouraging and optimistic.

Nvidia reported on Wednesday that revenue from gaming hardware — for the graphics chips used in gaming computers — was down 33% in the quarter ended July 31, compared to a year ago and down 44% from the previous quarter. . That’s a pretty big cliff to fall off, but that’s not surprising given the fallout from the war in Ukraine, inflation, a sharp drop in demand in China and a global recession.

In an interview with me, Nvidia CEO Jensen Huang described the meltdown.

“On the one hand, the macro environment is a combination of all the things in the world that make that happen. It just kept piling up. While every event, whether it’s in Europe or Asia or the United States, is unrelated to another, if you keep piling it up, before you know it, there’s a breaking point for even the global economy. The macro environment has finally settled down,” Huang said.

Concerns about inflation prompted Meta to raise the price of its Meta Quest 2 virtual reality headset by $100. And this week, Sony also said it would increase the price of the PlayStation 5 in several markets (although the price will remain unchanged in the US).

“Console gamers are accustomed to a gradual decline in hardware costs over a console’s lifecycle, but the unprecedented global economic environment has led Sony to increase the recommended retail price of both PS5 models in a wide range of sales territories worldwide with immediate effect. . effect,” Piers Harding-Rolls, research director at Ampere Games, said in an email.

According to data from Ampere Analysis, Sony had sold 21 million PS5s worldwide by the end of June 2022, compared to Microsoft’s Xbox Series consoles for 13.8 million. Sony said the rise in supply chain and distribution costs alongside the strong US dollar forced the price hike.

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The audience at Opening Night Live at Gamescom.

All these reports suggest that gaming revenues will come under severe pressure in the coming months as price increases further dampen consumer demand and developers face reduced revenues for their contributions to the gaming food chain.

Hypercasual games take a hit, based on pressure on ad revenue.

“Of course there are effects, but in general it is seasonal. However, the great thing about ad revenue in gaming is that it can always be optimized,” Burak Vardal, co-founder of Zynga’s Rollic games, said in an interview. “If you see softness for a few days, it’s very easy to get out of that and create new systems behind your game. It is based on (cost per million or advertising rates) CPMs. It is based on other companies paying for it, not individuals. The source of ad revenue comes from other companies’ marketing spend, while in-app purchases come from individual spending. That’s the main difference. The trend differences in ad revenue are much lower than other monetization systems.”

The good news

Thursday morning rush hour at Gamescom 2022.

At the same time, we have heard good news. So far, Microsoft has not matched the price increase and will extend its advantage further with the Xbox Game Pass subscription.

During Geoff Keighley’s Opening Night Live, we saw plenty of great games coming soon, such as the new title Everywhere from Leslie Benzie’s Build A Rocket Boy game studio. We also saw the highly anticipated Dead Island 2 and Dune Awakening. And for this fall, Sony is releasing a blockbuster with God of War: Ragnarok. We can also play Gotham Knights, Quantic Dreams’ Under the Waves, Sonic Frontiers, Return to Monkey Island, Company of Heroes 3, Homeworld 3 and Call of Duty: Modern Warfare II. Sony will launch its PlayStation VR 2 virtual reality headset early next year.

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In any case, it was the sheer mass of humanity at Gamescom — and the roughly 2,500 developers at Devcom — that gave me so much confidence in the future of gaming. Although the show is smaller than the pre-pandemic event of 2019, a sea of ​​gamers came out to show their support for gaming. I’d forgotten what it was like to hear them roar with delight when their favorite games were announced.

Cologne Cathedral. It’s easy to trust gamers.

And while it could be a delayed effect, we haven’t seen the weak economic environment crush the wave of gaming investment and acquisitions that have created astonishing rewards for gaming entrepreneurs. Major gambling capital funds have a lot of dry powder to invest in. While they will be more cautious in the future and support their existing startups more, funds like Griffin Gaming Partners, Makers Fund, Galaxy Interactive, Hiro Capital and others have all raised big rounds. That gives them the opportunity to invest, and so far they’ve done so based on estimates in the first half of game investments and acquisitions per reports from Quantum Tech Partners, InvestGame and Drake Star.

In our panel at Devcom on 2023 predictions, Justin Berenbaum, investment head of Xsolla, said gaming has been recession-proof in the past and likely will continue to be. At the micro level, he expects good gaming startups with strong and fun games to continue to get funding and thrive.

“All the projects we run are multi-year investments. They’re already on their way,” said Eddie Chan, chief strategy officer of Tencent Global Games, in an interview at Gamescom. “There is a tidal wave that will lift all the boats. Gaming will continue to grow. More people will play games. More people will engage in games. Overall industry trends and revenue will only continue to grow.”

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The opening crowd at Devcom 2022.

In times like these, games can indeed be good for our mental state, said Stanley Pierre-Louis, CEO of the Entertainment Software Association, in a recent fireside conversation. A total of 66% of Americans, or 215.5 million people, play video games, and attitudes toward games have become more positive during the pandemic, according to ESA’s 2022 Essential Facts About the Video Game Industry study.

The report says 89% of players say video games relieve stress, while 88% say video games help improve cognitive skills. The survey found that 97% of all Americans (excluding some news commentators) now see the benefits of video games.

“If you look at Hollywood movies and upcoming games, most of them are pretty dark right now,” Piotr Babieno, CEO of the Polish game developer, creator of Layers of Fear, said in an interview with GamesBeat. “It’s nothing strange to us, nothing surprising. Historically, when there are wars, when there are crises, horror does well. As humans, we want to prepare for things we don’t know. We turn to horror movies, horror novels, horror games.”

We have so much more to analyze between the economic tea leaves and the countervailing trends driving gaming, and we’ll dig into that in more detail at our GamesBeat Summit Next 2022 event taking place October 25-26 in San Francisco. See you there.

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