Spending on Xbox and PlayStation games is falling, what’s going on?

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It wasn’t the best news for Microsoft or Sony this quarter, because while some stats are ticking up, overall it paints a pretty clear picture. Games spending has fallen, unusual in an industry that has never been more popular and that was expected to continue to grow year after year.

Microsoft’s gaming revenues are down 7%, a combination of hardware, software and services all falling to varying degrees. This is despite the increase in Game Pass subscriptions, without which that figure would be even steeper.

At Sony, the change is even more stark. Sony moved 47.1 million PS4 and PS5 games in the quarter, up from 63.6 million in the same period last year. PS5 sales forecasts for next year have also been lowered a bit.

What is going on here? A number of things combine for these drops, some of which are shared by companies, with other aspects specific to each brand.

  • Xbox may be starting to meet the long-term challenges of Xbox Game Pass as a concept. The ability to play games on PC and now stream on other devices means that hardware sales just aren’t as necessary as they used to be. Likewise, in terms of game sales, Xbox Game Pass almost completely negates that concept for first party games, and most Game Pass titles aren’t heavily monetized to make up for it. So, Xbox trusts incredible heavy on the overall Game Pass subs, and for now that may not be enough.

  • Sony, meanwhile, is heavily dependent on its first party hits, and this year there just aren’t that many. Gran Turismo isn’t the unstoppable force it once was. Horizon Forbidden West was clearly hurt by the release of so close to Elden Ring, the runaway sales success story of the year. God of War Ragnarok is coming out this year, but it hasn’t happened yet. Sony also doesn’t really have any meaningful “live” games to generate ongoing revenue, which is part of the reason for their recent Bungie acquisition to change that.
  • General market conditions also affect both companies. We are starting to see delays in the pandemic era looming and producing a 2022 devoid of more games that probably would have come out in a normal year. We are also still seeing declines from the pandemic period itself, where lockdowns dramatically increased sales and spending in the video game sector, and the market continues to correct as most people are now back at work or school in one form or another. We are also in the midst of massive inflation where people have different fiscal priorities, which will likely be a big contributing factor.

Something may change in the fall, but how much? That remains unclear. Again, Sony has God of War Ragnarok, which looks poised to be a big hit. Microsoft got itself in trouble by delaying Starfield until 2023, but again, that’s a Game Pass title. Still, you’ll need big Game Pass titles to keep people signing up for Game Pass, but I’d quickly start worrying about saturation for that service here.

The overall video game industry remains healthy, but I’m not surprised to see this kind of correction now, given the events of recent years. We’ll see what happens when we go into the holidays.

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