The pandemic bubble isn't done bursting | This Week in Business

Last year, we wrote in this space about the uncomfortable reality of how much the games industry had benefitted from the pandemic, noting that the industry headed into COVID-19 with seven straight months of year-over-year declines in the NPD Group's US consumer spending report.

Then the pandemic was declared in March of 2020 and gaming rattled off (at the time of that column) 13 straight months of double-digit year-on-year growth.

That streak was snapped the next month as those year-over-year comparisons got a lot tougher once they were being made against pandemic shutdown months of the year before, but the industry continued to do well fairly well into the fall, mixing a few months of single-digit declines with some larger gains through October, when sales were up 16% year-over-year thanks to a strong slate of new releases.

That seems to have marked a turning point, as November was down and the industry hasn't been up again since.

STAT | 7 - The number of consecutive months of year-over-year declines in the NPD Group's US consumer spending on games, after this week's report of May sales down 19% year-over-year.

This isn't particularly surprising, as many publishers have told investors to expect a slowdown once pandemic restrictions were relaxed and people started returning to the habits and hobbies they were unable to pursue in lockdown.

Even then, they were optimistic that the industry would wind up in a stronger place than it had been before the pandemic, with companies like Take-Two predicting they would retain a significant chunk of the increased engagement from the pandemic.

That's held true so far for some companies -- EA reported record engagement for Apex Legends and growth in active player accounts last month -- but not all.

STAT | 100 million - Activision's monthly active users for the first quarter of 2022, the lowest number since the free-to-play Call of Duty Mobile launch in 2019.

You can blame a chunk of that on the disappointing Call of Duty Vanguard, but Blizzard's engagement also tanked, down 19% year-over-year to 22 million, its lowest number since the company began reporting engagement metrics in 2016. Even King's engagement was down 3% year-over-year.

Activision Blizzard is also not the only company seeing these trends.

QUOTE | "As the world began settling into a new normal, there was a moderation of the trends that benefitted our industry during the height of the pandemic." - Take-Two explaining its lower net bookings to investors last month.

And while the pandemic wasn't blamed in either case, Embracer's negative organic growth for the full year and Devolver's lowered sales expectations make it clear enough that we're no longer seeing a rising viral tide lifting all ships.

The pandemic boost is wearing off, but I suspect there's a bit further to fall before we hit anything approaching a new normal. For one thing, there's not much in the way of reinforcements coming.

QUOTE | "We took one look at what happened to Cyberpunk 2077 and thought 'yep, we're delaying [our game].' ...We knew our game wasn't in the best shape, maybe we could patch it up with a Day One update... but we saw Cyberpunk and decided it wasn't worth the risk. I suspect that was a wake-up call across the industry." - A US game director from one of the world's biggest game franchises was among the people talking to us about why the rest of the year's release slate is so slim.

An underwhelming series of showcase events this month didn't provide too much optimism for the rest of 2022 either, although it's worth noting that Nintendo and Sony didn't exactly show everything up their sleeves.

And then there's the inconvenient fact that the pandemic is not actually over, and that has ramifications not just for customer habits but for the supply chain. Xbox CFO Tim Stuart told investors this week that recent lockdowns in China have the company expecting to see supply chain problems until at least next year.

Also, the US appears headed for a recession, and as we all should have learned after 2008, games are not recession-proof.

QUOTE | "The entertainment industry is not counter-cyclical despite what people say. After the '08 financial crisis we suffered, our competitors suffered, our numbers suffered and we don't wish it on anyone." - Take-Two's Strauss Zelnick, looking back on the crisis in 2011.

So games are in a bit of a rut. The console and PC space has a dearth of obvious needle movers in the months ahead, mobile has been flagging as well -- the NPD's mobile partner Sensor Tower reported US consumer spending on Google Play down 23% year-over-year in May -- and macroeconomic conditions aren't looking too favorable for the near- and medium-term.

Spending on games is still well above pre-pandemic levels, as the NPD Group's Mat Piscatella pointed out on Twitter, but it's clear the industry is giving back some of the initial pandemic boost. What's less clear is how much further it has to fall, and how much of that boost it can hold onto for the long term.

The rest of the week in review

STAT | 17 - The number of showcases, live streams, and shows recapped in our All the Announcements round-up of this month's big not-quite-E3 events.

QUOTE | "Free-to-play games like these are likely to prove crucial in Xbox's aims to grow its PC Games Pass audience outside of its core territories. In particular, games like League of Legends are the exact products the firm needs to sign to push into the lucrative Asian markets." - Our own Chris Dring argues that the Xbox partnership with Riot Games was the secret biggest news of the Xbox-Bethesda showcase.

QUOTE | "What we have come to realize over the past several months is that there are many truths about our company -- individual and collective, experiential and data-driven -- and sometimes they can be difficult to reconcile." - Activision Blizzard directors, just before releasing the findings of their investigation into themselves, which found that management did nothing wrong and the past year's worth of shocking revelations have just been meritless media criticism and a state agency bizarrely persecuting a company for unknown reasons.

STAT | 2018 - The point at which Activision Blizzard began engaging with the California Department of Fair Employment and Housing regarding an investigation into pay equity at the company, according to the findings of the investigation.

QUOTE | "Rushed" - How Activision Blizzard described the DFEH's complaint when it was filed more than two and a half years later in July of 2021.

QUOTE | "At Ubisoft, we believe that women's rights are human rights, trans rights are human rights, and equal rights for all are essential to creating a world where everyone can be their authentic selves and thrive." - Ubisoft chief people officer Anika Grant, and diversity and inclusion VP Raashi Sikka tell the company's US-based employees that Ubisoft is reviewing the company's US benefits packages "to ensure you and your family will have access to the quality healthcare you need" even as Republican politicians push to ban abortions and gender-affirming healthcare.

QUOTE | "Without interventions, both companies are likely to maintain, and even strengthen, their grip over the sector, further restricting competition and limiting incentives for innovators." - The UK Competition and Markets Authority said it will investigate Apple and Google's control of the mobile market, particularly their 97% share of the mobile web browsing market.

STAT | 40% - The number of Switch Joy-Con controllers suffering from controller drift issues, according to a YouGov survey conducted by UK consumer watchdog Which?

QUOTE | "On behalf of 343, I apologize for making a celebrated moment a hurtful moment." - 343 Industries head Bonnie Ross, offering no explanation for how a cosmetic for Halo Infinite commemorating Juneteenth, the US holiday celebrating the freeing of slaves, initially went live under the name of a species of ape. Separately, a 343 community manager had said the name Bonobo referred to an internal toolset the studio uses, which is an explanation I might accept once we accidentally have "Microsoft Word" or "Google Docs" accidentally showing up in GamesIndustry.biz headlines.

QUOTE | "Embracer is built on the principles of freedom, inclusion, humanity and openness. The transaction with SGG will not change this in any way." - Embracer Group's Lars Wingefors reassures concerned people that an investment by the Saudi Arabian government will not change the principles of a company that held an AMA session on the message board that helped bring us GamerGate, QAnon, and an assortment of mass shootings.

QUOTE | "That is the genius part of this PC roll out: Sony is keeping everyone guessing. For gamers who want to play Sony's first-party games at launch, waiting for the supposed PC release is not a viable option in the current circumstances. Without a recurring up-to-date list of which PlayStation first-party games will be released on PC it is much better to just buy a PS5 and stop worrying." - Industry consultant Sam Naji says Sony's scattershot approach to PC ports of PlayStation-exclusive titles lets the company have its cake and eat it, too.

QUOTE | "Interactive entertainment is consumed at a different level [than linear media like TV and movies], about 45 hours a month and in a different way. It's perhaps two or three or four properties in a month. It's certainly not over 100 properties. So it's not clear that your broad based audience wants access to many hundreds of games in a month and is willing to pay for them. It is possible that small subset of the audience wants that, but I don't think it's a broad base, because it's not how people tend to consume interactive entertainment." - Strauss Zelnick explains why he's skeptical subscription services like Game Pass will take off in gaming the way Netflix and its ilk have re-shaped TV and movie habits.

QUOTE | "Thus far, no service is truly appealing across the full swathe of the industry's audiences, which means that it's still all to play for in terms of who becomes a market leader in this increasingly important sector." - With the launch of Sony's revamped PS Plus, GamesIndustry.biz contributing editor Rob Fahey assesses the state of subscription services across the industry in his regular Friday column.