Gaming ‘somewhat resilient’ to weak economy

Microsoft gaming chief said Wednesday that video games may face economic weakness, even as the software maker expects a slower pickup in other parts of its business aimed at consumers.

The rise in prices and interest rates inspired investors to rush and find pockets of financial markets that could hold in a crisis. Gaming remains a high priority for Microsoft, with the company working to close its $68.7 billion publisher acquisition Activision Blizzard.

Other parts of technology may be at risk in a recession. Alphabet and Meta Platforms they still derive most of their revenue from advertising, with the former still relying on internet search and the latter on social media. Patrick Lo, the CEO of the networking hardware maker Netgearwhich reported a 14% drop in annualized revenue on Wednesday, said in a statement that there was a “challenging macroeconomic environment for most consumers.”

Microsoft is more diversified than those companies, although executives said earlier this week that its exposure to consumers will hurt sales in the current quarter of Windows operating system licenses, Surface PCs and advertising on properties such as Bing and LinkedIn.

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During the quarter, the company expects to sign up more subscribers to its Xbox Game Pass service, which provides unlimited access to hundreds of video games, Amy Hood, its chief financial officer, told analysts on conference call on Tuesday. Gaming revenue should decline in the low to mid-teens percent range because of strong growth in the year-ago quarter that saw the introduction of first-party games, Hood said.

Phil Spencer, CEO of Microsoft Gaming, seemed optimistic about the unit’s prospects.

“It’s proven over the years, in times of economic uncertainty for families, gaming is somewhat resilient to those issues,” he said at the Wall Street Journal’s WSJ Tech Live conference in Laguna Beach, California. .

Not everyone shares Spencer’s view.

“The video game industry has never been ‘recession proof,’ but that line comes up every time the r-word is mentioned,” wrote Mat Piscatella, executive director and game industry consultant of video at market researcher NPD Group, in July. tweet.

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Piers Harding-Rolls, director of research at researcher Ampere Analysis, made similar comments.

“After two years of massive expansion, the gaming market is poised to hand back some of that growth in 2022 as multiple factors combine to undermine performance,” he told CNBC in July.

But Spencer can point to Microsoft’s own experience with recessions as evidence for his claim.

In 2008, during the Global Financial Crisis, Microsoft reduced the prices of Xbox consoles in several markets as the public became interested in the Nintendo Wii. It turned out to be “numerically on the console side, our best holiday and our best calendar year in Xbox history,” said Robbie Bach, president of Xbox’s entertainment and devices unit. Microsoft at the time.

In 2020, a brief recession coincided with the onset of the coronavirus, but this led people to stay at home and play more games, including on Xbox consoles and PCs. “People everywhere are turning to games to sustain human connection while practicing social distancing,” CEO Satya Nadella said in April 2020.

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Today, Spencer said, Microsoft gives people a choice of how much they want to spend if they want consoles. The company offers the $499 Xbox Series X and the less powerful $299 Xbox Series S. Microsoft subsidizes the cost to the tune of $100 to $200 per console, expecting to make money back on the -sales of accessories and storefront purchases, he said. It’s up to gamers if they want to pay $10 or $15 a month for Game Pass subscriptions. They can also buy games outright, or play certain games for free.

Spencer said he doesn’t think Microsoft will be able to keep game prices constant forever. But they can provide impressive amounts of entertainment compared to other activities. “People can play video games for hundreds of hours,” he said.

SEE: Hill: Weakness from Microsoft and Alphabet is causing us to rethink expectations for earnings estimates overall


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