Xbox And PlayStation Game Spending Is Falling, What’s Going On?

It has not been the best of news for either Microsoft or Sony this quarter, as while some metrics are ticking up, overall, a pretty clear picture is being painted. Game spending is down, unusual in an industry that has never been more popular and was projected to keep growing year after year.

Microsoft’s gaming revenue is down 7%, a combination of both hardware, software and services all dropping to various degrees. This is despite increases in Game Pass subscriptions, without which, that figure would be even more steep.

Over at Sony, the change is even more stark. Sony moved 47.1 million PS4 and PS5 games this past quarter, down from 63.6 million during the same time the previous year. Forecasts for PS5 sales for the following year have also been cut a little bit.

What’s going on here? A number of things are combining for these drops, some of which are shared across companies, with other aspects specific to each brand.

  • Xbox may be starting to face off against 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 are simply not as necessary as they once were. Similarly, in terms of game sales, Xbox Game Pass almost entirely negates that concept for first party games, and most Game Pass titles are not heavily monetized to compensate. So, Xbox connects incredibly heavily on overall Game Pass subs, and for now, that may not be enough.

  • Sony, meanwhile, is heavily relying on its first party hits, and this year, there simply are not that many yet. Gran Turismo is not the unstoppable force it once was. Horizon Forbidden West was put at a distinct disadvantage releasing so closely to Elden Ring, which is the runaway sales success story of the year. God of War Ragnarok will be out this year, but that hasn’t happened yet. Sony also does not have really any meaningful “live” games to generate ongoing revenue, which is part of the reason for their recent acquisition of Bungie, to help change that.
  • Overall market conditions affect both of these companies as well. We are starting to see pandemic era-delays rear their heads producing a 2022 that is devoid of more games that probably would have come out in a normal year. We are also still seeing drops from the pandemic time period itself, where lockdowns dramatically increased sales and spending in the video game sector, and the market continues to correct given that most people are back at work or school now, in some form or another. We are also in the midst of massive inflation where people have other budget priorities, which is likely to be a large contributing factor.

Things may change somewhat in the fall, but how much? That remains unclear. Again, Sony has God of War Ragnarok, which seems poised to be a big hit. Microsoft has gotten itself in a bind, having to delay Starfield until 2023, but again, that’s a Game Pass title. Still, you need big Game Pass titles to get people to keep signing up for Game Pass, but I would start to worry about saturation for that service pretty soon here.

The overall video game industry remains healthy, but I’m not surprised to see this kind of correction now, given the events of the past few years. We’ll see what happens as we head into the holiday.

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