Earnings wrap-up: The gaming business is booming — but not necessarily for gaming companies

It’s earnings season, and gaming has once again taken center stage. But as tech and media giants take advantage of gaming’s pandemic-fueled rise, they are shaking up the traditional economic pillars of the industry — and leaving the game developers themselves scrambling to keep up with the times.

Disney opened its Feb. 7 Q1 2024 earnings call with a splash, with CEO Bob Iger appearing on CNBC moments before it began to announce the company’s $1.5 billion investment in Epic Games. Disney intellectual properties such as “Star Wars” have already appeared inside Epic titles like “Fortnite,” but Disney’s official statement on the investment made it clear that the presence of Disney characters inside Epic’s digital worlds will increase drastically as a result of the deal, transforming “Fortnite” into something resembling a virtual Disney World.

“This marks Disney’s biggest entry ever into the world of video games, and offers significant opportunities for growth and expansion,” Iger said during the earnings call.

The $1.5 billion investment is not Disney’s first attempt to bring its intellectual properties into a virtual space. In 2022, Disney tapped former theme park executive Mike White to lead its metaverse department, only for White to depart following the division’s shutdown just over a year later. In 2024, Disney is leaning on gaming as a potential avenue to a growing digital audience, although it is notably avoiding using the term “metaverse” to describe the new venture.

Regardless of the deal’s framing, Disney stock jumped nearly 10 percent following the call, a clear sign that both executives and investors are seeing a potential windfall as the company taps into the cultural power and reach of gaming. For entertainment giants like Disney, gaming is good business going into 2024.

“Gaming has transcended its traditional boundaries to emerge as a cultural and economic powerhouse,” said Fred Schank, svp of brand experience for creative agency The Marketing Arm. “For Gen Z, the digital natives, gaming is more than a pastime — it’s a primary mode of interaction, a place where they connect with their community.”

Gaming is an area of growing interest for tech giants as well, as demonstrated in the earnings calls of companies such as Netflix, with CEO Greg Peters telling investors that user engagement around the company’s gaming products had tripled over the past year during the company’s Q4 2023 earnings call on Jan. 23. During Microsoft’s Q2 2024 earnings call on Jan. 30, CEO Satya Nadella also flagged game streaming as a growth area.

“With cloud gaming, we continue to innovate to offer players more ways to experience the games they love where and when and how they want,” Nadella said. “Hours streamed increased 44 percent year over year.”

None of the above, however, is necessarily good news for the companies actually making games. While tech and entertainment companies are successfully using gaming as a platform to promote their other products and intellectual properties, the actual financial returns of publishing high-quality games are diminishing.

As free-to-play and live service games gain market share, game sales are slumping, while production costs continue to balloon. This has all resulted in a historic wave of layoffs in gaming in 2024 — including a cut of 1,900 employees across Microsoft’s Activision Blizzard and Xbox divisions, despite the reported growth of the company’s gaming services.

Although gaming accounted for $7.11 billion in revenue for Microsoft this quarter — significantly more than the $5.26 billion generated by Windows — Microsoft is in the process of significantly decreasing the size of its gaming division, reducing the Xbox brand to focus more on IP licensing and distribution rather than premium game or hardware sales.

As the gaming industry undergoes a fundamental transformation, 2024 is shaping up to be a difficult year for the rank-and-file staff at gaming studios. Nearly 6,000 jobs have disappeared from the industry since the beginning of the year, many of them from gaming firms’ beleaguered publishing and esports departments. While companies across tech and entertainment are using their earnings calls as an opportunity to brag about the upsides of gaming for their bottom lines, the actual business of making games has found itself in an increasingly dire position.

“The way the gaming industry was structured previously, it didn’t have platforms with this kind of massive scale,” said Tejas Dessai, a research analyst at Global X ETFs. “So gaming is discovering that it can reach a wider audience of casual gamers and naturally monetize more effectively by working very closely within the realms of many of these technology platforms.”

Some gaming companies have adopted to changing business models more quickly than others. Electronic Arts, for example, has heavily pivoted to live services and other business models beyond premium game sales, with the company announcing a record $1.71 billion in live services bookings for Q3 2024. This represents a 3 percent increase in live service bookings year over year, which is particularly notable during a period in which EA’s game sales decreased by 5 percent year over year.

“Our live services make up almost three-quarters of our business, which highlights the evergreen nature of that business model,” EA CEO Andrew Wilson said during the Jan. 30 call.

Still, leaning into the live service or free-to-play model does not guarantee a gaming company success in 2024. As some gaming companies look to transcend the medium to become broader content and lifestyle platforms, they have yet to convert this expansion into profits. Roblox, for example, grew its revenues by 30 percent and its net bookings by 25 percent year over year in Q4 2023, but also widened its losses by about $30 million during the same period, all while continuing to increase its headcount. If Roblox becomes profitable, all of this spending will be justified — but until it does, the company is positioning itself on a potentially risky precipice.

“As we grow bookings, we grow the economic opportunity on our platform,” Roblox CEO David Baszucki said during the company’s Feb. 7 earnings call. “So, we believe, naturally, irrespective of the layoffs, our creator community will continue to grow.”

Read More

What do you think?

Written by admin

Leave a Reply

Your email address will not be published. Required fields are marked *

GIPHY App Key not set. Please check settings

How agencies are investing in influencers this Super Bowl

How agencies are investing in influencers this Super Bowl

For Doritos Dinamita, a $7 million ad spot is just the start of its Super Bowl strategy

For Doritos Dinamita, a $7 million ad spot is just the start of its Super Bowl strategy