Gaming ‘somewhat resilient’ to weak economy

of Microsoft While the software maker expects a slow pickup in other parts of its business that target consumers, video games may face financial weakness, a gaming chief said Wednesday.

Rising prices and interest rates have prompted investors to rush in and look for pockets of financial markets that can hold out in a recession. Gaming remains a top priority for Microsoft, as the company works to close its $68.7 billion acquisition of the publisher. Activision Blizzard.

Other areas of technology may be at risk in a downturn. Alphabet and Meta Platforms still derives most of its revenue from advertising, with the former still relying on internet search and the latter on social media. Patrick Lowe, CEO of the networking hardware manufacturer Netgearwhich reported a 14% annual revenue decline on Wednesday, saying in a statement that there was a “challenging macroeconomic environment for most consumers”.

Microsoft is more diversified than those companies, though executives said earlier this week that its exposure to consumers will affect 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 customers to its Xbox Game Pass service, which offers unlimited access to hundreds of video games, Amy Hood, its chief financial officer, told analysts on a conference call Tuesday. Gaming revenue should decline in the low- to mid-teens percentage 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, sounded optimistic about the unit’s potential.

“It’s been proven over the years, in times of economic uncertainty for families, that 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 is brought up every time the R-word is mentioned,” Matt Piscatella, executive director and video game industry consultant at market researcher NPD Group, wrote 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 sports market is poised to return some of that growth in 2022 as a number of factors combine to weaken performance,” he told CNBC in July.

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

In 2008, during the global financial crisis, Microsoft lowered the prices of the Xbox console in various markets as public interest increased. Nintendo Wii. It was “numerically on the console side, our best holiday and our best calendar year in the history of Xbox,” said Robbie Bach, president of Microsoft’s entertainment and devices unit, at the time.

In 2020, a brief recession coincided with the onset of the coronavirus, but it prompted people to stay at home and play more games, including Xbox consoles and PCs. “People everywhere are turning to gaming to maintain 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 about how much they want to spend if they want consoles. The company offers a $499 Xbox Series X and a less powerful $299 Xbox Series S. Microsoft subsidizes the cost of $100 to $200 per console, hoping it will recoup the money in merchandise sales and storefront purchases, he said. It’s up to gamers if they want to pay $10 or $15 per 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 the price of games stable forever. But they can provide an impressive amount of entertainment compared to other activities. “People can play video games for hundreds of hours,” he said.

See: Hill: Microsoft and Alphabet’s weakness is causing us to rethink expectations for overall earnings estimates



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