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Difficult macroeconomic forces continue to affect every sector, including gaming. But while there’s been a downward trajectory for gaming companies after the highs seen during the early days of the COVID-19 pandemic, the new year could bring a remodeling when it comes to what gaming investors can accomplish.
As 2023 begins, a key question is how resilient the gaming sector may be to a larger economic downturn. With inflationary pressures running high and a recession potentially in the cards, experts are set to see their theories tested.
Here the Investing News Network (INN) outlines what industry insiders see coming in the year ahead.
1. Can gaming investments level up in 2023?
Raj Lala, president and CEO of Evolve Funds, told INN the outlook for gaming stocks remains high in his view.
His positive outlook is based on the way consumers categorize their spending when it comes to gaming.
“A large number of gamers don’t see gaming and esports as discretionary spending. It’s a staple for their social lives,” he said.
Evolve offers exposure to gaming stocks through the Evolve E-Gaming Index ETF (TSX:HERO). The fund’s top holdings include NetEase (NASDAQ:NTES), Activision Blizzard (NASDAQ:ATVI), Electronic Arts (NASDAQ:EA) and Nintendo (TSE:7974).
“Gaming is a cheaper form of entertainment, which makes the sector relatively recessionary resilient compared to some others,” the exchange-traded fund executive said.
Lala added that he is encouraged by the transition toward subscription-based revenue models, which is a change from the standard one-time purchase of a game or a piece of hardware.
Mat Piscatella, executive director and video game industry analyst at the NPD Group, also has a bright outlook for gaming.
As part of his 2022 mid-year review, he said that in the short term the gaming market would face difficulties caused by ongoing console scarcity and a lighter title release window. “But in the long term, the growth prospects in the video game industry remain as strong as they’ve ever been,” he wrote.
2. Microsoft’s Activision acquisition to face more scrutiny
The biggest deal in the history of gaming is currently in limbo due to regulatory reviews in both Europe and the US.
In early 2022, Microsoft (NASDAQ:MSFT) announced plans to acquire gaming giant Activision Blizzard (NASDAQ:ATVI), whose catalogue of games encompasses popular titles like Call of Duty, World of Warcraft, Starcraft and Diablo.
The deal has faced significant scrutiny from antitrust voices, as well as from Sony (NYSE:SONY), Microsoft’s top competitor in the console landscape. The Call of Duty franchise in particular is a gaming console mainstay, and the deal would make it exclusive to PC and Microsoft’s Xbox console, leaving Sony’s Playstation in the cold.
At the onset of 2023, it’s clear the pending purchase will continue to dominate the headlines as Microsoft gears up for a legal battle with the Federal Trade Commission in the US.
If Microsoft is able to clear regulatory hurdles to acquire Activision Blizzard, it will add a significant library of games to its catalog, strengthening its gaming subscription service Xbox Game Pass.
Sharing his view for 2023 with GamesIndustry.Biz, Piers Harding-Rolls, an analyst with Ampere Analysis, said he expects to see the deal go through, but with more concessions than anticipated.
The analyst thinks Microsoft will have to make a few adjustments in order to complete the acquisition.
“Those could be focused on Game Pass inclusion of games and title availability on other services,” Harding-Rolls said. “I think there is a higher chance of the deal closing with concessions than of it being halted.”
In terms of when the deal could close, the analyst said it could happen in the first half of 2023 if Microsoft caves in sooner than later. But if the two parties go to court, the deal could “drag on into the second half of 2023.”
3. What role will China play in gaming in 2023?
The Chinese gaming market represents a significant core of the entire landscape for video games.
However, for the first time in 20 years, the country posted a decrease in gaming revenue in 2022, according to Niko Partners.
The 2.5 percent year-on-year decline will send revenue down to US$45.44 billion, and experts have pointed to a number of reasons for the fall. One of the most significant factors is the lack of new games from international markets due to a freeze in licenses from China’s video game regulator.
According to Lala, this situation will improve in 2023 as the country restarted its approvals in April 2022; that will lead to increased options for Chinese gamers.
In fact, Niko Partners projects that in 2023 over 100 games will get the coveted ISBN licenses they need to enter the Chinese market. “We anticipate that import game approvals will return to a regular cadence in 2023,” the firm said.
Lisa Hanson, president of Niko Partners, told GamesIndustry.Biz, “There is a big backlog and many quality titles from numerous countries are in the queue.” The most recent approval of an imported game was in June 2021.
Investor takeaway
Video game investments struggled in 2022, and while an immediate recovery seems tricky, it’s clear the fundamentals of the market remain strong. Analysts and experts are bullish on both spending trends and industry conditions in 2023.
Don’t forget to follow us @INN_Technology for real-time news updates!
Securities Disclosure: I, Bryan Mc Govern hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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