Will 2023 be a good year for games?

Hello, and welcome to Protocol Entertainment, your guide to the business of the gaming and media industries. This week, we’re discussing the hopes and dreams that the game industry and its events circuit have for 2023, what Web3 hopefuls think about the crypto downturn and the turnaround success of Xbox in Japan.

Better luck next year

2022 started off strong for the game industry, but by now developers, publishers and event organizers have all but given up on salvaging the remainder of the year and are looking forward to 2023 to get back on track.

In a market that’s usually financially intertwined with dependable cycles of high activity and quiet downtime, this year has proved especially unpredictable. Games have been delayed left and right, events canceled and rescheduled for next year, and market forecasts are now showing a decline after two years of major growth. But the downturn may be short-lived, as game makers are gearing up for a comeback in 2023.

E3 will be back. The Entertainment Software Association announced last week that it was not, in fact, giving up on E3 — once upon a time arguably the most culturally important video game show in the industry, but greatly diminished in relevance in recent years.

• The ESA said E3 will be returning next year as an in-person event after a cancellation in 2020 due to COVID-19, an all-virtual attempt in 2021 and another outright cancellation in 2022.
• This time, the ESA is enlisting the help of ReedPop, the production company responsible for events such as PAX and New York Comic Con. ReedPop succeeded in bringing back PAX East earlier this year, after canceling in 2021 due to COVID, and it intends to host in-person events for PAX West and NYCC this fall.
• Beyond its event chops, ReedPop has a stronger reputation than the ESA as the owner of several reputable gaming media organizations, including Eurogamer, GamesIndustry.biz and VG247. ReedPop once made a failed bid to take over E3 from the ESA years ago, Variety reported in 2019.
• A number of other event organizers are hoping to revive longtime industry gatherings this year and next. Blizzard boss Mike Ybarra told the Los Angeles Times last week his company intends to bring back the BlizzCon conference in 2023, and Twitch is reviving TwitchCon in October.
• Meanwhile, the industry’s two largest events, Germany’s Gamescom in August and Japan’s Tokyo Game Show in September, are both returning to fully in-person events for the first time since 2019, with hopes that pandemic-era cancellations might be over for good.

A stacked year of delayed releases. The beginning of 2022 featured major releases once slated for 2021, including FromSoftware’s Elden Ring and Guerrilla Games’ Horizon Forbidden West. Now, the same situation appears lined up for 2023, though game makers are hoping to avoid a similar hole in the second half of the calendar next year.

• Microsoft has a big year planned, after Bethesda’s Starfield and Arkane’s Redfall were delayed to 2023. Nintendo is also planning to release a long-awaited sequel to The Legend of Zelda: Breath of the Wild after pushing it back.
• Sony’s Santa Monica Studio said last week it would in fact make its 2022 release date for God of War: Ragnarok, but Square Enix and Luminous Productions’ Forspoken would move from October to January.
• One issue still facing the console game business is a lack of available hardware: Sony’s PlayStation 5 is still difficult to find. And while Microsoft has done a better job of producing consoles, Xbox CFO Tim Stuart told investors last month the supply situation looked “rocky through 2022 and the holiday season.”
• Sony said last month it plans to “significantly” ramp up console production this year as the PS5 hit 20 million units sold, lagging behind its predecessor at roughly the 18-month mark in its life cycle.

The economic downturn looms large. The game industry boomed in 2020 thanks to high consumer spending during the pandemic and the launch of new console hardware. But after two years of growth, industry analysts are now forecasting a decline.

• Last week, market research firm Ampere Analysis forecast a 1.2% decline in the global games business, to $188 billion globally.
• The firm cited “heavy inflation” and “increasing cost-of-living squeeze,” in addition to hardware supply constraints and smartphone privacy changes standing in the way of mobile gaming growth. Though researcher Piers Harding-Rolls said “the outlook for the sector as a whole remains positive, with growth forecast to return in 2023.”
• The NPD Group echoed the sentiment for the U.S. market, with analyst Mat Piscatella publishing a report, just one day after the Ampere forecast, that predicted a 8.7% decline (to $55.5 billion) in U.S. consumer spending on gaming this year.
• “While, generally, the video game market can be at least partially insulated from factors impacting the wider economy, the return of experiential spending and higher pricing in everyday spending categories appear to be impacting the space,” wrote Piscatella, who also cited manufacturing challenges affecting consoles and controllers and the slimmer new release schedule.
• But Piscatella stressed that “in the long-term, the growth prospects of the video game space remain as strong as they’ve ever been.” As Ampere pointed out in its report, the game industry has more than doubled since 2015, and by this time next year it will likely have weathered this storm.

—Nick Statt

A MESSAGE FROM SOUL MACHINES

Soul Machines co-founder and CEO Greg Cross and his co-founder Mark Sagar, Ph.D., FRSNZ are leading their Auckland and San Francisco-based teams to create AI-enabled Digital People to populate the internet, at first, and soon the metaverse.

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Overheard

“The game industry must stay vigilant in our own sector and push for more transparency for TV streamers as well. As more subscription models come online, access to our players and numbers will erode to continue to drive the price of content deals down.” — Matt Nickerson, a member of indie publisher Devolver Digital’s biz dev team, warned the game industry against taking subscription cues from the TV streaming business, in reference to a Vulture feature on the lack of data transparency in Hollywood.

“There is a very vocal cohort of people who have expressed reservations about NFTs, and in many cases they’re very unfounded in their criticisms. They either don’t fully understand them or just have a very skewed lens through which they look. But they’re very much in the minority. There’s a huge universe of people out there who are already starting to see the benefits of this model and welcome it.” — Arianna Simpson, a general partner at Andreessen Horowitz who’s led some of its biggest crypto investments, spoke to VentureBeat about Web3 and in particular the backlash against blockchain gaming.

In other news

One of last year’s best games is coming to console. Daniel Mullins’ award-winning Inscryption, a digital card game with a mind-bending narrative, will be ported to PlayStation, though there’s no announced release date yet.

Live events startup Hopin has massive layoffs. The company, which boomed during COVID shutdowns, is laying off 29% of its staff. Hopin already cut 12% of its positions in February.

Sony’s fall release schedule takes shape. Santa Monica Studio’s God of War sequel will launch November 9, the studio revealed last week. Meanwhile, Square Enix’s Forspoken was moved a second time and will now release on January 24, 2023.

Reddit won’t say it’s getting into NFTs. The company last week announced it would sell “collectible avatars,” which will be blockchain-based tokens of the non-fungible variety. Smartly, Reddit isn’t uttering “NFT” anywhere in the announcement.

Disney won’t spin off ESPN after all. Plans to turn ESPN into its own company, with a heavy focus on streaming, are apparently DOA.

Rockstar paves the way for the next GTA. The quiet game studio made a rare concession last week by saying it would be moving resources away from Red Dead Online to support ongoing development of the next Grand Theft Auto game. GTA V released nearly 10 years ago, and a follow-up entry has been in the works for an indeterminate number of years now.

GameStop makes cuts, starting with its CFO. The struggling retailer fired its chief financial officer last week, Axios reported, and also said it would lay off employees at its corporate division, just one day after announcing a 4-for-1 stock split to try and renew interest from investors.

The Sandbox, Decentraland see user numbers dwindle. The two better-known Web3 metaverse platforms reportedly each attract fewer than 1,200 daily active users.

Xbox finds its footing in Japan

Microsoft has, historically, done a terrible job at appealing to Japanese gamers. Homegrown juggernauts Sony and Nintendo have long reigned supreme. Microsoft had sold only an estimated 2.3 million Xbox consoles in Japan over the last 20 years, combined, as of March of this year, with a vast majority of those sales belonging to the Xbox 360.

But the tides are starting to turn, in part thanks to a stronger software lineup, more availability of Xbox hardware and the appeal of Game Pass. The Xbox Series S/X devices have sold more than 250,000 units in Japan as of last week, as first tweeted by game analyst Benji-Sales and then confirmed by Xbox marketing manager Aaron Greenberg. That’s more than the entire lifetime sales of the Xbox One in Japan, according to Japanese games publication and sales tracker Famitsu.

Of course, Xbox sales in Japan are miniscule compared with those of the Nintendo Switch, which surpassed 25 million life units sold, and the PlayStation 5, which has sold nearly 1.5 million units since launch. But Microsoft’s more ample supply of Xbox devices and its much stronger software lineup than that in the days of the Xbox One are paying off, and nowhere is that arguably clearer than in its performance in the Japan market.

—Nick Statt

A MESSAGE FROM SOUL MACHINES

Soul Machines is at the cutting edge of AGI research with its unique Digital Brain, based on the latest neuroscience and developmental psychology research.

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