Gaming ‘somewhat resilient’ to weak economy

Microsoft video games can withstand economic weakness, the head of its gaming division said Wednesday, even as the software maker expects slower growth in other parts of its consumer business.

Rising prices and interest rates have inspired investors to rush to find pockets of financial markets that can withstand a downturn. Gaming remains a high priority for Microsoft, and the company is working to close a $68.7 billion acquisition of the publisher. Activision Blizzard.

Other parts of technology may be at risk during a recession. Alphabet and Meta platforms still derive most of their revenue from advertising, the former still rely on internet search and the latter on social media. Patrick Lo, CEO of the networking hardware maker Netgearwhich reported a 14% drop in annual revenue on Wednesday, said in a statement that there was a “challenging macroeconomic environment for most consumers.”

Microsoft is more diversified than those companies, although executives said earlier this week that its exposure to consumers would hurt current quarter sales of Windows operating system licenses, Surface PCs and ads on properties such as Bing and LinkedIn.

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During the quarter, the company expects to sign up more subscribers to its Xbox Game Pass service, which provides unlimited access to hundreds of video games, its chief financial officer Amy Hood told analysts on a conference call on Tuesday. Gaming revenue should decline in the low- to mid-teens percentage range because of strong growth in the previous quarter when first-party games were introduced, Hood said.

Phil Spencer, CEO of Microsoft Gaming, sounded optimistic about the unit’s prospects.

“It’s been proven for years, in times of economic uncertainty for families, games are somewhat resilient to those challenges,” he told the Wall Street Journal at the WSJ Tech Live conference in Laguna Beach, California.

Not everyone agrees with Spencer.

“The video game industry has never been ‘recession-proof,’ but that line comes up every time the r-word is mentioned,” Matt Piscatella, CEO of market researcher NPD Group and a video game industry adviser, wrote in July. to tweet.

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Piers Harding-Rolls, director of research at researcher Ampere Analysis, has made similar comments.

“After two years of massive expansion, the gaming market is poised to reverse some of that growth in 2022 as a number of factors combine to dampen performance,” he told CNBC in July.

But Spencer can point to Microsoft’s own experience with recession as proof of his claim.

In 2008, during the global financial crisis, Microsoft reduced the prices of Xbox consoles in various markets, as the public became interested in Nintendo Wii. It turned out to be “numerically on the console side, our best holiday and our best calendar year in Xbox history,” said Robbie Bach, Microsoft’s president of entertainment and devices at the time.

In 2020, a brief recession coincided with the emergence of the coronavirus, but it forced people to stay at home and play more games, including on Xbox consoles and PCs. “People everywhere are turning to games to maintain a human connection while practicing social distancing,” CEO Satya Nadella said in April 2020.

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Today, Spencer said that Microsoft is giving people a choice of how much they want to spend if they want consoles. The company offers the $499 Xbox Series X and the less powerful $299 Xbox Series S. Microsoft subsidizes the cost by $100 to $200 per console, hoping to recoup the money from accessory sales and in-store purchases. said. Whether they want to pay $10 or $15 a month for Game Pass subscriptions is up to the players. They can also buy games outright or play certain games for free.

Spencer said he doesn’t think Microsoft will be able to keep game prices the same 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.

TO WATCH: Hill: Weaknesses at Microsoft and Alphabet are causing us to rethink earnings estimates overall



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