Advanced Television

Bank: “Video games market remains soft”

July 13, 2022

By Chris Forrester

Berenberg Bank has issued a report on the state of the video games sector, and says that demand is “soft” but anticipates improvements in the second-half of this year. The report comes as Sony has paid $250 million for a 1.4 per cent stake in Epic Games (owner of Fortnite), joining Tencent and Disney as minority shareholders.

Berenberg reminds clients of EA splitting with FIFA, and suggests that the split could be beneficial for EA, saying: “EA will not renew its partnership with FIFA for the naming rights for its football games. We believe this is a net positive for EA as it will not materially affect the game, removes a c$150m/year licence fee and allows for wider brand partnerships also. In the meantime, FIFA 22 is performing well, with the final FIFA title (FIFA 23) to be released in September or October.”

“The only significant impact on the actual gameplay will be that as it stands the game will not be able to run the FIFA World Cup – although the 2022 World Cup in Qatar falls within the existing agreement and thus this will not be a relevant issue until 2026. While there is certainly scope for EA to negotiate a separate agreement for the World Cup in future years, we do not believe that the absence thereof would have a material impact on gameplay or indeed the user experience,” adds Berenberg.

The bank continues: “While the pace of M&A has slowed since an extraordinary Q1 2022, activity remains robust. Press speculation about a merger between EA and Universal has also dominated the headlines, albeit it is hard to attach significant credence to this as neither company has acknowledged the speculation.”

The other key elements of the report look at consumer spending – or their ability to buy games and in-app cosmetics.

“Looking forwards, the slowing market momentum raises the risk of the impact from a potential softening of discretionary consumer spending due to the weakening macro backdrop and inflation,” says the report. “Given the rapid evolution of the mobile game market since the last recession and the fact that mobile games are free-to-play, where monetisation is via in-app purchases concentrated in a small portion (sub-5 per cent) of highly engaged players and via adverts, it is difficult to say exactly how the video game market will perform versus other consumer discretionary sectors. Our gut feeling is that video games will be more resilient as it remains one of the cheapest forms of entertainment and exhibits the highest level of audience engagement. Nevertheless, a material crunch on consumer wallets will no doubt ultimately find its way into video games spending.”

Categories: Articles, Business, Games

Tags: , , , ,