This dynamic is affecting many industries and has recently created many, very public, massive layoffs in the tech industry. Meta let 11,000 people go. Twitter reduced half its workforce (around 3,700 employees since Elon Musk joined). Amazon announced plans to release 10,000 people, and many more stories like these.
The state of the market as we head into 2023
The gaming industry isn’t immune to the above dynamics and is experiencing headwinds itself. As a whole, The NPD Group reported a 5% decline in consumer spending on video gaming in Q3-2022 compared to Q3-2021. Sensor Tower reported that U.S. consumer spending on mobile games during the same quarter fell by 9% year over year.
Looking at several public games (and game-related) companies’ earnings reports from Q3-2022, we can see the overall sentiment. Many well-known companies in the gaming world are reporting various downward trends, from slower-than-expected growth to decreases in consumer spending, and low net bookings."
So even though some gaming companies have managed to report growth, it was almost always softer than expected, and some have shown a pretty clear decrease. The above anecdotes show us that something is holding the market back.
What is holding the market back?
There are several drivers behind this decrease in consumer spending in the gaming market as a whole, and mobile gaming in particular.
First, we need to understand that 2021 was an unnaturally strong year for gaming, on the back of the COVID-induced growth period that led many people to adopt gaming even if they didn’t consider themselves gamers before.
This boost created a very tough comparison period when comparing y/y numbers. But the overall growth of the market is still stable, with consumer spending significantly higher than pre-COVID levels.
Secondly, inflation rates. When a lot of items become more expensive (gas, housing, groceries, etc) it can result in people having less available income to spend on interactive entertainment.
Lastly, the growing expectations that we’re on the brink of a recession may encourage people to try and save more (especially with high and increasingly growing interest rates) and spend less. This again makes people spend less on games.
But there are signs that nothing has changed in the fundamental demand for games
Let’s look at the factors driving demand for games long-term. Specifically, mobile gaming, which according to the headlines, is showing the most negative growth rates in 2022.
More people have better and better mobile devices, which gives them access to a growing number of high-quality mobile games. It’s not just the number and quality of mobile games, it’s also the type.
Game design and development innovation pioneered many new categories of mobile games that suit pretty much every type of game in the world, such as hyper-casual games. This turned everyone, of almost any age, into a potential gamer. The actual meaning of the word ‘gamer’ has changed, no longer referring to only a hard-core hobbyist with a high-end gaming station, but pretty much anyone you see walking down the street, waiting in line at a coffee shop, or working alongside you in the office.
These long-term trends won’t change. And as there are about 2 billion “gamers” in the world today, and the global population just crossed 8 billion people, this figure is likely to grow over the coming decades to hit 3B, 4B or more.
With the introduction of better and more innovative games, more people develop the habit of playing mobile games. And they stand more chances of attracting people’s time and attention because gaming is now perceived as a valid alternative to watching a series or scrolling through social media.
Technological advances in devices used to play games would likely create a more attractive game experience that would appeal to billions. (We can kind of see the early signs of these with the emergence of metaverse-type games that draw people in for hundreds of hours of play over many years.)
So, in my opinion, it’s likely that the next decade or more will be categorized by significant growth in the overall game market and mobile gaming in particular.
Which companies will thrive?
Game companies that play with this natural economic cycle and continue to invest in creating fun, engaging, and blockbuster game franchises will thrive. Moreover, game companies that will adopt more ad-based monetization models that aren’t too intrusive and provide players with alternative ways to unlock game content and progress to paying through in-app purchases (rewarded ads) will be able to continue and see growth, even at a time of a recession.
Written By Jonathan Fishman, VP of Growth & Marketing at Storemaven