It's earnings season, and gaming is once again in the spotlight. But as tech and media giants capitalize on the pandemic's rise in gaming, shaking up the industry's traditional economic pillars, game developers themselves are scrambling to keep up.
Disney kicked off its 2024 first quarter earnings conference with a bang on February 7, with CEO Bob Iger speaking just before announcing a $1.5 billion investment in Epic Games. appeared on CNBC. Disney intellectual property such as “Star Wars” has already appeared within Epic titles such as “Fortnite,” but Disney’s official statement regarding this investment says that as a result of this deal, Epic’s digital world It has become clear that the presence of Disney characters within the world will be greatly increased. It turns “Fortnite” into something resembling a virtual Disney World.
“This is Disney's largest ever entry into the world of video games, and represents a tremendous opportunity for growth and expansion,” Iger said in an earnings call.
The $1.5 billion investment isn't Disney's first attempt to take its intellectual property into the virtual space. In 2022, Disney hired former theme park executive Mike White to lead its Metaverse division, but White left the company just a year later when the division closed. In 2024, Disney is focusing on gaming as a potential avenue to its growing digital audience, but it is specifically avoiding using the term “metaverse” to describe this new venture.
Regardless of the deal framework, Disney stock rose nearly 10 percent after the call. This is a clear indication that both management and investors are looking forward to potential returns as the company leverages the cultural power and influence of gaming. For an entertainment giant like Disney, gaming is good business heading into his 2024.
“Games have transcended traditional boundaries and emerged as a cultural and economic powerhouse,” said Fred Shank, senior vice president of brand experience at creative agency The Marketing Arm. “For Gen Z, who are digital natives, gaming is more than just entertainment; it’s a primary means of interaction and a place to connect with the community.”
Gaming is also an area of growing interest for tech giants, as evidenced by earnings calls from companies like Netflix, with CEO Greg Peters telling investors that the company's Q4 2023 He said user engagement with gaming products has tripled over the past year. At Microsoft's Q2 2024 earnings conference on January 30, CEO Satya Nadella also cited game streaming as a growth area.
“With cloud gaming, we continue to innovate to give players more ways to experience the games they love where, when and how they want,” Nadella said. “Streaming hours increased 44% year over year.”
However, none of the above is necessarily good news for the companies actually creating the games. Technology and entertainment companies have successfully used games as a platform to promote other products and intellectual property, but the actual economic benefits of publishing high-quality games are decreasing.
Game sales have stagnated and production costs continue to balloon as free-to-play and live service games gain market share. All of this led to a historic wave of layoffs in the gaming industry in 2024. This includes cutting his 1,900 employees across his Activision Blizzard and Xbox divisions at Microsoft, despite reported growth in the company's gaming services.
Gaming accounted for $7.11 billion in Microsoft's revenue this quarter, significantly more than the $5.26 billion generated by Windows, but Microsoft has significantly downsized its gaming division. We're scaling back the Xbox brand to focus on IP licensing and distribution. Rather than selling premium games or hardware.
2024 is shaping up to be a challenging year for casual game studio staff as the gaming industry undergoes fundamental changes. Nearly 6,000 jobs have disappeared from the industry since the beginning of this year, many of them in the publishing and esports divisions of struggling gaming companies. While technology and entertainment companies use earnings releases as an opportunity to brag about increased gaming revenue, the actual business of making games is proving increasingly dire.
“The gaming industry, in its previous structure, never had such a large platform,” said Tejas Desai, research analyst at GlobalX ETF. “In short, the gaming industry is discovering that by working more closely within many of these technology platforms, they can reach a broader audience of casual gamers and naturally monetize more effectively. .”
Some gaming companies are adapting to changes in their business models faster than others. For example, Electronic Arts has pivoted significantly beyond premium game sales to live services and other business models, with live services bookings reaching a record $1.71 billion in Q3 2024. announced. This represents a 3% year-over-year increase in live service bookings. , this was especially true during a period when EA's game sales were down 5% year-over-year.
“Our live services represent nearly three-quarters of our business, highlighting the evergreen nature of this business model,” EA CEO Andrew Wilson said on a Jan. 30 conference call. “I'm doing it,” he said.
Still, leaning toward a live service or free-to-play model doesn't guarantee a gaming company's success in 2024. Some gaming companies are trying to move beyond media and become broader content and lifestyle platforms, but have yet to turn this expansion into profit. . For example, Roblox saw a 30% year-over-year increase in revenue and a 25% increase in net bookings in Q4 2023, but also lost about $30 million in the same period while continuing to grow its workforce. Expanded. If Roblox turns a profit, all of this spending will be justified. But until that happens, the company is putting itself on a potentially dangerous cliff.
Roblox CEO David Baszucki said during a Feb. 7 earnings call that “as we grow our bookings, so do the economic opportunities on our platform.” “So, naturally, we believe that regardless of the layoffs, the creator community will continue to grow.”
