In a loose world, video game makers are ‘doubling down’

At the height of the pandemic, people trapped inside were spending their time playing tons of video games.

Now that countries are slowly reopening, that behavior will change. And video game makers have warned that as people get back outside, their sales will drop and spending on games could fall for the first time in at least a decade.

But companies aren’t cutting back early. Far from there.

Consider Riot Games, which produces League of Legends. “We are doubling down,” said Nicolo Laurent, CEO of the company. “We are hiring like crazy.”

Then there is Microsoft’s Xbox. “Our investment in games has never been bigger than it is now,” said Phil Spencer, who runs the business.

Video game companies are among the winners of the pandemic who declare that they still plan to press ahead at full steam, even as the coronavirus lockdowns that fueled their businesses for the past 15 months have been largely lifted. Other tech companies that thrived while serving a remote society, including Zoom and Peloton, have also said they hope to continue spending, expanding operations and hiring.

It’s a counterintuitive gamble. But some of the companies said they could use the money they had accumulated from the year’s windfall to get back on the growth trajectory they were on before the pandemic accelerated it.

“This is a fantastic time for the industry,” said Strauss Zelnick, CEO of Take-Two Interactive, which makes NBA 2K and Grand Theft Auto video games. He said the pandemic had introduced the games to a wider audience, so instead of backing down, “we are investing to grow and meet that demand.”

When industries predicted a growth slowdown in the past, companies often cut costs, but those recessions and recoveries were typically unpredictable, related to a falling stock market and recessions, said Bill Pearce, assistant dean of the School of Haas Business from the University of California, Berkeley.

With the ebb of the pandemic, companies have “more clarity and more confidence to invest” due to coronavirus vaccines and predictions of how people will respond when the world opens up, Pearce said. Some industries that followed conventional wisdom in slowing down, such as car dealerships, are now kicking themselves because they can’t keep up with growing demand, he said.

But John Paul Rollert, a professor at the University of Chicago Booth School of Business, said that moving forward in the face of behavior change was a high-risk, high-reward approach.

“You’re playing very high stakes poker,” Rollert said. Still, he added, with the economy rebounding and money spinning, “you can understand why these companies might think to themselves, ‘Covid has been good to us, but maybe post-Covid will be great for us.”

Newzoo, a game analytics firm, has projected that people will spend $ 175.8 billion on games this year, down 1 percent from 2020. That would be the first decrease since Newzoo began tracking spending in 2012. .

Take-Two said this month that it expected sales to drop 30 percent in its next quarter from a year earlier and 8 percent for the fiscal year. Activision Blizzard, which makes the war game Call of Duty, predicted an 11 percent drop in sales from a year earlier in its next quarter.

“It’s hard to imagine how at least the immediate future is going to have as much spending or as much playing time or as many players as the industry benefited last year,” said Matthew Ball, managing partner at Epyllion Industries, which operates a private equity company. who invests in games.

Other challenges lie ahead, such as a global chip shortage that is limiting the availability of new video game consoles from Microsoft and Sony, and a shortage of blockbuster games after a year of remote work made game development even more. complicated than normal.

However, the game creators said they weren’t worried, especially after such a tremendous outbreak of pandemic growth.

In January, Microsoft reported $ 5 billion in quarterly gaming revenue for the first time, in part due to a new generation of Xbox consoles. The company also bought ZeniMax Media, which publishes games like Skyrim and Fallout, for $ 7.5 billion in September.

Microsoft’s gaming business is now aiming to expand in places like Africa by promoting its cloud gaming service, xCloud, Spencer said. In cloud games, the games are hosted in a company’s data centers and streamed to consumer devices, so they don’t need to install the games or use expensive hardware.

“If you look at the last decade, games have had a double-digit growth pattern,” Spencer said. “Without a doubt, the pandemic has had an accelerated impact.”

At New York-based Take-Two, profits rose 46 percent over the past year. The company has hired about 700 game developers in the past 12 months, expanding its workforce by 10 percent and is spending heavily on technology and marketing, Zelnick said.

“In many ways, it is an investment year as we build for the future,” he said.

Niantic, the San Francisco company that produced the Pokemon Go mobile game, expects to increase its workforce by about 25 percent this year to nearly 900 people, said John Hanke, its chief executive officer. The company was preparing to introduce two new games, one based on the Settlers of Catan board game and the other on the Pikmin franchise, with eight more in development.

At Los Angeles-based Riot, a post-pandemic recession “wasn’t even a topic of discussion,” Laurent said. Revenue for the privately owned company increased 20 percent last year.

(Mr. Laurent has been dealing with employee complaints and lawsuits that Riot is a sexist workplace; he was sued in January for sexual harassment and retaliation. He has denied the allegations).

Riot aims to hire 1,000 people this year, increasing its workforce by 33 percent, Laurent said. In addition to expanding its flagship title, League of Legends, it said, Riot is investing in esports leagues for its first-person shooter Valorant and for Wild Rift, a modified version of League of Legends played on mobile phones. The company is also building two new studios this year in Shanghai and Seattle, he said, and plans to open five more locations in the next three years.

“Games will be the center of influence” in the 21st century, said Laurent. “The pandemic is only giving us a little boost.”