The big two gaming companies in the world Activision Blizzard and EA Games usually set the scene for the gaming industry mostly because they control a massive share of the best developers and games that are played all around the globe. There are worrying news articles all around the revenue generation of video games at the moment and also not to mention constant comment on Activision Blizzards share price slipping due to lack of sales and keeping up with their projections. Yesterdays news about their CFO leaving for an "unspecified cause" isn't exactly great heading into the new calendar year either! The pressure of course grows onto the development teams to produce a quality result, which we do not doubt the games coming out are of a very good quality, this hasn't seemed to appease the organisations leaders though with Blizzard increasing their scheme for people to be offered to leave. Blizzard have responded saying this scheme has been around for many years and they are simply giving people the opportunity to move on in their careers as their development may be the highest they can go there (I'm paraphrasing their HR jargon of course).
Let's be clear, for these companies Gaming is a profitable business, instead of making 30% margin, they're making only 28% but we all know that 2% can account for a lot especially if you have larger titles to be worked on or if you're looking at making some serious acquisitions, let's not also forget the shareholders want their dividends!
So, looking into the prepared statements and investor packs for Activision Blizzard and EA trying to find their strategies to curtail this decline in their revenues and therefore profit margins what are these two massive organisations going to do? Studying their strategies for the financial quarters and years ahead will give us an indication as to what the gaming world will look like this year and possibly the next and these three categories are going to be key because developing and releasing a game just isn't enough to cover costs anymore:
This revolves around any additional content purchased in addition to the normal game, for example this may be map packs for Call of Duty or expansion packs for The Sims. The Sims games have always achieved well on expansion packs, no matter how small or large they've always been very popular, as well as World of Warcraft expansion packs like the Battle for Azeroth which sold over 3.4 million copies on day one in Summer 2018. I remember when games used to be released as full games, no expansion packs, just games. But making games is more expensive than it was in the 90s so these additional parts of the game are required to keep generating revenue during the companies development cycle of games amongst many other reasons. - take a look at what Rockstar Games is going with Grand Theft Auto for example.
These are going to continue growing in the industry because it's relatively easy to generate revenue from this. We see this in lootboxes, in buying Ultimate Team packs in Fifa, this is going to be part of gaming life moving forwards - I'm generally not a fan of it but I know some people like to partake in them. The trouble is that many countries have taken these lootboxes or pack openings to be like gambling and encouraging younger folk who play the game to be essentially gambling, court cases have been put forward in Belgium for example to see if this is legal. Other countries following on from Belgium may be looking to see how that case plays out and if they will ban these types of micro-transactions from occurring and that will hit these companies hard and the smaller gaming developers harder.
Expanding into the mobile industry
Both statements say they are looking to expand into the mobile industry, it is booming at the moment as it gives casual gamers an opportunity to play. For example, I tend not to play Hearthstone on the PC but I do play it on my Mobile when I'm commuting or not at my desk, Runescape is going this way too realising the technology is now present to have people playing on their mobiles as long as they get the user interface right which is something they have mentioned in their mobile update blog. EA already have an established mobile platform with their Fifa apps and Madden apps, the latter is currently under performing and their statement says their Madden team is working hard to correct this now to ensure they can generate the user count to increase and revenue from it. Blizzard as we know have announced their Diablo title "Diablo Immortal" Activision Blizzard are trying to achieve what they set out in their investor presentation to take advantage of that. Fans are worried releasing mobile versions will have to simplify the game but I'd say let's wait and see what happens.
2019 promises to be an interesting year full of excellent game releases, but it also promises to be a year of change and development for gaming companies to try and address revenue and profit issues as game making becomes more expensive.