Virtual worlds are no match for inflation and the real world

Pent-up demand for real world fun took business away from companies that crank out digital gaming.

Why it matters: The slowdown is expected to continue as consumers continue to adjust how they spend amid high inflation and worries of economic slow downs, industry leaders warn.

Driving the news: The reopening,” Sony CFO Hiroki Totoki said in late July, is one factor gaming software sales declined 25% in the company's latest quarter, its fiscal q1.

• Take-Two Interactive’s CEO admitted on Monday the company is seeing consumer “softness.”
• “If you are feeling the pinch of inflation … you could imagine that if you’re playing [a] game, you might choose to spend a bit less [in it] or spend a bit less frequently,” Strauss Zelnick told investors.

In contrast: Roblox’s CEO David Baszucki dismissed concerns about more potentially negative impacts to its business from inflation or a recession and tried to paint the company as an emerging necessary communication service on a call with analysts.

• "We're not a game and we're not really even a game platform. We're a future human co-experience platform," he said.

Yes, but: Roblox, the virtual gaming platform popular with kids and teens, reported that it added about 1 million fewer new users in the second quarter than analysts expected.

• A key industry metric which includes recognized and unrecognized revenue also fell 4% from last year, the company reported on Tuesday.

The big picture: Gaming companies have been considered recession proof, Bloomberg notes, but that no longer seems to be true.

Our thought bubble from Axios Gaming's Stephen Totilo: The gaming sector was always going to cool a bit following the surge of the pandemic. Analysts expect growth to resume, but a couple of key factors are worth watching.

• COVID-19 wreaked havoc with the development cycles around games, as teams struggled to adapt to remote and hybrid work. That's resulted in an inordinate amount of major game delays, a fairly sparse release calendar for this holiday but the likelihood of a loaded 2023.
• More and more games are designed to be played for free, with players tempted to spend extra as they play. So if discretionary spending drops but playtime stays high, the industry is betting those players will eventually resume spending--or will they learn to be content with playing for free, as most already do?