Ahead of the holiday quarter, Q3 is always a good time to gauge the core trends pushing the global games industry to higher market values, with Newzoo projecting $176 billion for 2021 and nearly $220 billion by 2024.
While heightened regulation of tech giants ensnares the predominant online games companies in China, other significant trends aren’t exactly shocking.
Live Services Continues to Propel Growth and Steer Future Titles
Mobile-oriented companies rely almost entirely on in-game spending and ads tied to live services, which are games that maintain consistent revenue via regular updates in lieu of one big initial release. Mobile company Zynga saw its best Q3 yet in 2021 courtesy of its free-to-play live service games. But the biggest multiplatform publishers have adopted the live service model en masse in recent years, with most getting more than half of their revenue from in-game purchases now.
EA saw a record fiscal Q2 thanks to its anchoring EA Sports brand, where annual titles for “Madden NFL” and “FIFA” do the heavy lifting alongside EA’s popular free-to-play shooter “Apex Legends.” Per the company, EA Sports saw 100 million players engage with its football franchise over the preceding six months.
Take-Two and Ubisoft also highlighted live services in their fiscal second quarters, the former focusing on its own sports games via “NBA 2K” plus “Grand Theft Auto Online,” which makes its next-gen debut in March 2022.
With “Assassin’s Creed: Valhalla” generating the 2nd-largest profits ever for an Ubisoft game in less than 12 months of release, the franchise is set for a new multiplayer-focused version, “Infinity,” meant to live alongside future “Assassin’s Creed” releases like “Call of Duty: Warzone” does within its franchise.
Activision Blizzard appears to be reaping the lion’s share of in-game spending from “Warzone,” “Candy Crush” and Blizzard’s pay-to-play games like “World of Warcraft,” an important lifeline given the increased scrutiny and investigations of reported misconduct within the company.
PlayStation guru Sony also touted an interest in live services after its fiscal Q2, citing a quarterly decrease in overall gameplay and first-party sales amid an increase in sales for third-party titles and add-on content, with acquisitions Bluepoint and Firesprite meant to bring more games to PC and mobile, the latter of which could help rake in more in-game spending.
Regulation in China Is Impacting Tencent and NetEase, But Not to a Dire Degree
Amid widespread government regulation of China’s tech sector throughout 2021, further laws governing the amount of time minors in the country can game went into effect at the end of August.
Leading online gaming companies Tencent and NetEase saw shares slip upon the news that minors could only game three hours per week, but Q3 results indicate this isn’t totally disastrous.
Profits attributable to shareholders did see a 2% year-over-year drop at Tencent alongside earnings per share, but that wasn’t the case at NetEase, which still saw quarterly increases for those metrics. Likewise, year-over-over revenue increased by 13% and 19% at Tencent and NetEase, respectively.
This isn’t to say either company is coasting through the regulatory changes, especially since Tencent shut down its local version of “Fortnite” and reported a significant year-over-year decline of 6.4% to 0.7% regarding total gameplay derived from minors in September. In addition, the 4.8% of gross receipts for domestic games coming from minors in Sept. 2020 dropped to 1.1% in Sept. 2021.
However, these are global companies, and Tencent’s investments in entities outside China span far and wide, with full ownership of U.S.-based Riot Games (“League of Legends”) and a 40% stake in “Fortnite” developer Epic Games.
Plus, shares in Tencent, NetEase and Japan-based Nexon on Tuesday jumped 3.5%, 6.8% and 6.3%, respectively, amid reports China is close to resuming the issuing of new online game licenses to companies after a pause in July, suggesting this period of regulatory adjustment could soon stabilize.
While Not a Direct Player in Gaming, Disney Is Proliferating the Space With Its IP
In addition to its 2015 “Star Wars: Galaxy of Heroes” mobile game, EA released “Jedi Fallen Order” and “Squadrons” to consoles and positive reception in 2019 and 2020, respectively, with another mobile game, “Rise to Power” on the docket as its next “Star Wars” title.
Meanwhile, Take-Two in Q3 announced “Marvel’s Midnight Suns” from 2K in late 2022, while Japanese publisher Square Enix released a “Guardians of the Galaxy” game in October following its 2020 “Avengers” game, adding to its ongoing partnership with Disney for the “Kingdom Hearts” franchise.
Given the rampant success Sony has seen with its own chunk of Marvel IP via PlayStation’s “Spider-Man” games, not to mention the Marvel Cinematic Universe’s continued domination of theaters and now streaming, it’s understandable why publishers want to license Marvel properties.
Even Sony is looking beyond its web-slinging hero to license Disney IP, announcing in Q3 a “Wolverine” game that will be set within the same universe as its “Spider-Man” games; the Wolverine character comes from 20th Century’s “X-Men” franchise. Furthermore, fan-favorite 2003 game “Star Wars: Knights of the Old Republic,” which never made it to PlayStation consoles, is getting a remake that will be a timed exclusive for PlayStation 5 before it hits other consoles.
Don’t count Xbox out, though. The PlayStation rival is getting its own slice of Disney IP, as recent Microsoft acquisition Bethesda will release its own “Indiana Jones” game in the coming years.
If that’s not enough, storied game developer Amy Hennig of “Uncharted” fame, who was tapped by Skydance Media in 2019 to lead its New Media interactive division, was recently revealed to be developing none other than a Marvel title as the company’s debut project.