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MediaTalk Episode 16: State of the video game industry amid COVID-19 – S&P Podcast

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Listen: MediaTalk Episode 16: State of the video game industry amid COVID-19 – S&P Podcast

As companies and businesses around the globe continue to grapple with financial losses amid the COVID-19 pandemic, the video game sector has remained an outlier.

People sheltering at home due to the pandemic increasingly turned to video games, resulting in revenue spikes for gaming firms and record sales for consoles, speakers said on the latest episode of "MediaTalk," an S&P Global Market Intelligence podcast.

Neil Barbour, an analyst tracking the technology and media sectors at Kagan, a media research group within S&P Global Market Intelligence, said the second quarter was the best non-holiday period for Nintendo Co. Ltd.'s Switch console, with 5.7 million units shipped. In addition, Microsoft Corp. doubled its Xbox shipments year over year. Gaming software companies including Activision Blizzard Inc.Electronic Arts Inc. and Take-Two Interactive Software Europe Ltd also experienced double-digit revenue growth in the second quarter.

"That is noteworthy because there weren't a lot of new games from these companies," Barbour said. "All three of those companies made basically as much revenue as they make in a typical fourth quarter when they release their big, new games."

One game that stood out since its launch in March is Nintendo's Animal Crossing, which has outperformed most of the company's largest franchises on the Switch and helped made Switch the best-selling console amid the pandemic.

Ian Hughes, a senior research analyst for the Internet of Things practice at S&P Global Market Intelligence's 451 Research, said the social aspects of the game resulted in one household buying multiple Switch devices, further boosting the console's appeal for consumers.

The video game industry is on the cusp of a brand new generation of hardware, software and services, as Microsoft and Sony Corp. gear up to release their new consoles in early November. Although the high-end models of both consoles are more expensive than their predecessors, both speakers said that economic repercussions from the pandemic would not impact sales, as the gaming industry has historically proven to be recession-free.

According to full-year 2020 console shipment estimates by Kagan, Sony is expected to end the year with the second-most sales, at 10.9 million units, comprised of 7.4 million PS4 consoles and 3.5 million PlayStation 5 consoles. Microsoft is forecast to come in third with 5.6 million shipments, including 2.8 million Xbox One consoles and 2.8 million Xbox Series X consoles.

Barbour said he does not expect demand for the new consoles to be lower than it was in 2013 when their predecessors were launched but cautioned that there may be constraints in manufacturing and shipping due to the pandemic. "That said, you got to give the PlayStation a slight edge, just because of its global appeal at this point," he explained. "And whoever wins that war, you got to imagine, gets the lead at the end of the year, just because I think there's enough demand to go around for both consoles at this point."

Hughes added that Microsoft's recent $7.5 billion purchase of ZeniMax Media Inc. may switch some consumers toward the Xbox brand. "That was a clear play to say, look, we've got a lot of serious gaming stuff going on here," he said. "But I agree it can go either way."

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