Why the gaming industry might not be as recession-proof as once believed

By Alexander Lee

As economic headwinds pick up, gaming and esports executives are tentatively optimistic about their ability to weather the storm. But the reality is that the current model of the gaming and esports industry has never been tested by a true recession.

During the 2008 financial crisis, many economists grew to believe that the gaming industry was “recession-proof,” with sales of video games far outpacing those of other retail products as the recession mounted in December 2007. And gaming has only grown in popularity since then.

“Games is the largest segment within entertainment by far,” said Michael Metzger, an esports industry expert and partner at investment banking firm Drake Star. “There’s a good amount of new players coming into Netflix; Amazon might make a big move this year.”

Despite these encouraging signals, however, early signs seem to indicate that the gaming industry might not be as recession-proof as experts believed in the past. In its earnings report last week, Ubisoft reported a total loss of over €500 million for the past fiscal year; Riot Games laid off 46 staffers earlier this week; and Google finally shut down its cloud gaming service, Stadia, among other discouraging news.

The esports industry — which currently serves mostly as a marketing offshoot for the broader gaming industry — is also feeling the heat. Brands like BMW have pulled out of the space, heightening fears that an “esports winter” is coming. In a bid to keep the sponsorship money flowing, leading esports orgs such as OpTic have beefed up their partnership departments and increased their focus on recession-resistant brand partners.

“While I think esports is probably not recession-proof, from my seat being the person over sponsorships, I’ve spent more of my time thinking about the brands that are recession-proof, or that need to stay top-of-mind to our audience,” said OpTic svp of sales and partnerships Erin Schendle.

Schendle declined to specify individual prospective recession-proof sponsors, but listed sectors such as food, beverages and financial services as examples. “People are going to eat, and they’re going to drink, and those types of things,” she said. “There’s financial services; people still need a bank. They still need credit, you know, maybe even more so.” (OpTic’s current partners include Jack Links, Mountain Dew and Jack in the Box.)

The gaming industry has transformed over the past decade, and the strengths that carried it through the 2008 crisis are simply no longer as present. Lucrative retail sales have fallen off in favor of free-to-play or live service games, and the rise of gaming livestreamers has given players new options to consume their favorite games without having to actually purchase them. At the same time, the prices of both consoles and premium titles have skyrocketed.

In 2008, the list price of the Nintendo Wii was $249.99; these days, the base model of the Nintendo Switch sells for almost $300. Sony’s PlayStation 3 went for $399 in 2008; in 2023, the PlayStation 5 has a $499.99 …read more

Source:: Digiday