In a World Let Unfastened, Video Sport Makers Are ‘Doubling Down’

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At the height of the pandemic, people stuck indoors spent the time playing tons of video games.

Now that countries are slowly opening up again, this behavior will change. And video game makers have warned that when people go outside, their sales will fall and game spending could fall for the first time in at least a decade.

But the companies do not reduce the anticipation. Far from it.

Consider Riot Games, which makes League of Legends. “We’re doubling up,” said Nicolo Laurent, the company’s managing director. “We’re hiring like crazy.”

Then there is Microsoft’s Xbox. “Our gaming investment has never been higher,” said Phil Spencer, who runs the business.

Video game companies are among the pandemic winners saying they continue to plan to move at full steam even after the coronavirus bans that have propelled their businesses over the past 15 months have largely been lifted. Other tech companies that thrived while supplying an out-of-the-way society – including Zoom and Peloton – have also announced they will continue to spend, expand operations and hire new staff.

It’s a counter-intuitive bet. However, some of the companies said they could use the cash they had in store from the gust of wind of the year to return to the growth path they were on before the pandemic accelerated it.

“This is a great time for the industry,” said Strauss Zelnick, general manager of Take-Two Interactive, which makes the NBA 2K and Grand Theft Auto video games. He said the pandemic has made gambling more accessible to a wider audience, and rather than pulling back, “we are investing to grow to meet that demand.”

When industry predicted a slowdown in growth in the past, companies often cut costs, but those downturns and rallies were usually unpredictable due to falling stock markets and recessions, said Bill Pearce, assistant dean at the Haas School of Business from the University of California, Berkeley.

As the pandemic subsides, coronavirus vaccines and predictions of how people will react when the world opens up means companies have “more clarity and more confidence in investing,” Pearce said. Some industries that followed conventional wisdom and slowed down, such as car dealerships, are now kneeling on their knees for failing to meet increasing demand, he said.

However, John Paul Rollert, a professor at the University of Chicago’s Booth School of Business, said that moving forward in the face of changing behavior is a risky and rewarding approach.

“They really play high-stakes poker,” said Mr. Rollert. Still, as the economy recovered and money sloshed around, he added, “You can see why these companies might think, ‘Covid has been good to us, but maybe post-Covid will be great for us.'”

Newzoo, a gaming analytics firm, has forecast that people will spend $ 175.8 billion on games this year, down 1 percent from 2020. This would be the first drop since Newzoo began tracking spending in 2012.

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Updated

May 28, 2021 at 12:54 p.m. ET

Take-Two announced earlier this month that sales will decrease 30 percent year over year for the next quarter and 8 percent for the fiscal year. Activision Blizzard, which makes the war game Call of Duty, forecast an 11 percent year-on-year revenue decline for the next quarter.

“It’s hard to imagine that there will be as much money or game time or as many players as the industry has benefited over the last year, at least in the immediate future,” said Matthew Ball, managing partner at Epyllion Industries, which operates a company Capital fund that invests in gambling.

Other challenges, such as a global chip shortage that is limiting the availability of new video game consoles from Microsoft and Sony, and a lack of blockbuster games after a year of remote work made game development even more difficult than normal.

However, game makers said they were not concerned, especially after such huge pandemic growth.

In January, Microsoft reported quarterly sales of $ 5 billion with games for the first time, partly due to a new generation of Xbox consoles. The company bought ZeniMax Media, which publishes games like Skyrim and Fallout, in September for $ 7.5 billion.

Microsoft’s gaming business is now aiming to expand in countries like Africa by promoting the cloud gaming service xCloud, Spencer said. In cloud gaming, games are hosted in a company’s data center and broadcast to consumers’ devices so they don’t have to install the games or use expensive hardware.

“If you look at the last decade, gaming has seen a double-digit growth pattern,” said Spencer. “The pandemic has undoubtedly accelerated.”

At Take-Two, based in New York, profits rose 46 percent last year. The company has hired around 700 game developers in the past 12 months, expanded its workforce by 10 percent, and invested heavily in technology and marketing, Zelnick said.

“In many ways, it’s an investment year where we’re building for the future,” he said.

Niantic, the San Francisco-based company that produced the mobile game Pokemon Go, expects to increase its workforce by about 25 percent to nearly 900 employees this year, said John Hanke, its managing director. The company was preparing to launch two new games, one based on the Settlers of Catan board game and the other based on the Pikmin franchise. Eight more are in development.

At Riot in Los Angeles, a post-pandemic downturn was “not even an issue for discussion,” Laurent said. Revenue for the privately held company rose 20 percent last year.

(Mr. Laurent has dealt with allegations and complaints from employees that Riot is a sexist workplace. He was sued in January for sexual harassment and retaliation. He has denied the allegations.)

Riot plans to hire 1,000 employees this year, increasing its workforce by 33 percent, Laurent said. In addition to expanding its flagship League of Legends title, Riot is investing in esports leagues for its first-person shooter game Valorant and for Wild Rift, a modified version of League of Legends played on mobile phones. The company is also building two new studios in Shanghai and Seattle this year and plans to open five more locations over the next three years.

“Gambling will be the center of influence,” said Laurent in the 21st century. “The pandemic is just giving us a small boost.”