In a world let loose, video game-makers are 'doubling down'

Video game companies are among the pandemic winners that are declaring they still plan to go full steam ahead, even as the coronavirus lockdowns that powered their businesses over the past 15 months have largely been lifted. Other tech companies that flourished while catering to a remote society — including Zoom and Peloton — have also said they expect to continue spending, expand operations and hire.

It is a counterintuitive bet. But some of the companies said they could deploy the money they had stockpiled from the year’s windfall to return to the growth trajectory they were on before the pandemic accelerated it.

“This is a terrific time for the industry,” said Strauss Zelnick, CEO of Take-Two Interactive, which makes the NBA 2K and Grand Theft Auto video games. He said the pandemic had introduced gaming to a wider audience, so rather than pull back, “we are investing to grow to meet that demand.”

When industries predicted slowing growth in the past, companies often reduced costs, but those downturns and recoveries were typically unpredictable, related to a tumbling stock market and recessions, said Bill Pearce, an assistant dean at the Haas School of Business at the University of California, Berkeley.

With the ebbing of the pandemic, businesses have “better clarity and more confidence to invest” because of coronavirus vaccines and predictions of how people will respond when the world opens up, Pearce said. Some industries that followed conventional wisdom by slowing down, such as car dealerships, are now kicking themselves because they cannot fulfill surging demand, he said.

But John Paul Rollert, a professor at the University of Chicago Booth School of Business, said plowing ahead in the face of shifting behavior was a high-risk and high-reward approach.

“You’re playing some really high-stakes poker,” Rollert said. Still, he added, with the economy rebounding and money sloshing around, “you can understand why these companies might think to themselves, ‘COVID has been good to us, but maybe post-COVID will be great to us.’”

Newzoo, a gaming-analytics firm, has projected that people will spend $175.8 billion on games this year, down 1% from 2020. That would be the first decline since Newzoo began tracking spending in 2012.

Take-Two recently said it expected sales to plunge 30% in its next quarter, from a year earlier, and 8% for the fiscal year. Activision Blizzard, which makes the war game "Call of Duty," predicted an 11% sales decline from a year earlier in its next quarter.

“It’s hard to imagine how at least the immediate future is going to have as much spending or as much game time or as many players as the industry benefited from last year,” said Matthew Ball, managing partner at Epyllion Industries, which operates a venture capital fund that invests in gaming.

Other challenges loom, including a global chip shortage that is limiting the availability of new video game consoles from Microsoft and Sony, and a dearth of blockbuster games after a year of remote work made game development even trickier than normal.

Yet game-makers said they were not worried, especially after such a tremendous spurt of pandemic growth.

In January, Microsoft reported $5 billion in quarterly revenue from gaming for the first time, in part because of a new generation of Xbox consoles. The company also bought ZeniMax Media — which publishes games such as "Skyrim" and "Fallout" — for $7.5 billion in September.

Microsoft’s games business now aims to expand in places such as Africa by promoting its cloud gaming service, xCloud, Spencer said. In cloud gaming, games are hosted in a company’s data centers and broadcast to consumers’ devices so they do not need to install the games or use expensive hardware.

“If you look over the last decade, gaming has been on a double-digit growth pattern,” Spencer said. “No doubt the pandemic has had an accelerated impact.”

At Take-Two, based in New York, profits jumped 46% over the past year. The company has brought on about 700 game developers in the past 12 months, expanding its workforce by 10%, and is spending heavily on technology and marketing, Zelnick said.

“In many ways, it’s an investment year as we build for the future,” he said.

Niantic, the San Francisco company that produced the mobile game "Pokemon Go," expects to increase its workforce by about 25% this year, to nearly 900 people, said CEO John Hanke. The company was preparing to introduce two new games, one based on the board game Settlers of Catan and the other on the Pikmin franchise, with eight more in development.

At Riot, based in Los Angeles, a post-pandemic downturn was “not even a topic of discussion,” Laurent said. Revenues for the company, which is privately held, rose 20% last year.

(Laurent has been grappling with employee claims and lawsuits that Riot is a sexist workplace; he was sued in January for sexual harassment and retaliation. He has denied the accusations.)

Riot aims to hire 1,000 people this year, increasing its workforce by 33%, Laurent said. Aside from expanding its flagship title, "League of Legends," he said, Riot is investing in the 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 this year in Shanghai and Seattle, he said, and plans to open five more locations over the next three years.

“Gaming’s going to be the center of influence” in the 21st century, Laurent said. “The pandemic’s just giving us a little boost.”