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MediaTalk | Season 2 | Ep. 33 - Outlook for video game hardware, software, eSports

Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with the S&P Global Market Intelligence tech, media and telecom news team. Welcome to MediaTalk, a podcast hosted by S&P Global, where the news and research staff explore issues in the evolving media landscape. Today, I'm joined by S&P Global Market Intelligence Kagan Research Analyst, Neil Barbour, who specializes in the gaming market, and another Kagan analyst, Richard Berndes, who is speaking with us from London. First, Neil is going to give us an overview of the video game market's performance in the second quarter. Then, Neil and Richard are going to weigh in about some of the top video games from the sports arena and the eSports market. How are we doing today, fellas?

Richard Berndes: I'm good. Thank you, Mike.

Neil Barbour: Yeah. Super good. Thanks, Mike.

Reynolds: All right. Neil, the second quarter showed some mixed results, but it was a really tough period for one vendor. How bad were things for Nintendo Co. Ltd.?

Barbour: Yeah. Nintendo's revenue was down by $1 billion year over year. I think we're really starting to see the fallout from Nintendo's decision to extend the console life cycle of the Switch an additional year compared to what they normally do. With their hardware, they had a big Zelda game last year, and that was going to be a difficult act to follow no matter what, but there was just not a lot for Nintendo fans to get excited about this quarter, and that famine showed up in receipts.

Reynolds: But there may be some big product news from Nintendo coming down the pike soon. Maybe? Perhaps?

Barbour: Nintendo told investors earlier this year that they would at least announce their next console by the end of the fiscal year, which runs through March 2025. There have been a few purported leaks recently saying that the console would be announced in October or sooner than March. Look, I just got an email this morning from Nintendo about Switch 1 bundles with Mario Kart coming out this fall. So I'm still operating under the impression that's the plan. But also, Nintendo is in an interesting position here. Consumers are not really excited about the Xbox right now. The PlayStation Pro was announced at a $700 price tag, which was much higher than expected. If Nintendo found its way to releasing a $300 or $400 piece of hardware sooner rather than later, they may find a captive audience.

Reynolds: Interesting. All right, we'll see. Let's go back to the second quarter. Tencent Holdings Ltd., the top video game player in the world, was up following a period of decline.

Barbour: Yeah, interesting story from Tencent. Usually, they talk about core franchises like Honor of Kings or PUBG Mobile, but we heard a lot about Valorant in China this time around, and that's surprising because that's a PC game making headway in a mobile-first market. So some narrative around maybe higher-end or premium games starting to make inroads in China.

Reynolds: How did Sony Corp. do, Neil?

Barbour: Yes. Sony continues to benefit from having a lot of perennial titles driving strong revenue across a long tail of consoles. Think about Fortnite and Call of Duty, both of which support the PlayStation 4, which is last generation’s hardware. It does look like that dynamic is starting to burn off a little bit. The year-over-year growth wasn't as strong as it was in the prior quarter. Maybe Sony has to start a steeper ramp for the PS5 if they want to keep growing in the near term.

Reynolds: And what about our friends at Microsoft Corp.?

Barbour: Microsoft is still metabolizing the Activision Blizzard acquisition, which has pushed it into the top five gaming companies by revenue in our analysis. The issue is that they'll lap that acquisition date in October, so they're looking for a big hit from this year's Call of Duty, which is Black Ops 6, I believe.

Reynolds: All right. So the performance by Tencent, Sony and Microsoft served to overcome Nintendo's plummet and keyed the industry's overall growth, I think it was like a 1 percent growth. Is that right?

Barbour: That's right. Yeah. We have overall video game content revenue up 1% year over year to about $46.45 billion. And that's in line with our forecast. Modest growth. Maybe that turns a little more modest as the year goes on and maybe a slight decline to end the year.

Reynolds: Okay, a lot of us are into sports here, Neil, including you two guys, I believe, and I guess there's a lot of video game action on that front in terms of games that have already been released in soccer, NFL, college football, basketball, and the NHL is coming up. Richard? Let's start things off with you. Obviously, soccer is the world's most popular sport, and Electronic Arts Inc.'s FIFA game was the hit for decades. That changed a few years back, though, right?

Berndes: Yes, that's right, Mike. EA first partnered with FIFA, which is the world governing body that controls football globally, in 1993. It's the first version of the game, and it's called FIFA International Soccer for Sega Mega Drive, then it was launched onto other platforms, but it's been a hugely popular game around the world and for EA. EA has been very clever in the way they update it every season with the latest kits and transfers. So it looks fresh every year it comes out. And it's not just the gamers. It's hugely popular with elite players around the world. There's lots of content on the chat of clubs' social media channels, where they're debating the scores they've been given by EA, and it seems really important to players. You can see them laughing and joking about how good or bad their FIFA card is. The change you're referring to was in 2023, and as with most fallouts in corporates, money was the biggest factor driving this. Also, EA said it was also creative restrictions. FIFA apparently was getting close to $150 million a year as a sponsorship fee from EA, and they wanted that increased to $250 million. Why were they asking that? EA's revenue is vast. It's been north of $5 billion since 2017 and peaking at $7.5 billion in 2024. Now FIFA's revenue is nothing like this. The best it gets is in World Cup years, where it gets, I think in 2018, $4.6 billion and in 2022, $5.2 billion. Outside of that, they're getting like a billion dollars every year. So basically, what you can see here is EA is making more money out of the sport that FIFA owns, which is quite an ironic situation. So obviously, FIFA wanted that to change. Now, obviously, the risk for FIFA's thing was, okay, what would be the marketing cost of this if they didn't go with FIFA? But I think underneath that, what they didn't realize is EA had rock-solid agreements with all the major domestic leagues around the world and also UEFA, who control the European game and who look after the Champions League. So even if FIFA goes, which is the World Cup games, they still had all the big domestic leagues around the world, including the Champions League.

Reynolds: EA switched over to, I guess it's EA FC, football club. So is it now, Richard, more focused on clubs like Tottenham and Real Madrid or New York SC as opposed to the international teams?

Berndes: That's right. But I think you've also got to bear in mind that they still have to tie in with UEFA through runs, the European game; the European soccer championships could feature within the game. Yeah, in terms for EA, it was a branding thing as it was the issue, but actually underneath it, the game is pretty solid as it were, and I think at a recent conference, EA's director, Sam Turkbas, was basically talking about how EA wanted you to build better relationships with the club and basically lean into the clubs to give it more authenticity and make it as realistic as possible. They've also added something called hyper motion five inside the game, which is a new way of actually recreating the player. So if a new free kick technique or penalty technique happens at the weekend, it will be dropped into the game within a few days. So the players look a lot more realistic and a lot more real as it were, and also they want to create a deeper relationship with fans. They would say they put a £10 million soccer development recently called FC Futures. So again, what EA seems to be doing is ingraining themselves more and more with the clubs and the players and also sponsorship. Their sponsorship deal with Nike, Pepsi, Uber Eats, and also Beats Electronics. And then the tie-in there is obviously Pepsi sponsors the UEFA Champions League, and Nike does lots of kits for the clubs and leading associations. So again, what you can see is EA very smartly tying itself to the clubs and the talent itself.

Reynolds: So FIFA, as you mentioned, the world's football organization, they're on the outside looking in. Do they have any chances? Are they trying to work with another partner to get a FIFA game back in the market?

Berndes: There was a lot of talk when the relationship broke up about what they wanted to do. It would be their own game. It would be the only official FIFA game. But to be honest with you, there hasn't been anything that has come out. There's been talk of developing something with a publisher called 2K, but as of now, FIFA hasn't got any game out.

Reynolds: All right, let's get to some playing here. Richard, your 16-year-old twins, Dexter and Seb, they were with us a couple of weeks back when we premiered the Premier League, so to speak. Your younger guy, Taylor, also tell us about their interest in playing video games. And I guess EA FC is a big winner in the Berndes household.

Berndes: That is correct. The older boys have been playing it for nearly 10 years, and Taylor's started playing it probably the last three or four years. It's the game they go to most often. The other one might be Fortnite, but in our house, certainly EA FC is the dominant game for all three of my boys.

Reynolds: Who's got the most game among your boys when it comes to video gaming soccer?

Berndes: I'd probably give Seb the edge, to be honest with you. That's probably because he spends more time playing EA FC rather than doing his schoolwork, so that's probably not a great thing.

Reynolds: There you go. Richard, there's some Kagan data about who's played e-soccer games in the past?

Berndes: The latest data is from the back end of last year, but what you're certainly seeing is with EA FC, it's got that European bias, which we would expect to be honest here. What we're seeing is in the last three months, FIFA was played by 10% of the US respondents, 33 percent in the UK, 38% in France, 30% in Italy, and 33% in Germany, and also 25% in China. So it is very dominant in the European market, EA FC as a game.

Reynolds: Neil, what's your thoughts there? Again, it makes sense in Europe. What about here in the States?

Barbour: Yeah, I think Richard is right that there is a European bias, but look, and he's also right that the EA soccer games are really consistent in terms of quality; they're the crown jewels of the EA portfolio. So they invest heavily in that. And so what it equates to is that even if the market has a passing interest, the game tends to do well there, which is not something that you can really say for a gridiron football game or baseball game. Yeah, they have a pretty good footprint globally.

Reynolds: Sticking with you, Neil here, let's turn to college football. EA's College Football 25, I think it was released in August. It's done really well, right?

Barbour: Yeah, they said they had 5 million unique players in the first week or so. Since there doesn't seem to be any subscription service carrying the game, I would say that's a pretty good proxy for units sold. Okay. It's remarkable considering that when we last saw a college football game a decade ago, sales would usually top out around one or 2 million units.

Reynolds: Really? Wow. I'm assuming most of that action is here in the US.

Barbour: Almost certainly. And I would also note that the game is only available on the newer consoles, which is unusual for software these days. So you can only get it on PS5 or an Xbox Series device. So this success reflects a really concentrated fan base.

Reynolds: Interesting. On pro American gridiron football, no disrespect Richard, pro football, another one from EA Sports, Madden NFL 25, it also got off to a pretty good start, right?

Barbour: Yeah, it does seem like the overall football fan base just keeps growing despite being already so huge, particularly in the U.S. That said, this sort of feels like the typical sales cadence for Madden. What would really be interesting to see is if college sports can maintain a yearly release rhythm like Madden has done for so long, what, 20, 30 years now.

Reynolds: Is there any traction for Madden outside the US, guys? Richard, is Madden played by your guys?

Berndes: Unfortunately, no, not in this household. What I did see in some of the trade press here is the new EA Sports Football 25 game was the highest new entry in the UK at number seven last month. So it's definitely something growing. I just think also the globalization of the big U.S. sports like the NFL and the NBA always has some international appeal with people like Kobe Bryant. So you never know; it could grow. And as you say, Mike, this NFL that's played in London sells out stadiums.

Reynolds: Going back now to NBA 2K, people on the cover, these are the stars of the game: Dame Lillard, Luka, Michael Jordan's in 23, the late great Kobe Bryant, you just alluded to Richard. This year, we got Jason Tatum of the world champion Celtics and A'ja Wilson, the leader of the two-time WNBA champion Las Vegas Aces. Neil, are there early returns from NBA 2K 2025? I think it came into the market in early September.

Barbour: Yeah, I don't know if I've seen any sales figures out in the market yet. I would assume they're doing pretty good sales up front; they usually do. These are pretty good cover athletes where you tend to see where NBA 2K as a success is down the road a little bit, where their in-game purchases start to reflect the strength of the league that year or how well they're able to monetize. There was a little bit of softness in years past. It feels like management is confident that they've straightened out how to really push the game as a live service over the long tail. But again, we'll know more about it later this year or early next year.

Reynolds: So A'ja Wilson, right? The WNBA is on a hot streak. Caitlin Clark, notwithstanding, maybe she should have been on the cover, but I'm assuming that'll be next year anyway. Neil, is that reflective of more women playing video games or again, just the growth of the WNBA?

Barbour: Yeah, we've had survey data in the past that indicates that women are engaged across multiple gaming platforms and in many cases just as much as men. And women are more recognizable sports icons than ever. So it makes sense to go ahead and start marketing with that angle in mind.

Reynolds: Richard, you mentioned globalization. There's more and more top-level players in the NBA from outside the U.S. than ever before. NBA 2K, your guys do that? Are you guys interested in the hoops over there in London?

Berndes: I'm sorry to say, not in this household. We're very much soccer-based. But again, as I say, I just think there is, given the global appeal of brands like the NBA and the NFL, I can see it growing in years to come as they get more exposure here in Europe and sort of APAC.

Reynolds: Okay. Hockey NHL 25. How do sales map out for this game, Neil?

Barbour: I think NHL is still a predominantly North America story, and sales bear out like that. This is a franchise that has never really taken hold in the way that Madden or NBA 2K has. Yeah, maybe that's an issue of finding a nationally recognizable star to put on a cover. Maybe the games themselves aren't up to quality in the same way that a Madden or FIFA or EA FC, which can get a consistent revenue stream driving new investments and bigger development costs. But you also have to recognize that NHL, by most accounts, has fewer fans, so there are fewer sales opportunities there.

Reynolds: Yeah, that makes total sense. How about baseball, Neil? MLB The Show. I'm assuming again in terms of the player composition, they're mostly from the States. There's some from Latin America; the biggest star is from Japan. How does that game do?

Barbour: Yes. Sony scooped up the exclusive rights to publish MLB simulation games in the PlayStation 3 era, going back a ways there, and it was a solid pillar in their exclusive game strategy for the U.S. But apparently, sales were less than what Major League Baseball was looking for because they have forced Sony to publish it across Microsoft consoles as well. At least that's apparently what happened. So if South American sales emerged, and that can be hard to track, in many cases, they haven't been enough to really deliver for Sony and maybe the way that they had initially envisioned that contract going.

Reynolds: Okay. All right. Want to turn our attention a bit to eSports. Richard, can you talk about the recent eSports World Cup competition, how it played out, and prizes?

Berndes: Yeah, sure. It was the first-ever eSports World Cup, and it was aimed at the professional teams here. Teams like Team Liquid, FaZe Clan, OG Esports, and Natus Vincere played. And it was some of the big titles games — Rocket League, Counter-Strike, Call of Duty, EA FC, and Dota 2. It was very much pushed by the Saudi elite. Crown Prince Mohammed bin Salman was promoting the event as part of the Saudi Vision 2030 to try and diversify the region's economy. It had a prize pool of $60 million. The team Falcon came out as the world champions. But what was interesting was the TV coverage or the broadcast coverage. Normally it's just on Twitch or YouTube, but you had DAZN Ltd. involved in it this year and also TikTok Inc., and also had Facebook and Star Sports were involved in as well. So there was a wider group of people showing the event, which was interesting to note.

Reynolds: So with the phrase World Cup, does that mean this is every four years or it's off to a really nice start? They're going to do this more often.

Berndes: I haven't seen anything in terms of whether it's going to be every year or every four years. I guess they were probably just going to test the market and see how it went. It's part of a massive commitment from the region in terms of, yeah, they were trying to make it, I think it's a $37.9 billion investment in the gaming sector in the region. So you can see them laying there on the market to try and develop this and take it deeper.

Reynolds: I gotcha. And the overall market for eSports, obviously, that's a broad question, but any sense you can give us for is it still growing in a big way?

Berndes: Yeah, I think it is. It's continued to grow. The global sports market was estimated at worth $187 billion in 2023. And in terms of some of the companies involved, Neil's mentioned Tencent, Sony, Apple Inc., Microsoft. So you've got some big companies involved in there. In terms of the biggest teams, Team Liquid over the last four or five years has earned something over $30 million in prize money. OG has cost $30 million. Team Spirit, $28.5 million. So that's not an insignificant amount of money. In terms of some of the biggest events, The International in 2021 had a prize fund of $40 million. So as you can see, eSports is growing. It's going somewhere, but I think it's probably the opportunities. How do you push it into the same scale as traditional sports in terms of getting that coverage?

Reynolds: Interesting. Neil, your thoughts?

Barbour: Yeah, I didn't watch these latest broadcasts, but I think Richard makes an interesting point of trying to push it to that next level, and I think maybe what's missing is a really outstanding television format. You know, I play these games. I'm familiar with many of the maps and the terms and general strategies, but when I watch them on TV, it's really tough to keep up. It's hard to follow, and without a solid TV presence, I think it will be tough to grow this market over the long term.

Reynolds: All right, guys, we're getting to the end here. Neil, if we move outside of the sports realm, what are some of the top video game releases that will be in the market before year-end?

Barbour: Yeah. Looking at a story of a few niche titles like College Football, Helldivers 2 earlier this year, those were good outperformers in the overall stack, but it's shaping up to be a slow year. There are indications that Ubisoft's Star Wars Outlaws, which was a big open-world Star Wars game that hadn't been done in quite that way in a long time or maybe ever, is underperforming or it isn't hitting its marks just yet. Perhaps it sees new life in the back half of the year as Christmas gifts, or they put more patches into the market and it becomes a better game, or they fix the issues it has. Sony has a new Astro Bot game out that's seemingly doing well. And then we're looking at some spin-offs from Zelda and Mario toward the end of the year. Nothing really changed our forecast of flat to down in terms of content.

Reynolds: I gotcha. Richard, would the guys be not okay with getting a video game at Christmas time?

Berndes: Yeah. They are very expensive. Here in the UK, you're looking at £60, £70 a title for a game, which is a lot of money. So yeah, for me, it would be a birthday present or a Christmas present, but my boys, because they like EA FC so much, they tend to save a bit of money up so they can buy EA FC as soon as it drops in September. So yeah, they make a point of putting some money aside rather than wait for a Christmas present.

Reynolds: That's good for dad. Neil, how about you? What's your sensibilities for that?

Barbour: I think hunting down hard-to-find new hardware is always a great Christmas or holiday tradition. I've been there. Yeah, yes, sir. I think we all have. I don't think there'll be a lot of demand for the PlayStation Pro at a $700 price tag. But I also expect Sony won't produce very many units, and it's an opening salvo. So I think we're going to hear a lot of stories of short supply and standing in lines or waiting online for just the right moment when it emerges on Amazon or something like that. Always a good holiday tradition.

Reynolds: I got you; that concludes this episode of Media Talk. I just wanted to thank Neil and Richard for spending a lot of time sharing their views and analysis. Appreciate it, Neil and Richard.

Berndes: Thanks, Mike. It's great to be here.

Reynolds: Thanks, Mike. All right. And I want to thank all of you for listening. This is Mike Reynolds. Catch up soon on the next episode of Media Talk.