What You Missed This Week in Video Games

Meta announces VR subscription service

“Game On” is The Fly’s weekly recap of the stories powering up or beating down video game stocks.

CIRCANA MAY NUMBERS: 

Circana analyst Mat Piscatella said that May 2023 U.S. consumer spending on video game content, hardware and accessories totaled $4.1B, a 12% increase when compared to a year ago. Spending gains were seen across Content, Hardware, and Accessories. Year-to-date consumer spending was flat when compared to the same period in 2022, at $21.8B. Spending on video game content grew 9% in May when compared to a year ago, reaching $3.6B. Console full game and add-on content spending increased 58% when compared to May 2022, offsetting declines across Mobile and PC. Video game hardware spending increased 56% vs YA, to $338M. This is the highest VG hardware spend for a May month since the $427M reached in May 2008. Double-digit percentage growth in both PlayStation 5 (SONY) and Switch (NTDOY) dollar sales again offset declines on other platforms. Year-to-date hardware spending is now 23% higher when compared to the same period in 2022, at $2.2B. Switch was the best-selling hardware platform in both unit and dollar sales during May 2023. Consumer spending on Switch hardware reached an all-time May high for the platform, while unit sales were 2nd highest ever for the platform in a May month, trailing only May 2020. PlayStation 5 continues to lead the 2023 hardware market across both units and dollars, Piscatella noted.

On the software side, the analyst said that spending on video game content grew 9% in the U.S. in May when compared to a year ago, reaching $3.6B. Console full game and add-on content spending increased 58% when compared to May 2022, offsetting declines across Mobile and PC. New physical video game software spending reached its highest May total since May 2014. Nintendo’s “The Legend of Zelda: Tears of the Kingdom” was the best-selling game of May 2023, instantly becoming the #2 best-selling title of 2023 year-to-date, despite only physical sales from Nintendo being included in the best-selling titles charts. “The Legend of Zelda: Breath of the Wild” returned to the top 20 monthly chart in May, placing 13th after finishing April at #28. Other top-selling premium games for the month of May in the U.S. were Warner Bros. Interactive’s (WBD) “Hogwarts Legacy,” Electronic Arts’ (EA) “Star Wars Jedi: Survivor,” Embracer’s (THQQF) “Dead Island 2,” Activision Blizzard’s (ATVI) “Call of Duty: Modern Warfare 2,” and Sony’s “MLB The Show 23.”

MICROSOFT/ACTIVISION: 

Late last week, a court hearing over Microsoft’s (MSFT) proposed takeover of Activision Blizzard began, with the Xbox maker telling Judge Jacqueline Scott Corley that if she grants a preliminary injunction, which was requested by the FTC, that would delay the closing of the deal, the New York Times reported. This is going to decide whether the deal goes forward,” said Beth Wilkinson, Microsoft’s lead attorney, who added that a loss in the case could force the company into a “three-year administrative nightmare” that would tank the transaction.

Meanwhile, it was mentioned during the hearing, according to The Verge, that Microsoft has agreed to lower revenue splits than its typical 70%/30% arrangement for certain Xbox games. The FTC’s counsel accidentally brought up the 80%/20% split while questioning Xbox’s Sarah Bond, with The Verge’s Tom Warren noting that the Xbox maker is agreeing to the lower revenue split where it believes it was “critical to get that content.”

Other highlights from the court hearing, all according to The Verge’s Tom Warren, include:

• Wilkinson revealed an email from Sony’s PlayStation boss Jim Ryan saying he didn’t really believe Activision’s “Call of Duty” franchise would become an Xbox console exclusive.
• Microsoft had considered buying Sega (SGAMY) or Bungie to bolster Game Pass, according to a November 2020 email.
• According to an internal email exchange between Xbox boss Phil Spencer and Xbox CFO Tim Stuart in December 2020, the company has been largely sacrificing potential Xbox Series X/S sales growth in favor of greater investment in cloud and gaming content.
• Matt Booty, Microsoft’s head of Xbox Game Studios, had encouraged Stuart to spend large amounts of money on buying game content in 2019 to set the company up to battle Sony in subscriptions, with Booty suggesting Xbox could “spend Sony out of business.”

META VR SUBSCRIPTION: 

In a blog post earlier this week, Meta (META) announced it is launching VR subscription service Meta Quest+. “Whether you’re a seasoned VR gamer or new to the medium, it can be hard to know where to start when exploring the Meta Quest catalog,” the company said. “Luckily, we’re combining curation and convenience to make things a little easier. Now you can browse less and play more with Meta Quest+, your new VR subscription service. For just $7.99 USD per month or $59.99 USD annually, you’ll get access to two hand-picked VR titles every month. And when you sign up now through July 31, you’ll get your first month for $1 USD. With a combination of VR’s biggest hits, hidden gems, and back-catalog classics, this is the most affordable way to grow your library with killer content…On the first of each month, you’ll get two titles to redeem, enjoy, and master. First up, we’re pairing Cloudhead Games’ physical action-rhythm FPS Pistol Whip with the nostalgia-fueled arcade adventure Pixel Ripped 1995 from ARVORE Immersive Experiences. And for August, you can look forward to a uniquely compelling social VR experience in Mighty Coconut’s Walkabout Mini Golf and some frantic weapon-crafting and shooter action in MOTHERGUNSHIP: FORGE from Terrible Posture Games…Meta Quest+ is available for all owners of Quest 2 and Quest Pro headsets, and the service is forward-compatible with Quest 3.”

Following the announcement, BofA analyst Justin Post reiterated a Buy rating and $320 price target on Meta. He said that the Quest+ service is “modestly priced,” but given the limited number of VR gaming and Quest users, he doesn’t expect any material revenue impact over the next few years. The analyst said he believes the biggest issue with the Metaverse has been lack of compelling content or a “killer app,” adding that while daily active user data isn’t disclosed, he would imagine usage levels are below Meta’s expectations. Meanwhile, BofA analyst Omar Dessouky last week said the firm regards Roblox (RBLX) as the leader in defining what “Metaverse” means from a commercial perspective, as any number of innovations could move the stock.

Click here to check out recent Media Buzz Sentiment on Meta Platforms as measured by TipRanks.

OTHER STORIES TO WATCH:

• Electronic Arts last week announced a reorganization of studios into two organizations that report to CEO Andrew Wilson, namely EA Entertainment and EA SPORTS [read more]
• Square Enix’s (SQNXF) “Final Fantasy 16” debuted in first place in the U.K.’s physical game charts, Gamesindustry.biz reports [read more]
• At a Direct presentation last week, Nintendo announced that “Super Mario Bros. Wonder” and a remake of “Super Mario RPG” will be coming to Switch on October 20 and November 17, respectively [read more]
• Microsoft told The Verge it is raising prices of Xbox Series X consoles in many countries and is increasing prices for its Game Pass service [read more]

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Originally Posted June