Videogame Industry Banks on Distant Coming Attractions

‘Grand Theft Auto VI’ would be the franchise’s first sequel in over a decade. PHOTO: CHRIS DELMAS/AGENCE FRANCE-PRESSE/GETTY IMAGES
‘Grand Theft Auto VI’ would be the franchise’s first sequel in over a decade. PHOTO: CHRIS DELMAS/AGENCE FRANCE-PRESSE/GETTY IMAGES

Summary

New Switch console and ‘Grand Theft Auto VI’ are on the horizon, but big game publishers Electronic Arts and Take-Two are expected to see only modest growth this year.

 Videogamers aren’t exactly known for their patience. They have little choice at the moment, and neither do investors in the industry.

Major videogame developments are on the horizon. Rockstar Games finally confirmed in December that it is working on “Grand Theft Auto VI," which would be the first sequel to its blockbuster franchise in more than a decade and follows a predecessor that is now ranked as the third bestselling individual game ever.

Nintendo is widely believed to be working on a successor to its Switch console, which has sold more than 139 million units to become the company’s second-bestselling console ever, surpassing the mega-popular Wii.

And just this past week, Disney made a $1.5 billion investment in Epic Games. That deal will lead to the creation of “an all-new games and entertainment universe" connected to Epic’s popular“Fortnite" game, the companies said in their joint statement. And Microsoft now owns Activision Blizzard, which paves the way for blockbuster franchises such as Call of Duty to be distributed through subscription-based services that could lower the entry price for players and help upend the industry’s long-established business model of selling such games on a per-unit basis.

None of these next big things are on the near-term horizon though. And the outlook for much of the industry for this year is muted at best. Electronic Arts and Take-Two Interactive, the two largest independent publishers left in the business after Microsoft’s takeover of Activision, are expected to see low-to-mid single-digit growth in net bookings for calendar 2024, according to consensus projections from FactSet. Both are decelerations from the net bookings growth logged by the two publishers for 2023.

Graphic: WSJ
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Graphic: WSJ

As a result, both are now trying to get investors to focus further down the road. In its fiscal third-quarter call on Jan. 30, EA Chief Financial Officer Stuart Canfield warned of a “lighter release slate year" for the fiscal year ending in March 2025, but added that net bookings growth will accelerate over the couple of years beyond that, helped in part by new releases from the company’s popular Battlefield and Sims franchises.

And in its own fiscal third-quarter call on Thursday, Take-Two lowered its net bookings forecast for the current fiscal year due in part to a delayed game release, while also noting that it now expects net bookings for the fiscal year ending March 2025 to be “a little above" $7 billion—effectively $1 billion lower than the projection the company was giving six months ago. Take-Two owns Rockstar and thus controls the Grand Theft Auto franchise, and the move had analysts speculating whether the new sequel will release later in the calendar year compared with the March-quarter launch many had been anticipating. Take-Two’s shares slid nearly 9% on Friday following the report.

There remains little doubt that “Grand Theft Auto VI" will be a huge hit whenever it comes out. And the well-regarded Battlefield franchise will also be overdue for a strong sequel. The last one hit in 2021 and generated disappointing sales because of mixed reviews and technical issues at the launch. But the prospect of a lackluster year ahead has diminished investor enthusiasm; Take-Two and EA shares are up only 6% and 7%, respectively, over the past three months, badly lagging behind the S&P 500 and Nasdaq Composite.

A new Switch console from Nintendo could be a nearer-term prospect. The company has given no official indication of a launch or how the new device will be designed. But the first one turns seven years old next month, which is a longer span than Nintendo has gone between its last four home-console launches. Investors seem convinced it is on the horizon; Nintendo shares have jumped 22% over the past three months, handily outperforming other game publishers and even rival console maker Sony.

The rub there is that Nintendo consoles tend to disproportionately benefit Nintendo’s own games; only three of the top-20-selling games in the U.S. for the Switch in 2023 were non-Nintendo titles, according to data from market research firm Circana that covered the year through November. That could limit the halo effect a new Switch could cast on the overall game sector. But for players, it could provide a nice alternative to the industry’s current waiting game.

Write to Dan Gallagher at dan.gallagher@wsj.com

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