From a smoother semiconductor supply chain to more retailers having PlayStation 5s in stock — a gaming console that was nearly impossible to find last Christmas — market conditions would suggest brisk video game sales this holiday. But manufacturers and gaming developers suspect otherwise, a turn of events that would push the pause button on the industry's robust growth.

Major video game producers like Sony Group, Electronic Arts, Take-Two Interactive and Nvidia Corporation among others believe video game sales will be short of initial projections in the fourth quarter, according to earnings announcements obtained by The Wall Street Journal.

Hiroki Totoki, finance chief for Sony, noted in a recent earnings call that the pull back in consumer demand has clearly affected discretionary spending patterns. While Sony PlayStation 5s are more plentiful, Totoki pointed out that owners are either using the games they already have or aren't buying as many titles to complement their new purchases.

When it comes to gift wish lists — both for children as well as adults — video games are a perennial list topper. Among the toys most sought after by boys in Prosper Insights & Analytics' Annual Holiday Consumer Survey, video game-related merchandise made up three of the top 10 (PlayStation, video games and Xbox). And during the pandemic, when millions of people were stuck at home due to lockdowns and office closures, video game manufacturers and retailers saw record profits.

Gaming companies say demand is down for many of their major titles.Gaming companies say demand is down for many of their major titles.

Video games sales globally poised to dip 4%
But higher prices on essentials like gasoline, food, home heating oil and other needs have had a trickle down effect on the gaming industry. Indeed, by the time 2022 concludes, consumer spending on video games worldwide is expected to be down more than 4% from 2021, The Wall Street Journal reported, citing estimates from Newzoo BV.

Michael Pachter, an analyst at Wedbush Securities, told the Journal that in theory, the gaming industry is recession proof. If people are out of work, as is often the case during typical recessions, they often fill hours with screen time on handheld or traditional gaming devices. But the fact that the unemployment rate remains as low as it is keeps consumers engaged in their work. It also makes this recession an unusual one — if it's one at all.

Inflation is also affecting how people will go about their holiday shopping, or at least has that potential should prices continue to edge higher. In a poll of 4,000 respondents conducted by PricewaterhouseCoopers, more than half (53%) said inflation would impact their holiday spending activity. The costs of transportation, utilities, housing and reduced disposable income were also cited as catalysts for how they'll approach the gifting season.

Higher asking prices on the part of gaming console developers may also be adversely affecting sales volume. Sony Group announced in August it would start selling PlayStation 5's for more, including in select markets within Asia, Europe, Latin America and North America, The Wall Street Journal reported. Sales for the console have since slowed, although they were down even before the price hike.

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