Trends, Expectations, Reality for Games and TV

Tech giant Microsoft will reportedly shed 2.1 percent of its workforce. Xbox, Microsoft’s gaming division, is taking the hardest hit, with 1,600 employees facing immediate layoffs. Contributing factors include lower margins compared with competitors, high costs, and growth that has fallen short of expectations — all within a sector that is also grappling with a hardware crisis.

The global video game sector has been reacting to slowing growth following a period of expansion that, in Microsoft’s case, included the acquisition of game-production companies to increase subscriptions to its Game Pass service. Those subscriptions were expected to reach 77 million in 2026. But, the number is hovering at about 30 million.

However, according to Singapore- and Tokyo-based Serkan Toto (pictured above), CEO of game-industry consultancy Kantan Games, declining console sales do not necessarily affect the business of licensing intellectual property (IP) rights. A former American studio gaming executive who asked not to be named likewise said that stalled hardware growth is not reducing sales of gaming IP rights.

“Console sales have been largely flat for years now, [and] the industry expects reduced sales going forward due to factors such as tariffs or rising component prices,” said Toto. “If this becomes reality over the next few years, the potential for doing business around console IPs will go down gradually over time, too.”

In a recent interview with Sony CEO Hiroki Totoki, The Wall Street Journal reported that Sony’s shares were down 2.5 percent over the previous year, citing rising memory-chip costs and shortages caused by demand from the artificial intelligence sector, which are affecting the broader entertainment and gaming industries. The memory-chip shortage has also reportedly delayed the release of Sony’s PlayStation 6, and the company has not announced a launch date for the PS6.

The Italian financial daily Milano Finanza reported that, over the previous six months, all eight of Japan’s “big eight” video game companies had recorded declines on the Tokyo Stock Exchange: Nintendo, Sony Corp., Koei Tecmo, Konami, Capcom, Square Enix, Bandai Namco, and Sega Sammy Holdings.

Milano Finanza also reported that, in Europe, Sony had increased the price of its console by €100, with prices reaching as much as €650. Meanwhile, the price of Nintendo’s Switch 2 console has reportedly increased in the U.S. since September, from $450 to $500.

Meanwhile, Chinese company Alibaba is selling its video game business, Lingxi Games, to Hong Kong-based private-equity firm Trustar Capital for a reported $1.5 billion.

Despite all of this, the total worldwide annual value of IP rights for video games is not expected to diminish. Said Toto: “There is no universally accepted or well-researched figure,” but he estimated this IP value to be U.S. $10+ billion per year.

There are 10 top video game studios around the globe: Tencent (China), Sony Interactive Entertainment (Japan and the U.S.), Microsoft Gaming (U.S.), NetEase Games (China), Nintendo (Japan), Electronic Arts (U.S.), Valve (U.S.), Epic Games (U.S.), Take-Two Interactive (U.S.), and HoYoverse (China).

There are only three major video game console manufacturers. Toto ranks Sony as number one with its PlayStation, followed by Microsoft’s Xbox and, lastly, Nintendo.

The video game business model is straightforward. “IP holders typically sell their IP to game companies for a so-called ‘MG’ (minimum guarantee), a lump sum that is charged upfront and can go into the millions,” said Toto. “This is accompanied by a revenue-share agreement, with the economics heavily depending on the popularity of the IP (often 10–30 percent).”

As for the typical window for IP rights, Toto explained: “For video games (boxed goods), the window closes once the studio stops selling the game in question (up to 10+ years). For mobile games, the window closes once the studio ceases the service (typically after years).”

As for gaming studios that also produce and sell IP rights to third parties, Toto said that “typically, these companies keep their IP rights close to their chests.” However, he noted that there are exceptions.

“Even Nintendo occasionally provides top IP to third parties if the deal makes sense for them,” he said. “An example is how France’s biggest studio, Ubisoft, was allowed to use the Mario IP in an action-adventure game called Mario + Rabbids in 2017.”

“In recent years, a big trend is how Sony and Microsoft have been going to Hollywood. Sony sold IP rights for The Last of Us to HBO and God of War to Amazon, for example; Microsoft sold IP rights for Fallout to Amazon and Halo to Paramount+; Nintendo produced two Mario movies already, and another one based on its top IP, Zelda, is coming in 2027.

“All three companies also license their IPs to consumer brands, such as LEGO and Levi’s, as well as to various theme parks,” he said.

The Last of Us is Sony’s post-apocalyptic television drama inspired by a video game. God of War is a video game series that follows a Spartan warrior in his battles with the Greek gods and that Sony has adapted for television. In November, the New York City-based Rockstar (a subsidiary of Take-Two) is producing and releasing the sixth installment of the videogame series Grand Theft Auto, playable on Sony’s PS5 and Xbox.

In the Journal interview, Sony’s Hiroki Totoki reported that more than two-thirds of Sony’s annual revenue came from motion pictures, music, and video games, with franchises such as Spider-Man and Jumanji. A key strategy is turning successful video games into movies and TV shows. Totoki also said that Sony is looking for ways to integrate gaming and anime.

As for the general TV genres that are more suitable for video games, Toto considers the top genres to be action, fantasy, sci-fi, anime, or even horror. “But,” he warned, “what does not work at all in gaming is comedy as a genre.”

Finally, in terms of the world’s top 10 video game territories, Toto lists the U.S. as the number one market, followed by China, Japan, South Korea, Germany, the U.K., France, Canada, Brazil, and Australia, in that order.

(By Dom Serafini)