2025 was supposed to be a big year for gaming. Tariffs could derail that.
The gaming industry was supposed to get a boost in 2025 thanks to the launch of Nintendo's (NTDOY) Switch 2 console and Take-Two Interactive's (TTWO) "Grand Theft Auto VI," but the Trump administration's trade war could put those hopes in jeopardy.
Unlike smartphones and laptops, game consoles, physical game discs and cartridges, and accessories aren't exempt from Trump's 145% duty on goods from China. And while companies have manufacturing bases outside of China, it won't be enough to offset the impact in its entirety.
Some companies are already taking moves to protect themselves from tariffs. Nintendo, for instance, pulled US preorders for the Switch 2 just a day after announcing them over tariff concerns. While the company said the console will still be available on its original June 5 release date, there's a chance the company will have to raise its price from an already high $449. And that could seriously hurt the US gaming industry.
Read more: The latest news and updates on Trump's tariffs
"Entering the year, I had expected US consumer spending on video games to grow 4.8% compared to 2024," explained Circana executive director of games Mat Piscatella.
"Were all currently announced tariffs fully implemented ... a reasonable expectation could be a high single-digit percentage decline or a drop into the double-digit percentages. It's simply impossible to have much confidence in any forecast right now," he added.
Modern consoles like Sony's (SONY) PlayStation 5, Microsoft's (MSFT) Xbox Series X, and the upcoming Switch 2 generally cost between $400 and $500, with Sony's PlayStation 5 Pro priced at $699 and some bundles topping $999. Tack on the additional duties and those prices could rise significantly.
"As prices go up, demand falls. Once you start getting [tariffs] up 10%, 20%, 30%, 40%, or higher, [game companies are] simply not going to be able to absorb it," IDC research director Lewis Ward told Yahoo Finance.
"They're going to have to pass it on in order to remain solvent. Or it's going to materially erode or push the margins on their hardware much more negative than they had planned. And these companies simply aren't interested in doing that."
For Nintendo, the tariffs come at the worst possible time. The company is launching a new console that it hopes will be as successful as its original Switch, a tall task on its own, and adding in the tariffs will only make selling the console more difficult in one of the company's biggest markets.
According to Wedbush Securities managing director Michael Pachter, Nintendo may have to add anywhere between an additional $89 and $495, depending on whether the consoles are coming from China or Vietnam and if Trump adds game systems to the existing exemptions list.
Even if consoles are exempt from Trump's reciprocal tariffs, like smartphones or laptops, the administration has already signaled that the reprieve on duties is only temporary and that it will impose other fees on those devices as part of its future tariffs on semiconductors, which could land in the coming weeks.
The gaming industry will also have to contend with a potential rise in costs for everyday goods, forcing consumers to cut back on discretionary spending. Toss in tariff-fueled price increases and game systems look less and less palatable.
Then there are actual game sales. Physical discs are produced in China, among other locations, and a jump in prices may mean fewer physical game sales. That could be a problem for companies like Take-Two Interactive, which is banking on its "Grand Theft Auto VI" being a blowout success when it's released later this year.
Consumers could also, however, opt to download their games rather than purchase discs or cartridges. Since they're digital rather than physical media, the downloaded games won't be subject to tariffs, meaning they could be comparatively less expensive.
But downloadable games aren't perfect. Consumers need to ensure they have the storage space necessary to download those games. What's more, game developers and publishers often release pricey special-edition versions of their titles with additional features and collectables. Tariffs would make them even more expensive and less desirable.
Gamers could also move toward free-to-play games, like "Fortnite," "Call of Duty Warzone," and "Roblox," which you can download and play without having to pay a fee.
Companies release free-to-play games and then offer optional paid upgrades, like special character designs. But there's no guarantee gamers will pay for even those features when they're trying to save money.
There's still some hope for the industry, though. While consoles imported into the US face tariffs, those imported into the EU, South America, the Middle East, Africa, or Asia won't face the same onerous duties. And if sales hold up as projected in those regions, they could stand as a bulwark that keeps the industry on track for a decent year.
It all comes down to Trump's plans.
Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.
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