The growing threat of the coronavirus could have serious effects on the video game sector, with millions of gamers facing potential delays to get their hands on new products.
The spread of the virus – which has killed more than 600 people, restricted travel, closed workplaces and caused the evacuation of foreign nationals from Wuhan in China – may impact video game hardware and software development.
Many Western studios rely on operations in China to provide art and 3D modelling work in their games. EA, Ubisoft, Activision and Take-Two, for example, all have studios in China that provide services and aid in the development of their triple-A titles.
"We estimate that a third to a half of art creation for the western video games sector could be carried out in China," states equity research group Jeffries, in a report sent out examining the impact coronavirus could have on the sector.
"Chinese studios were already on lunar new year holidays, now typically extended, and travel restrictions may prevent staff from returning to work," the report continues.
Jeffries states clearly that weeks of delays to workflow can be caught up, but months cannot.
The firm notes how remote working is largely impeded by security requirements and software tools in this sector, and that prolonged closure of offices could mean delays for games scheduled for release as far away as Q1 2021.
We're already starting to see the impact that coronavirus is having on the videogame sector, too, with Nintendo announcing that Nintendo Switch shipments to Japan have had to be delayed because of the outbreak of the virus.
"Due to the effect of the current coronavirus outbreak, delays in the production and shipment of Nintendo Switch consoles, Joy-Con, and other accessories has become unavoidable. Likewise, the currently under-stocked Ring Fit Adventure will also face shipment delays," said Nintendo announced earlier this week.
"We are very sorry to our customers for the trouble. We will continue to monitor effects of the coronavirus outbreak and work to deliver our products as soon as possible. Thank you for your understanding."
The company has not given us any indication of when it thinks business will continue to operate as normal.
According to industry analyst Daniel Ahmad, 96% of video game consoles imported into the U.S. in 2018 were produced in China, and though Nintendo may be slowly moving away from relying on mainland China for all its manufacturing needs, China still accounts for the majority of consoles production.
Video gaming isn't the only industry that's being affected, either.
Earlier this week, we saw LG pull out of the Mobile World Congress, citing coronavirus as a massive risk factor.
"With the safety of its employees, partners, and customers foremost in mind, LG has decided to withdraw from exhibiting and participating in MWC 2020 later this month in Barcelona, Spain," LG announced in a press release.
Instead, the company will make any announcements it had planned for the show in separate events due to take place on later dates, which have yet to be revealed.
We're also seeing reports that the manufacture of LCD panels for TVs and PCs could be impacted by the spread of the virus, according to research firm IHS Markit (via PCMag).
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The firm is forecasts a 10% to 20% drop in China's LCD output next month – noting that over half the world's manufacture of displays comes from mainland China.
"These factories are facing shortages of both labor and key components as a result of mandates designed to limit the contagion's spread," David Hsieh, IHS Markit senior director, said in a Friday research note.
"In the face of these challenges, top display suppliers in China have informed our experts that a near-term production decline is unavoidable."
It stands to reason, then, that even more companies with operations based in China will be hit by the outbreak of the virus. Jeffries warns that the supply chain for next-gen consoles may also be affected.
"The video game sector is currently manufacturing, or beginning to, a once-in-several-years' product generation change for the 2020 holiday season," notes Jeffries.
"If key supply chain participants in the PS5 or Xbox Series X were significantly disrupted, limited inventory for the launch window would be a bigger problem if it led to some games being delayed by a quarter.
"Given marketing, competition and synchronised game release all scheduled for the next console generations, this bears watching."
We'll keep you updated as more news on coronavirus in relation to the video games industry breaks.