The booming video game sales of the early pandemic are fading, and major publisher Activision Blizzard is struggling to make up the difference with a business strategy that focuses more on reboots and microtransactions than putting out new triple-A titles. 

The Santa Monica-based company on Monday reported $1.6 billion in adjusted revenue in the second quarter, which is down from $2.3 billion in the same quarter last year. 

Behind the drop is "lower engagement" with the company's top-selling franchise, Call of Duty, according to the earnings report. The latest entry in the first-person shooter (FPS) series, Call of Duty: Vanguard, came out last fall to mostly negative reviews and some serious competition from other popular FPS titles such as Halo and Battlefield.  

Making matters worse is a broader decline in demand for video games. U.S. consumer spending on "video game hardware, content, and accessories" is projected to decline 8.7 percent from 2021, according to the market research company NPD Group. In another sign of a downturn, Microsoft, which is in the process of acquiring Activision Blizzard for a whopping $68.7 billion, saw gaming revenue decrease 7 percent this quarter. 

This has left Activision Blizzard with a major hole in its revenue stream and filling that hole has proven difficult with only a limited number of triple-A titles in the pipeline for the rest of the year. Mat Piscatella, an analyst for NPD Group, wrote in a recent report that a "lighter release slate of games" was one of the drivers for the softening demand. 

Movie studios offer a good comparison. Increasingly, significant amounts of money and resources are poured into just a handful of tentpole movies per year, which then bring in the lion's share of box office sales, and thus revenue, for the major studios. If one of those major releases is a flop, that immediately has a sizeable impact on a studio's bottom line.

Many large video game publishers are similar: They rely on a relatively small number of big-budget games to bring in the bulk of their revenue, and at Activision Blizzard, there's a deficit of such games. Highly-anticipated titles such as Diablo IV and Overwatch 2, for instance, have faced numerous delays, and are not due for full releases until 2023. 

These delays have occurred against a backdrop of tension between the company and its employees. Quality assurance testers at Raven Software, an Activision Blizzard subsidiary based in Wisconsin that mostly works on Call of Duty games, voted to unionize back in May, and one of the workers' biggest concerns was the long hours that are often forced on them in the final stage of game development known as "crunch." 

Production issues also explain why Activision Blizzard bought the Boston-based studio Proletariat, which it said will help staff up the team working on the World of Warcraft franchise. The company noted that it increased its development headcount by 25 percent year-over-year, despite a slew of layoffs and hiring freezes across the tech and video game industries. 

While the company is attempting to address its production issues through acquisitions and hiring, for the moment, it's more dependent on reboots to fill in the release calendar. 

An updated version of Call of Duty: Modern Warfare II, for example, is due out in October. That game, based on the 2009 bestseller, is the closest thing the company has to a major release for the rest of the year. Other releases include Wrath of the Lich King Classic, an updated version of a World of Warcraft expansion pack that came out in 2008. 

One bright spot is mobile and microtransactions. Diablo Immortal, a mobile version of the popular fantasy game, has surpassed $100 million in player spending, according to a report from Sensor Tower Store Intelligence — though the company itself didn't include revenue numbers from the game, which came out in June, in its latest earnings report. 

In addition, Activision Blizzard's King division, which is behind the hit mobile game Candy Crush, saw in-game bookings jump 6 percent year-over-year this quarter. Mobile is also the only platform to see higher net revenue this quarter than in 2021. The others, including console and PC segments, came in around half of their 2021 levels. 

Another major publisher, EA, is set to release earnings after the bell on Tuesday, which could provide more evidence of video games' rough 2022, or it could show how a greater focus on mobile and microtransactions is increasingly paying dividends. 

EA gets the majority of its revenue from what is called live service games, or games where players are encouraged to engage with, and ultimately spend money on, the same game. In that sense, it's sort of ahead of the curve when it comes to relying more on microtransactions rather than a busy release schedule of expensive triple-A games.