Guest post by Kevin Baxpehler, Managing Partner at Remagine Ventures
Yes, the title is “click-bait” but there is some truth to it, bear with me.
Computer gaming has been around for decades and there are some interesting articles about the history of gaming, e.g. here or here. What I want to highlight is the more recent growth of the gaming industry, its way to world domination and how it crosses geographies, societies, age, demographics and industries.
It’s not the size, it’s what you do with it
Newzoo estimates the global games market revenue at approximately $150 Billion in 2019, across all platforms, devices etc. This makes the gaming market already much bigger than the movie or music industries combined. According to Statista, the Music industry generated around $56 Billion in revenue in 2019, and movies generated record of $42.5 Billion in 2019.
Much of the growth in gaming, is driven by mobile gaming, which generated $68.2 Billion in revenues in 2019. Within mobile gaming, the popularity of Battle Royale Games (such as Clash of Clans, Fortnite, PubG and Call of Duty), has exploded. Hyper casual games, which generated over $2 Billion in 2019 and massive user attention, are seeing fierce competition and CPIs (cost per install) are increasing as a result. While the industry is fragmented, few large companies control the top of the charts: Tencent has the top two spots, followed by SuperCell, King and Roblox. PubG alone has generated over $1 Billion in revenues in 2019.
Popular games like the Lineage IP, released by NCSoft in 1998, has generated over $4 Billion in revenue over its lifetime, most of it driven by its mobile version. According to MarketWatch, GTA has generated over $6 Billion in total sales since its release in 2013, which makes it the top grossing entertainment title in history. As a comparison, Avengers and Avatar have grossed about $2.75 Billion so far.
In context, TV is still a much bigger market with over $260 Billion in global revenues generated in 2019, but subscriber growth is slowing or even decreasing, in various geographies. New entrants with seemingly endless amounts of cash are creating strong competitive pressures (think Amazon, Netflix, Apple) forcing incumbents to change their business models (e.g. Disney, CBS, HBT go DTC), acquire each other and go global. With all that said, if you believe that entertainment will become much more engaging, interactive and immersive – then the future belongs to gaming & related activities.
The top 10 free-to-play games are already generating over $1 Billion in revenues each according to SuperData. Leading the pack is Fortnite with an estimated $1.8 Billion in revenues in 2019. But Candy Crush, League of Legends, Honour of Kings and Dungeon Fighter Online all have grossed $1.5 Billion during the same period. These are remarkable numbers for games users can play for free. Some of these games have been around for years, or even a decade (LoL).
Key drivers for the growth of gaming
There are several key drivers giving games an edge today vs. a decade ago:
- Critical mass – global scale/appeal. There are an estimated 2.5bn gamers worldwide.
- Social – its not just FPS (First Person Shooter) games anymore. MOBA games have become very popular, casual & hyper casual, so have social shooter games like Fortnite or COD.
- Gaming is adding new layers – you don’t have to play to participate anymore but you can also just watch and ”lean back” or “experience” it yourself at the Void.
- eSports going mainstream – esports has been around for a while, especially in Asia (Korea in particular), but in the past few years has become very popular around the world, attracting bigger prize pools for tournaments, live coverage, new teams & leagues, sponsorship deals including from non-endemic brands, college scholarships & social status at schools etc.
- New technology – games today are by default much more technological & data driven and thus more open to innovation.
Games are therefore much better positioned to be immersive, interactive and engaging. This goes to the heart of the metaverse theory, which Matthew Ball has explained very well (must read if you are not familiar with it). The point is, that a game like Fortnite is not just a game but where users meet socially, to play, talk, purchase skins, go to a concert or watch a movie trailer before anyone else can.
This is not new either. Second Life has been around since 2003, has over 30m registered users of which about 500k are active monthly. Alas, it has not become mainstream, doesn’t have tournament prize pools of $30m, millions watching and generally speaking is not considered “cool” in high-school.
Hype vs. Reality
At this point I would like to emphasize that there is a lot of hype around gaming and esports in particular. I am well aware of that and very often I find a lot of viewer statistics and comparisons of live video streaming questionable. Big numbers are often thrown around, whether hours watched on youtube (50 Billion hours of gaming watched in 2018), Twitch’s daily viewership (15 Million) or “esports is bigger than (fill-in whatever sport you want). These numbers are often misleading, as we are comparing apples to oranges across different time periods. One would have to compare a specific game, e.g. LoL, to a specific sport or look at concurrent viewers. Cricket supposedly also has a global fan base of 2.5 Billion. That said, what these numbers help illustrate is the tremendous potential of gaming becoming bigger and bigger. Gaming today is already in 2nd place when it comes to media activities among teenagers, according to a recent study by common sense media:
Its not just teenagers playing and watching, but lots of millennials as well. According to a 2019 report released by the Entertainment Software Association, the average age of gamers is around 33 years old, 65% of Americans play video games, over 50% of gamers are college educated AND 46% are female!
Crossover between gaming and other industries
Another very important driver is that gaming is not just crossing into the mainstream, demographics & professional sports, but also into various different industries. In-terms of real-estate we are seeing esport specific stadiums being built and LBEs such as the Void popping up in lots of places. In the world of fashion we are seeing luxury brands like Louis Vuitton partnering with LoL to create a skin collection but also be inspired by game characters to create a real-world fashion items. This shouldn’t come as a surprise, as buying & selling skins is how Fortnite, PubG and others generate a lot of their revenue. In the world of HR the hope is that gaming will help keep employees engaged and provide new analytical tools. I expect the world of recruiting to change…who wants to write, edit and submit a boring resume, conduct an online video call and in-person tests & screenings if you could just play a few different games and learn much more about a candidate? Education is another industry prone to be disrupted by gaming. Our tablets are filled with educational games for kids but we expect this trend to move into more professional, career specific, training and educational programs as well.
What’s next?
If you buy into the Metaverse theory, our virtual and physical worlds will merge together. The time we spend online per day is already staggering. 28% of Americans say that they are almost constantly online. “New” infrastructure such as Fortnite’s unreal engine or Unity will become a critical technology enabler for many companies across different sectors. The constant competitive nature of the GPU market, 5G being rolled-out, cloud-gaming possibilities and startups already building virtual worlds & storytelling like Fable Studios, Brud (creators of Lil Miquela), Klang or our own investment into HourOne as well as Novos & Madskil – are all part of that thesis. While most industry experts, including Aryeh Bourkoff, founder and CEO of LionTree LLC, expect M&A activity to slow down, I would not be surprised if the remaining giants (Viacomm/CBS, Disney, AT&T, Apple, Google, Facebook, Amazon etc) will start buying gaming companies. Facebook recently acquired Sanzaru Games, Google acquired Typhoon Studios, and the trend is likely to continue. Or will the US entertainment giants leave the gaming sector to Tencent and Bytedance…..?
As gaming is becoming more social, commercial, entertaining, engaging & immersive, driven by influencers & professionals, data-driven and crossing multiple industries – we at Remagine Ventures get very excited about the future of entertainment. If you’re building something in this space, come talk to us! To get the latest news and join our next event, sign up to our newsletter.
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