eBusiness Weekly
The global video game industry is thriving, despite the widespread economic disruption caused by the coronavirus. With the practice of social distancing reducing consumer and business activity to a minimum, gaming offers an engaging distraction for people at home looking for social interaction, and initial data shows huge growth in playing time and sales since the lockdowns began.
The gaming business model
The global video game market is forecast to be worth $159 billion in 2020, around four times box office revenues ($43 billion in 2019) and almost three times music industry revenues ($57 billion in 2019). The biggest market by revenue is Asia-Pacific with almost 50 percent of the games market by value. North America accounts for a quarter of revenue.
Gaming revenues are almost entirely driven by consumer spending, but the business model has evolved significantly in recent years. Consumers today buy fewer games than previous decades, but spend more time with those games, shifting the business model from single-unit to recurring revenue generated from a base of active users.
As a result, the industry is laser-focused on increasing engagement per user. Aside from making video games as compelling as possible, the strategy for doing so has been the adoption of in-game monetization opportunities.
This additional downloadable content (DLC) can include expansion packs, new features, tools and characters, and “loot boxes”, which are effectively a lottery of virtual items.
This business model has come in tandem with improvements to gaming hardware, bandwidth and mobile internet, which have made high-quality games more accessible across devices and platforms. Indeed, close to half (48 percent) of the industry’s revenue now comes from mobile gaming.
A separate part of gaming is esports, which refers to organised, multiplayer video game competitions. This sector is forecast to grow to just over $1 billion in 2020. Business models in esports closely follow professional sports — though competitions are far more fragmented — with the majority of revenue coming from advertising and broadcasting.
Although relatively small in comparison with the overall gaming market, esports is relevant here because it appears connected to the continued growth of gaming.
Covid-19 has boosted engagement with video games, but has complicated hardware and software development
Like many companies, the gaming industry is supporting community initiatives to mitigate the effects of Covid-19. These include charitable pledges worth millions of dollars, the donation of surplus computational power to help researchers better understand the coronavirus, and solidarity response funds to help medical workers, children at risk and employees who have been adversely affected.
Social actions aside, the consequence of Covid-19 on gaming has been a massive enlargement of the audience available to publishers. Gaming is typically an at-home activity, and a steady stream of headlines has shows that it is flourishing during the pandemic.
Asian gaming giants Nintendo and Tencent both saw sales increases during the first quarter. The former sold almost half of its games digitally, a record that helped increase profits by 41 percent, while percent.
Analysis from GamesIndustry.biz shows that percent. Even games released during the pandemic are performing well, with titles as varied as Doom Eternal (a first-person shooter) and Animal Crossing (a world-building simulation) both breaking sales records after launching.
This is reflective of data from Comcast that shows how new game downloads have increased by 80 percent, compared to a rise of “only” 50 percent in total gaming downloads.
Looking at downloads and sales in isolation does not paint a complete picture, since many games are now available for free (and then monetise in-game).
Meanwhile, data from Streamlabs shows that platforms like Twitch, YouTube Gaming, and Facebook Gaming have also experienced a surge in growth, with around a 20 percent increase in usage hours reported across services.
“Unique to gaming is that it has both interactive and linear consumption models, and the activity of watching gaming video streams and video on-demand has become nearly as big as gaming itself,” says Mike Sepso, co-founder and CEO of Vindex, an esports infrastructure platform.
“In the Covid-19 era, all of this activity has increased dramatically because of both the new time available to people and their need for social interaction, which gaming provides.”
The popularity of online streaming platforms has shot up during the pandemic
This said, gaming is not immune to the coronavirus. esports, with its reliance on live events, has been one of the first parts of the industry to be affected. Most esports events have been cancelled or postponed, though some are taking place without audiences.
“We have directors, producers, broadcast engineers and professional gamers all working remotely to recreate the excitement and quality of a live event,” says Sepso.
“esports has been able to continue while traditional sport has not because the playing field is virtual and can be replicated online, however, nothing can truly replace the social richness of the live experience.”
The short-term impact on esports is expected to be limited. Although close to 75 percent of esports revenue comes from advertising and broadcasting, most of these deals were agreed before the outbreak.
If restrictions on mass gatherings continue, esports-related income would certainly fall. But considering that esports accounts for less than 1 percent of the gaming market, this would not represent an existential threat to the wider industry.
Despite this, esports may be growing in prominence as a result of Covid-19. Sports leagues around the world have turned to the sector to find new ways of engaging with fans. Several esports competitions are being shown on live TV, as broadcasters look to fill hours of scheduled sports content that were cancelled in the wake of the pandemic.
NASCAR has been one of the most successful sports to augment cancelled events with its iRacing Series, with one event attracting a peak of 1.3 million viewers. Although esports revenues may have declined, the value of the sector more broadly has risen as a result of the low-cost marketing it has benefited from during the crisis.
For the wider gaming industry, coronavirus makes temporary delays in the production of gaming hardware more likely as factories around the world face supply chain interruptions.
Furthermore, game developers are preparing for a loss in efficiency as more employees work remotely. Nintendo has issued a warning that a situation of prolonged remote working will impact its processes, and the New York Times reports that developers as large as Sony, Amazon and Square Enix are facing difficulties. Others appear to have adapted quickly, with Epic Games (the makers of Fortnite) still providing regular updates and patches to games. — weforum.org
