We all know that the gaming industry is booming, more and more people start playing video games and contribute to the industry revenues. Companies have raised $91.8bn in 2015 which is expected to increase by a compound annual growth rate of 6.6% by 2019. But where exactly is the money coming from? Are current gamers spending more, or is the market expanding?
The US has been the backbone of the gaming industry for decades and has been responsible for approximately one fifth of the industry revenue in the past couple of years, but its growth is slowly coming to a halt. An annual growth rate of 4.4% (mainly driven by smartphone) is still nothing to dismiss, but by no means does it account for the huge leap the industry is expected to take.
According to forecasts, the market share of both PC and TV/console gaming are expected to shrink a few percentage points, which isn’t exactly an indicator of industry growth. However, smartphone gaming should be able to overtake PCs for the first time in 2016, which suggests a shift in consumer behavior.
What is then the driver of this expansion?
In 2016, 58% of growth of the global market is expected to come from none other than the Asia-Pacific region. China will contribute around $24.4bn, more than twice as much as 4 years earlier ($10bn in 2012). Since PC revenues will likely continue to diminish, the source of the growth will be smartphone gaming.
It is clearly visible that smartphone gaming must be taken seriously. Some companies, such as Activision Blizzard have seen this coming and took steps to solidify their position in the smartphone scene. This was partly done by acquisition of smaller developer companies (the biggest notable example is King, developer of Candy Crush Saga, obtained in early 2015 for $5.9bn) and by focusing development effort on their cross-platform title, Hearthstone: Heroes of Warcraft. Other, largely unknown companies are also heavily investing in mobile. Tencent Holdings Ltd., a Chinese tech giant valued at $197bn (owner of the massively popular MOBA, League of Legends) has been aggressively investing in mobile in the Western hemisphere, making it the fastest growing part of its business.
We must also not forget about the silent winners. Apple is collecting a royalty fee after every single app purchase or microtransaction on the AppStore, making serious bank for the company. The revenue acquired by Apple this way is so immense that in 2015, it had surpassed that of Electronic Arts – publisher of the popular PC shooter franchise, Call of Duty and any Star Wars games.
Microsoft has also been collecting a good amount of buck through its console platform, producing an even higher increase in revenue than Sony. This is especially interesting, since it has only sold 18 million Xbox Ones in contrast to the Playstation 4’s 40 million.
Perhaps what’s even more important than plain numbers, is the fact that the gaming industry is currently undergoing some fundamental changes. Complementary sources of revenue have opened up with the increasing popularity of esports and games are becoming more of all-around entertainment franchises rather than single game titles. Hundreds of thousands of enthusiasts watch the biggest gaming events and look at sponsored content and ads. This allows gaming companies to create a market for everything from esports event tickets to team jerseys and merchandise.
What do you think the next step will be? Will mobile continue to dominate? How will the social factor of games contribute? How do you think VR and other emerging technologies will contribute to the industry? What should companies focus on to make sure they don’t fall behind?
Sources:
http://revenuesandprofits.com/how-microsoft-makes-money-understanding-microsoft-business-model/
http://vgsales.wikia.com/wiki/Video_game_industry#cite_note-bigfish-52
http://www.cnbc.com/2016/04/22/have-we-just-found-out-how-bad-xbox-sales-are.html
http://www.pocketgamer.biz/list/62773/top-50-mobile-game-developers-of-2016/entry/10/
http://www.pocketgamer.biz/list/62773/top-50-mobile-game-developers-of-2016/entry/8/
http://www.pocketgamer.biz/news/62233/activision-blizzard-to-buy-king-for-59-billion/
http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
https://newzoo.com/insights/articles/game-revenues-top-25-public-companies-14-2015/
