5 tailwinds driving the gaming megatrend
6 minutes reading time
Forecast to eclipse US$200 billion in consumer spending for the first time in 20221, the gaming market has evolved profoundly in recent years. Anticipated to accommodate 3.09 billion players by year-end2, on a global revenue basis, gaming is now more valuable than film, music and television combined3.
Factors driving growth in gaming industry
While 2021 was gaming’s biggest year so far, several tailwinds are positioned to further accelerate industry growth and investment.
1. Digital assets
Innovation in blockchain technology, non-fungible tokens (NFTs) and the metaverse is beginning1 to make an impact on the global games market.
Blockchain gaming has seen rapid growth, with publishers such as Ubisoft, Jam City and Zynga announcing blockchain divisions and event titles. In March, for instance, mobile publisher Jam City released 10,000 blockchain-based characters who will feature in the publisher’s first blockchain game4.
Developers like Jam City and Electronic Arts Inc. are some of the first established publishers to develop blockchain games that blend advanced game mechanics with dynamic storytelling to create engaging player-driven worlds. Leveraging stagging visuals to transport players into another world with evolving characters, story arcs, and economics, these immersive metaverses will create a true ‘play-and-earn’ experience where players have a stake in and benefit from enriching the community.
While Mark Zuckerberg’s meta-vision won’t be realised for years to come, buzz surrounding its potential applications within the gaming industry or investment is yet to be reflected in consumer spending or investment. Only a small group of first movers and innovators will come out on top, as is often the case. Investing in diversified ETFs like the BetaShares Video Games and Esports ETF (ASX Code: GAME) allow investors to support the broader industry, rather than trying to pick winners.
2. Esports & streaming platforms
Esports now have a massive following. Alongside the 3.2 billion video game players forecast by 2024, esports will entertain an audience of 577 million5. With annual gross revenue estimates rivalling those of the UEFA Champions League, esports is on track to becoming the most popular – and profitable – form of entertainment today6.
The breadth of video gaming content available, thanks to public streaming platforms like Twitch, also continues to reflect rapid transformation. This year, the games live-streaming audience is projected to grow by +13.8% year-on-year to reach 912.2 million – almost doubling the esports market’s audience7.Twitch hosts over 140 million monthly active users today, with 107,800 live Twitch broadcasts going on at any given time8.
3. Investment & mergers
For the second straight year, investments, initial public offerings (IPOs), and mergers and acquisitions (M&As) in the video game sector set records for transaction volume and value9. In fact, 2021’s totals were bigger than the previous six years combined.
Total game-related investments jumped from 206 deals (worth US$13.2 billion) in 2020 to 765 deals in 2021 (US$35.6 billion). IPOs were up even more, jumping from US$20.6 billion raised in 2020 to US$109.4 billion in 202110.
Furthermore, we’ve seen a colossal influx of blockchain-related game investments. Half of all the transactions in gaming in Q1 2022 were investment transactions for blockchain gaming11. Where traditional gaming investments averaged just 1.9 investors per deal, that number is around 15 in blockchain projects12. This huge wave of dealmaking, substantially driven by new investors angling to grab a piece of the newly emergent blockchain game subsector, is almost certain to continue at prodigious levels in 2022.
On the acquisition front, Q1 2022 saw two of gaming’s biggest ever public-company acquisitions. Take-Two is in the process of acquiring Zynga (worth US$12.7 billion), while Microsoft is doing the same for Activision-Blizzard (US$69 billion). Zynga and Activision-Blizzard aside, another US$8 billion transacted in M&A’s in Q1, alone representing a growth of 276.2% year-over-year for Q113.
While the Zynga and Activision-Blizzard deals won’t close deals until at least late 2022 or into 2023, they will have a deep impact on the leaders of global gaming and may encourage competing companies to try to scale up.
The emergence of transmedia has been a factor in the growth in video game IP. Hollywood previously struggled to adapt gaming IP into other media successfully. Lately, we’ve seen a spate of commercially successful video game adaptions – movies, TV shows and cross-game promotions portraying stories, characters and themes (such as Netflix’s productions The Witcher and Arcane, and HBO’s The Last of US). The success of these productions makes a strong test case for the growing transmedia trend.
Thanks in part to COVID-related delays, 2022 is on track to be one of gaming’s biggest years for content. With a host of high-profile first- and third-party releases scheduled, players can anticipate one of the most crowed release calendars in recent memory.
How can Australian investors get exposure?
The BetaShares Video Games and Esports ETF (ASX Code: GAME) aims to provide a cost-effective and convenient way to access a portfolio of some of the world’s leading video gaming and esports companies. GAME’s current portfolio holdings include companies such as Electronic Arts Inc, Roblox Corp, Nintendo Co Ltd and Tencent Holdings Ltd.
|There are risks associated with investment in GAME, including market risk, sector risk, international investment risk and concentration risk. The Fund’s returns can be expected to be more volatile (i.e. vary up and down) than a broad global shares exposure, given its more concentrated exposure. The Fund should only be considered as a component of a diversified portfolio. For more information on the risks and other features of GAME, please see the Product Disclosure Statement available at www.betashares.com.au. A Target Market Determination (TMD) is also available at www.betashares.com.au/target-market-determinations.|
1. 2022, Tom Wijman May. “Games Market Revenues Will Pass $200 Billion for the First Time in 2022 as the U.S. Overtakes China.” Newzoo, 17 May 2022, newzoo.com/insights/articles/games-market-revenues-will-pass-200-billion-for-the-first-time-in-2022-as-the-u-s-overtakes-china.
2. 2022, Tom Wijman May. “Games Market Revenues Will Pass $200 Billion for the First Time in 2022 as the U.S. Overtakes China.” Newzoo, 17 May 2022, newzoo.com/insights/articles/games-market-revenues-will-pass-200-billion-for-the-first-time-in-2022-as-the-u-s-overtakes-china.
3. Sharp, Dave. “Expert Insight | Investing in the Video Gaming Industry.” Endava Private Equity Group, privateequity.endava.com/en/Insights/Technology-Trends/the-video-gaming-industry-investing-in-a-volatile-market-environment. Accessed 12 June 2022.
4. Bloom, David. “Video Game Investments, Deals Triple In 2021 To Record Levels, With Big Blockchain Boost.” Forbes, 2 Mar. 2022, www.forbes.com/sites/dbloom/2022/03/01/videogame-investments-deals-triple-in-2021-to-record-levels-with-big-blockchain-boost/?sh=73e85be3362d.
5. Newzoo. “Global Esports and Live Streaming Market Report.” Newzoo, 2022, pp. 7–8.
6. The rise of eSports and how to grasp the opportunities. (2021, July 11). DEPT®. https://www.deptagency.com/insight/the-rise-of-esports-and-how-to-grasp-the-opportunities/
7. 2022, Luca Chiovato May. “Gaming’s Live-Streaming Audience Will Hit One Billion Next Year and 1.4 Billion by 2025.” Newzoo, 7 June 2022, newzoo.com/insights/articles/gamings-live-streaming-audience-will-hit-one-billion-next-year-1-4-billion-by-2025
8. Dean, B. D. (2022, January 5). Twitch Usage and Growth Statistics. Backlinko. Retrieved June 1, 2022, from https://backlinko.com/twitch-users
9. Bloom, David. “Video Game Investments, Deals Triple In 2021 To Record Levels, With Big Blockchain Boost.” Forbes, 2 Mar. 2022, www.forbes.com/sites/dbloom/2022/03/01/videogame-investments-deals-triple-in-2021-to-record-levels-with-big-blockchain-boost/?sh=73e85be3362d.
10. Bloom, David. “Video Game Investments, Deals Triple In 2021 To Record Levels, With Big Blockchain Boost.” Forbes, 2 Mar. 2022, www.forbes.com/sites/dbloom/2022/03/01/videogame-investments-deals-triple-in-2021-to-record-levels-with-big-blockchain-boost/?sh=73e85be3362d.
11. Rousseau, Jeffrey. “DDM: Gaming Investments Reached $3.5bn during Q1.” Games Industry, 17 May 2022, www.gamesindustry.biz/articles/2022-05-16-ddm-gaming-investments-reached-3.5bn-during-q1#:%7E:text=Today%20in%20a%20new%20report,2022’s%20value%20at%20%241.7%20billion.
12. Bloom, David. “Video Game Investments, Deals Triple In 2021 To Record Levels, With Big Blockchain Boost.” Forbes, 2 Mar. 2022, www.forbes.com/sites/dbloom/2022/03/01/videogame-investments-deals-triple-in-2021-to-record-levels-with-big-blockchain-boost/?sh=73e85be3362d.
13. Rousseau, Jeffrey. “DDM: Gaming Investments Reached $3.5bn during Q1.” Games Industry, 17 May 2022, www.gamesindustry.biz/articles/2022-05-16-ddm-gaming-investments-reached-3.5bn-during-q1#:%7E:text=Today%20in%20a%20new%20report,2022’s%20value%20at%20%241.7%20billion.
Manager – Investment CommunicationRead more from Richard.