On December 10, 2020, John Patrick Lee, an ETF Product Manager with VanEck, provided the CFA Society of Minnesota with an overview of where the video game industry stands as we closed out 2020. COVID-19 provided significant tailwinds for the gaming industry, which now projects to reach $159B in 2020, making it a bigger industry than both cyber-security and robotics. Strong growth trends were already in place but stay-at-home orders (both domestically and abroad) and further cord-cutting accelerated the trends.
Mobile gaming now represents the largest and fastest-growing platform by revenues, overtaking console and pc-gaming. Since 2015, mobile revenue has grown at an annualized rate of 22%, outpacing total gaming’s growth of 15%. We are also witnessing a story develop in the emerging markets space, with many consumers gaining access to mobile technology for the first time. These trends may have further room to run, with mobile tech priced at a cheaper entry point relative to gaming counsels or some PCs. Additionally, many consumers may already have or otherwise need mobile tech, providing the base for new gaming consumers.
Publishers have taken note of the mobile boom and adjusted their business models to take advantage of this trend. Throughout 2020, we have seen “games as a service” take off and accelerate revenues. Previously, games were viewed as a product. With viewing games as a service, revenues have steadily increased with the employment of subscription revenue models and microtransactions. In Take-Two’s Q1 2021 fiscal earnings report, recurrent consumer spending grew by 52% and now accounts for 58% of net revenue.
ESports has seen significant growth from the same trends as gaming but is still much smaller compared to the gaming industry. As social streaming websites are experiencing wide-spread adoption and rapid growth (i.e. Twitch), publishers are capturing additional revenue streams. Publishers own the rights to the games played competitively, as well as the broadcasting rights, which are sold to media and communication services companies. The largest share of this revenue is coming from media rights (23%) and sponsorships (42%).
A few of the highlights of the presentation below:
Gaming surge: an acceleration of existing trends – eSports audience has grown tremendously, supported by long-term demographics and industry trends (such as cord-cutting)
- Social streaming websites are experiencing widespread adoption and rapid growth (i.e. Twitch)
- Netflix views Fortnite as a bigger competitor than HBO Max
- The average gamer is in his/her 30s with disposable income
Mobile Gaming: Growth Powerhouse
- Since 2015, mobile revenue has grown at an annualized rate of 22%, outpacing gaming’s total growth of 15%
- Huge story in the emerging market space (gaining access to mobile technology for the first time)
- Mobile tech/entry cheaper than gaming console or some PCs, many consumers might already have or need mobile
In-Game spending: Revolutionizing the Revenue Model
- New: Gaming as a service (subscription revenue model, in-game purchases/microtransactions pushing total revenues higher)
- Old: Gaming as a product
- In Take-Two’s Q1 2021 fiscal earnings report, recurrent consumer spending grew by 52% and accounts for 58% of net revenue
As league owners, publishers control the eSports ecosystem
- Much smaller than the videogame industry
- Publishers own the rights to the games played competitively, as well as the broadcasting rights, which are sold to media and communication services companies
- Biggest revenue in this sector coming from media rights (23%) and sponsorships (42%)
Gaming Industry Risks
- Single-game risk, company too dependent upon a single game or franchise
- Return to normalcy risk (highlighted as highest risk) – as COVID-19 fades, consumer behavior shifts
MVIS Global Video Gaming and eSports Index
- Companies must derive at least 50% of total revenues from video gaming and/or eSports to be initially eligible for index (targeted, pure-play exposure)
- Included: Activision Blizzard, Nintendo, Tencent, NVIDIA, AMD
- Excluded: Alphabet, Amazon, Microsoft, Sony, and Intel
- Relatively low correlation among other indexes/sectors