Gaming in a COVID World and What Comes Next
by Frederick Adler (Antler US)
During COVID, restrictions on alternative avenues for entertainment and social interaction have only served to accelerate the recent growth trends in the global gaming industry. Other more surprising trends have also evolved in the space as the lines between the virtual and real world continue to blur during this period of adaptation and reaction.
Record Spending in the US and Abroad
As the outbreak evolved into a global pandemic, global consumer spending on digital gaming surged to $10B in March alone and this trend has only continued with US game spending hitting a record $11.2B in Q2 and global consumer spending on gaming projected to hit close to $160B by years end. For context, according to the Motion Pictures Association’s 2019 THEME Report, the combined global theatrical and home/mobile entertainment revenue surpassed $100B for the first time in 2019.
Mobile Gaming
Daily “in-app” payments for mobile games have jumped 24% since the pandemic began, with player spending in mobile games reaching $19.3B in Q2 2020 (up 27% year-over-year). What makes it even more impressive is that number (and the $160B number above) does not even include revenue generated by mobile game developers through in-game advertising, worth an estimated $3B in 2019 and up 59% YTD compared to last year according to Unity. According to App Annie, mobile game spending is expected to outpace desktop and console spending by 2.8x and 3.1x respectively and reach almost $100B in total mobile gaming revenues by year’s-end.
More crucial to the long term growth of the industry has been the massive increase in mobile gamers in the United States and abroad. Sparked by COVID, weekly average downloads hit 1.2B in March and users downloaded 35% more games in March versus January of the same year according to App Annie. In general, mobile games represent 40% of all downloads, 74% of consumer spend, and 10% of all time spent in app.
Social Gaming
With social interaction halted or altered in much of the world, a new trend has emerged: the use of virtual game environments for social gathering or interaction. First, while in the past, video games have often been viewed as damaging to society or promoting violence in children, in this time of social isolation, the social, online gaming ecosystem was uniquely poised to provide not just an escape from reality, but also a safe, immersive option to combat feelings of isolation. In fact, the WHO came out in support of video games as a means of safe socialization by pairing with top game developers to create the #PlayApartTogether movement.
Traditional game only platforms have noticed and are leveraging this increased usage and attention to expand their market: Twitch is up 10% globally as non-gaming streams starting populating the platform, while the success of the “live” Travis Scott concert on Fortnite (over 12.3M live participants) prompted the creation of the new no-guns Party Royale feature.
eSports
Earlier in the year, my colleague Bryan and I wrote a post on eSports here.
While COVID has helped bring eSports more into the mainstream than ever before, since the start of the outbreak, Newzoo’s 2020 revenue estimates have been revised downward twice, from $1.1B to $974M due to the cancellation, postponement, or fully digital shift of events with the lack of tournaments causing merchandise/ticket sales to drop 28% and publisher fees to drop 12%. Unlike live sports, bets on the continued growth of eSports are usually based on advantages like an already built for streaming digital product, “every man” appeal and seamless adoption of technological evolutions such as AR/VR or AI. COVID has shown a continued industry-wide focus on strategies to better monetize these advantages at scale. Despite the canceled tournaments and global economic uncertainty, sponsorship revenue and media rights are still poised to grow a modest 7.5% and 3.3% YoY respectively.
Much of this is to do with the structural ecosystem of eSports: more akin to European Football than the NFL or NBA. Unlike in American professional sports where the leagues hold all control, the teams/players run the show in European Football. There are no league-wide revenue sharing agreements or salary caps, so how much a team earns is based on performance and capitalizing on it: the tournament organizers collect the revenue generated by the tournaments and distribute prize money to the teams competing, the leagues negotiate media rights/sponsorship deals and allocate it to the teams based on a model created/agreed on by the clubs, and all the money the team makes outside of these structures it keeps.
eSports operates on a highly similar model, almost as a cross between it and professional tennis. Dozens of independent organizers host tournaments around the world, offering prizes to draw the biggest players and teams. Leagues are formed and sell sponsorship and media rights to their matches and tournaments. Teams/players negotiate their own sponsorship deals, tournament schedule, and find outside avenues to monetize their brand. Like tennis, the stars have been able to weather the shut down through their massive sponsorship deals, leveraging their brand for one-off events, or even hosting their own tournaments via Twitch or other platforms, while those reliant on live tournament revenue to survive have suffered.
Frederick Adler is a Venture Capital Investment Associate at Antler US, currently completing his MBA at Columbia Business School.
Read more insights from the Antler US team here.
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