The world of online gaming has generated over billions of dollars in revenue over the past decade. Compared to other forms of entertainment, this particular industry has seen a soaring popularity with millions of people around the world playing in a variety of online environments.
It all began with the first commercial arcade game Computer Space that was released in 1971, and was followed by the release of Pong, an arcade version of ping pong. Setting the base for the ever growing video game mania, they took the world by storm and now, the video game industry’s revenue and influence on the global market are only rapidly prospering.
Over time, the industry has been influenced by a demand for multiplayer facilities, resulting in a larger percentage of games that involve some sort of competitive online multiplayer capability.
There are two specific genres that most people refer to: MMOG & MMORPG.
- The Massively Multiplayer Online Game (MMOG) is a term that refers to any interactive gaming platform that allows large number of players to participate together over an internet connection.
- The Massively Multiplayer Online Role-Playing Game (MMORPG) is a type of MMOG that integrates a role-playing feature. It’s essentially an online space that lets millions of players develop their own characters and interact with one another.
Growth Trends
Throughout the past decade, the global entertainment and media market has been on a constant rise. The market in total is estimated to grow from 1.72 trillion U.S. dollars in 2015 to a whopping 2.2 trillion U.S. dollars by the year 2021. The gaming industry, specifically, is estimated to reach $180.1 billion by 2021. Thriving more and more every year, it ended the year 2017 with a 10.7% growth from 2016, and the year 2018 with 10.9%.
Industry Convergence & Disruption
The industry is facing an intriguing trend, driven by convergence mainly due to the technology and player comfort. Previously accessed on a limited number of platforms, video games and related content are now accessible on a variety of media such as dedicated consoles, handheld devices, smartphones, cable television, game developer’s websites, home or office computers, and online through game consoles.
Furthermore, Hulu and Netflix are already accessed through game consoles by 12% of U.S. households. In fact, in 2012, the entertainment consumption on Xbox grew ahead of its multiplayer game consumption, as users spent less time playing multiplayer games, focusing more on music services, online video, and applications.
Due to this rapid convergence of industries, the distinction between personal computers and video game consoles has disappeared. Thus, game consoles with high-speed microprocessors can now be easily considered computers and monitors.
In particular, the tension that is caused by this convergence and disruption can be observed through Netflix’s recent disclosure on how it perceives “Fortnite” as a bigger threat to its business than HBO.
Although the streaming service of the company accounts for 10% of TV screen time in the United States, Netflix is challenged by this disruption in the industry and considers online gaming as major competitors to its market.
What is more, the company’s shareholder letter stated “We compete with (and lose to) Fortnite more than HBO. When YouTube went down globally for a few minutes in October, our viewing and signups spiked for that time…There are thousands of competitors in this highly fragmented market vying to entertain consumers and low barriers to entry for those with great experiences.”
Leaders In the Industry
The current leader in the online gaming industry, as of 2019, is Sony Interactive Entertainment, with an estimated value of $13.4 billion. It manages PlayStation 1,2,3 and 4, including PlayStation Portable and Playstation Vita.
Following Sony, Microsoft Studios, the creator of Xbox, Steam, Halo, Minecraft, Age of Empires and several other popular games, currently has an estimated value of $12.82 billion.
Third in line is the Japanese giant Nintendo, at a $6.28 billion valuation. The company overlooks the entire Nintendo Entertainment system, including GameCube, Nintendo Wii, and specifically Pokemon, Donkey Kong, The Legend of Zelda and Super Mario.
Investments In the Gaming Industry
Surprisingly, gaming is a highly niche area for VC investments. There are a few reasons as to why VC firms hesitate in investing into such a growing, rich market.
Principally, they are not gamers and do not understand the dynamics of the gaming market. Moreover, revenue multiples for game publishers are not promising on the public market compared to other companies, which makes the industry less lucrative for VC firms examining potential IPO opportunities.
Regardless, tech giants such as Google, Amazon, Facebook, Tencent and NetEase are quite eager on acquiring and investing in game companies. In fact, IPO markets are indeed opening up in Nordic countries.
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Sources:
https://www.statista.com/topics/1551/online-gaming/
https://techjury.net/stats-about/gaming-industry-worth/
https://techcrunch.com/2019/01/18/netflix-thinks-fortnite-is-a-bigger-threat-than-hbo/
https://venturebeat.com/2019/06/05/why-vcs-are-investing-in-game-companies-again/
