Video Game Industry Market Analysis

Overview of the Video Game Industry

The Video Game Industry has experienced explosive growth during 2020. This growth is largely due to a rapid acceleration in demand during the COVID-19 pandemic. According to Newzoo’s market insights, the Global Video Game Industry for 2020 was forecasted to have revenues totaling $159.3 billion or a year-over-year growth rate of +9.3%. However, with increases across the board in usage rates and adoption this year, the industry saw massive gains across all of its segments in terms of revenues, active users, and sales growth for the final quarters of 2020. This has led to revisions in the market forecasts once again, raising final numbers for 2020 from $159.3 billion to $174.9 billion, up nearly 20% year-over-year. Overall, 2020 has provided substantial proof of the resiliency possessed by our industry and has created a compelling investment case for the industry as a whole.

Source: Statista.com, 2020

Segments of the Industry

Moving from a high-level overview of the macro-trends that were present for 2020 in the Video Game Industry, let us switch gears to the talking about the different segments in our Industry. Generally, Wall Street likes to summarize the Video Game Industry into three categories consisting of Console, Mobile, and PC. However, in the graph provided below, we see a more detail-oriented breakdown (by revenue) of the six segments within our industry. Deadshot Nation prefers and believes that this is a much more advantageous way to view the Video Game Industry, with the assumption that VR/AR will develop into a much larger segment of the industry within 5 years.

Source: Bloomberg and WolfStreet.com – Industry Analysis, 2019

The Future of the Industry

The future of the Video Game Industry looks very bright and we believe there are a couple of macro-trends that will define the landscape of our industry in the future.

1. The continually explosive growth of the Mobile games segment.

For 2020, the final estimates have the global mobile games segment supporting over 2.5 billion users and generating a whopping $77.2 billion. To put that in perspective, that is almost double the annual revenue of the NFL, NBA, MLB, and NHL… combined. Additionally, India remains the region of the world with the highest mobile data traffic per smartphone. With more than another 250-350 million people expected to get phones in the next 3 years in India alone, we believe this bodes well for the future of this global market segment.

Source: Newzoo.com – 2020 Global Games Market, 2020

2. The mainstream adoption of Virtual Reality & Augmented Reality, finally.

Let me explain why this has not happened yet.  So, at the height of the pandemic VR/AR technologies were expected to be at the forefront of innovations because of the endless use cases for the technology and rapid adoption capabilities. The problem with this assumption? Global production of headsets and ancillary products is very small. Last year, total shipments of VR headsets barely topped 5.7 million units compared to global smartphone shipments of 1.3 billion units. Now, barring a complete “meme into existence” moment (see Tesla), the VR/AR space in terms of investment is going to rely heavily on our industry to develop its potential. As it stands, niche consumers make up almost 95% of all device sales in the space, meaning that casual gamers/buyers are few and far between for these devices. Why might that be? Let us look into price structuring.

The price of most popular VR/AR products on the market is leaning closer to $300-$600. That is a new console with average prices hovering around $400-500 and a far cry (puns) from the average price of ancillary products (aka microphones, steaming products, and enhanced controllers) in the space ranging from about $50-$300. No wonder the adoption rate is so lousy. The barrier to entry is high (in regards to price) for casual gamers and the use cases currently are limited for these casual users. As with all good technology, we believe breakthroughs are needed for progress. The cost of manufacturing will need to go down, design upgrades will have to improve, and the price of integrated parts will continue to decrease as demand increases. When this happens, we believe the adoption rate for these devices will skyrocket and make them an integral part of our industry.

3. The current industry leaders will create the future of more than just Gaming Tech.

For years, we have seen countless products and innovations come from the gaming industry space and transcend into multiple other markets based on their ingenuity. The future will be no different and we believe leaders in our industry will continue to push the boundaries of technology in general. Innovative solutions and problem solving are valuable to everyone in the world.

In the past, gamers have shown their ability to solve complex problems from different sectors. For example, gamers once pieced together the structure of protein-cutting enzymes for a certain kind of virus and have aided in the development of multiple retroviral drugs. They have even been credited as co-authors and collaborators on these developments, similarly to how any researcher or scientist would be. The future of gaming and the decisions of its leaders will continue to have profound impacts on all industries.

Below we have included quotes from industry leaders as they highlight their expectations for the the next 10 years. The quotes used were directly sourced from the IGN.com article: https://www.ign.com/articles/the-games-industry-on-what-gaming-might-be-like-in-2030 and are extremely insightful.

“I think it is possible that we will move away from mouse and keyboard as the primary input devices for PCs in ten years and the implications of this would be profound and far reaching.”

Marc Merrill, Riot Games

“Hardware is going to be much more united; mobiles, handhelds, consoles and PCs will be very similar and interchangeable.”

Viktor Bocan, Warhorse Studios

“The cloud may take over and home hardware may disappear.”

Lars Janssen, Director of Studio Relations, Koch Media

“I expect AI and machine learning to play a rapidly increasing role in many aspects of game development. I think developers will find interesting ways to leverage these technologies.”

Keith Schuler, Gearbox Software

“Will VR or AR win the day and allow truly immersive gameplay for the mainstream? The tech should certainly be there by 2030.”

Tim Heaton, Creative Assembly

Final Word

In the coming months, we here at Deadshot Nation will dive deeper into the landscape of the Video Game Industry and all the parts of its business ecosystem. One of the biggest focuses for this section of our website will be dedicated to highlighting the best and brightest companies in our industry. Companies that push the boundaries by presenting exciting innovations, being proper custodians of our favorite franchises, and delivering the best experiences possible to us… the players. We are excited to have everyone along for the ride and cannot wait to show you what our industry has to offer. JB out.

About the author

Jonathan Brown currently serves as Chief Investment Officer of Deadshot Nation. Before joining Deadshot Nation, Jonathan worked in multiple roles focused on Investment Research, Capital Management and Corporate Finance. He graduated from the University of Kentucky in 2019 and received bachelor’s degrees in Finance and Economics from the Gatton School of Business. In addition, he studied International Business at the Universitat Autònoma de Barcelona.

Leave a Reply