Gaming industry report
“We all make choices in life, but in the end our choices make us”- Andrew Ryan, Bioshock

The gaming industry

Background

From the outset we should distinguish 'gaming', which involves games of skill where individual players influence the outcome of the game, and 'gambling', which involves placing financial bets on an outcome over which an individual has no or little control - in other words, games of chance, and luck.

Although they share some common features, including their increasing online presence, this article looks exclusively at gaming (aka video gaming) rather than gambling.

How do games create utility?

There is a clear appeal to video games that transcends age, culture and language. Many have fond memories of their attachment to video games as children. Games generate considerable utility for the player, including from entertainment and education, and, of course, from escape – especially so during this pandemic.

With lockdown creating isolation and loneliness for some, and unemployment and rising poverty for others, the appeal of gaming as an escape is clear. For many, travel time has been converted into leisure time. Not surprising then that as global economies went into recession, the gaming industry thrived.

For some, gaming is a highly rewarding profession, with esportsearnings.com reporting that the top five global players each earned over $5m a year, with Johan Sundstein, from Denmark, earning just shy of $7m in 2020.

A recent study by Verizon has shown that, since the arrival of COVID-19, there has been a 115% increase in gaming usage in the United States alone as compared to a typical pre-COVID day. The online gaming platforms and live streaming services continue to break records month on month. Console sales have seen a rise of 155% by March 2020 (Mordor Intelligence, 2020).

Industry size and growth

The global gaming market was valued at $151.55 billion in 2019 and is expected to reach a value of $256.97 billion by 2025, registering a CAGR of 9.17% (CAGR = compound annual growth rate). (Mordor Intelligence, 2020)

growth in the gaming market

The impact of COVID has clearly accelerated growth. It was reported that the global video game industry already stood at $170 billion by September 2020 way ahead of its projected target.

Smartphone usage leads the way in the gaming market followed by Consoles and PCs (Mordor Intelligence, 2020). The trend is likely to continue as smartphones capture a greater market share by the virtue of growth in its processing power. A typical smartphone today has more power than a desktop computer just a decade ago. As smartphones advance and gain more computing power, they are likely to become the first choice of preference for gamers.

market shares in terms of devices

Indeed, the smartphone market is set to double by 2025, growing at a CAGR of 13.3%.

In terms of numbers of players, there were 200 million mobile game players last year in the United States alone (Mordor Intelligence, 2020). Companies creating games for consoles and PCs also create separate versions for mobile phone, with popular games including PlayersUnknown Battle Ground, Call of Duty and other multiplayer games.

The evolution of cloud gaming is likely to help accelerate this trend as users can now stream power-intensive and high profile games straight to their phones without the need for hardware. Google Stadia is the most popular name in cloud gaming.

growth in gaming on smartphones

Geographically, while Europe lags behind major markets, such as those in the Asia Pacific and North American regions, it displays a strong and steady growth in its gaming sector (Mordor Intelligence, 2020).

Country snapshots - the US dominates

Individual countries with the biggest gaming base and the largest potential to grow include the United States, India, China, and the United Kingdom

The US

The US gaming market dwarfs that of Europe (Mordor Intelligence, 2020)) in terms of population size, demographics, and the general overall acceptance of gaming both as a hobby and as a profession for some. 74% of parents in the US believe video games to be educational and 57% of parents enjoy playing games with their child on a weekly basis. According to the ESA 2019 (the Entertainment Software Association), more than 164 million adults in the US play video games and 75% of all Americans have one gamer in their household.

China

China, by its sheer population, muscles its way to a size comparable to the US. Like US citizens, China encourages competitive behaviour and this trait leads many parents to encourage their children to train for and practice on competitive games like Call of Duty and Starcraft.

India

India, on the other hand, is a small and nascent market but with considerable growth potential due to its young population. India’s gaming market in 2019 was worth $0.85 billion, and is expected to grow to $1.96bn in the next three years. Demand is constrained to some extent because gaming in India is often frowned upon due to the deep seated cultural and traditional beliefs. However, the projected user base of more than 628 million gamers means that gaming market in India has the potential to explode.

The UK

With a population of 63 million, and hence relatively small in size, the United Kingdom boasts a large market and constitutes 18.7% of Europe’s gaming market (2nd largest after Germany at 20.1%). The UK market is expected to grow at 8.78% CAGR (Mordor Intelligence, 2020).

What marks the UK out is its supply-side performance. The game development sector in UK contributes £1.8 billion towards national income (GDP). A recent study by Ukie shows that the UK gaming industry employs over 16,000 people making the sector the most productive of all the nation’s creative industries with each employee contributing £80,000 to the national economy (Mordor Intelligence, 2020).

Esports

The global Esports market is currently valued at $1.10bn and is expected to grow at 16% CAGR to $2.69bn by 2025, having grown by 8.5% a year between 2016 and 2019. (Source: UKie).

Europe and the UK

Europe remains a major player with a market size of $250.20m and an expected growth rate at 18.3% CAGR. The UK, with a market size of $90.30m and an 18% CAGR, is the rising star of Esports in Europe, beating Germany by a sizeable margin (market size: $61.1m and 15.6% CAGR) (Arizton Advisory & Intelligence, 2020). 

According to Andrew Chitty of UK Research & Innovation (a UK public body sponsored by Department for Business, Energy and Industrial Strategy (BEIS):

“The UK is home to some of the world’s leading digital and creative talent and new immersive technologies are fundamentally changing the way that creative companies can interact with their audiences."

One project supported by UK Research and Innovation is the Weavr Consortium, which comprises six UK companies spanning Esports, education and entertainment. In 2019 the Weavr Consortium launched their new 'immersive' technology platform.

The US, China and India

The US, of course, leads the world in Esports with a mammoth $398m market size and an expected 16% CAGR - despite its size. China is not far behind with $202.8m market size but with a mediocre expected growth of 12.6% CAGR. One reason for the relatively low growth is the Chinese government’s frequent changes of stance on gaming. On comparison, India, with a modest market size of $34m has a lot of catching up to do. (Arizton Advisory & Intelligence) 2020).

Hardware - player systems

The video gaming market can be divided into two parts, hardware and software with hardware focused on consoles and PC and software focused on games development, production and distribution.

PCs

The PC market is dominated by two major players in each market segment - Intel and AMD for processors, and NVIDIA and AMD for graphics. In contrast, peripherals and assembly is an open playing field, although several big names like Lenovo, Hewlett Packard, Dell, Apple, and Acer dominating the market.

Market shares of leading personal computer vendors

market shares of PC makers

Consoles - the triopoly

The console market is predominantly divided into three parts: Nintendo’s series of consoles (Gameboy and DS series for handhelds and GameCube, WII and the latest Switch for home entertainment systems), Sony’s PlayStation series and Microsoft’s Xbox series. While budget systems from China have entered the market (with smaller consoles from companies like Mitashi) the major part of the market is shared by the top 3 firms - effectively making the console market a triopoly.

The global game consoles market - valued at $11.7 billion in 2020 - is expected to reach $12.5 billion by 2024 (MarketLine, 2020). The US is the single largest market, followed by Europe. (MarketLine, 2020)

This relatively poor growth rate of consoles reflects changed consumer preferences towards smartphones and the emergence of game streaming services. However, it is too soon to write off the console market completely, and each new generation of consoles triggers increased interest, which then begins to decline gradually. The latest offerings by Sony (PlayStation 5) and Microsoft (Xbox Series X and S) are expected to boost demand for consoles once again. 

The success enjoyed by the console market leaders is the result of heavy investment in R&D, with Nintendo and Microsoft spending up to ~6% and 13% of their revenue respectively. (MarketLine, 2020) Microsoft has over 61,000 patents, and benefits greatly from its parent company’s financial prowess. However, observers suggest that it often fails to make a mark against the quirkiness of Nintendo and popularity of Sony. The pandemic-induced lockdown triggered an increase in demand and a supply crunch as a result of the (temporary) shutting down of a great deal of China’s manufacturing plants. With plants once again up and running, the unprecedented demand for Sony’s latest PlayStation 5 indicates that the market is still thriving.

Software

The software market is highly fragmented with publicly listed companies like Ubisoft and EA, competing with smaller studios and developers. Larger game studios tend to have a loyal fan base which allows them the freedom to take risks and develop new Intellectual Property (IP). Smaller studios and indie developers often struggle for market space and tend rely on just one game - a successful game can mean the difference between existence and bankruptcy. In the UK, help for smaller developers is available from the UK Games Fund.

Some well-known as well as smaller game studios and their popular franchises are:

  • Sony (God of War, Uncharted, Spiderman)
  • Microsoft (Halo, Gears series, Forza Motorsport)
  • Bandai Namco (Tekken, Pac Man, Soul Calibur)
  • Take Two Interactive (Bioshock, Grand Theft Auto, Max Payne, Red Dead Redemption)
  • Nintendo (Mario, Luigi, Pokémon, Donkey Kong)
  • Activision Blizzard (Warcraft, DOTA, Call of Duty)
  • Ubisoft (Assassins Creed, Far Cry, Prince of Persia)
  • Electronic Arts (Various Sports games like FIFA, NBA, NFS, NHL)
  • Capcom (Monster Hunter, Resident Evil, Devil May Cry)
  • CD Projekt Red (Witcher, Cyberpunk 2077)

The above list is not exhaustive but indicative of the sheer number of global games and companies. Large studios like Ubisoft and Take Two Interactive have game studios in almost all major countries in Europe, Asia, North America and the Middle East.

Where does the UK stand?

Although not playing a part in the hardware sector, the UK continues to go from strength to strength in terms of software and platform development. The video gaming sector plays a key part in the UK's overall 'creative' sector. One in eight UK enterprises are creative enterprises, collectively responsible for generating £101.5 billion gross value added (GVA) to the UK economy, and employing one in eleven workers - greater than the combined value of the UK’s automotive, aerospace, life sciences and oil and gas industries (Source: Creative Industries Federation).

The lockdown has put the spotlight on the success of British game makers, with their deep pocketed US counterparts eyeing some acquisition opportunities. The first move has already been made with Electronic Arts (EA) beating rival Take Two Interactive in acquiring Codemasters - a UK based game making company famous for their series of racing games like F1, Dirt series and the Colin McRae series - for $1.2 billion.

What works for the game sector, not just in the UK, is its pandemic and recession-proof nature. Investors (private and public sponsors) are keen to back the gaming industry in the UK. The ability of game developers to work unhindered by the virus has influenced market opinion. In fact, the sector has begun hiring with London based Mediatonic, the award winning developer of the super successful Fall Guys, stating that they have expanded their team from 35 to over a 100 people during the lockdown itself.

Government support

The games trade body, TIGA (The Independent Game Developer’s Association) has urged the UK government to provide more funding for the development of games, and in response the UK Games Fund was established in 2015. Following this, the Tranzfuser competition was launched with the aim of boosting the UK’s future games development talent. Despite a favorable tax regime introduced by the UK government - including tax relief for the Creative Industries - the UK government can go further. The view of TIGA is summed up by Dr Richard Wilson OBE, CEO, when he said:

“The UK video games industry is set for growth, with 72 per cent of respondents to our survey expecting to increase employment over the coming year. The Government can strengthen the sector by enhancing Video Games Tax Relief by raising the rate of relief from 25 to 32 per cent, introducing a Video Games Investment Fund (VGIF) to improve studios’ access to finance, and increase the supply of well-educated graduates who are able to work in the games industry and enable our employers to recruit highly skilled people from abroad.”
Suzi Stephenson January 13, 2021