We believe technological innovation and new business models bode well for the industry’s long-term growth, even after lockdowns ease
Over the past few months, the global digital gaming industry experienced a surge in user growth and engagement as the coronavirus pandemic forced people to quarantine. According to Verizon (NYSE:VZ), since US lockdowns began in March, gaming traffic on its network has increased up to 75% compared to pre-lockdown levels.1 Looking forward, as the pandemic eases and economies begin to re-open, we believe that consumer interest in digital gaming will be enduring. We believe that the pandemic is accelerating and strengthening trends that have existed for several years, including the industry’s shifts towards mobile, cloud, and subscriptions.
Digital gaming was already growing before the pandemic
The digital gaming industry was already large and growing robustly prior to the pandemic.
- Revenues for the overall industry are forecasted to reach $159 billion globally in 2020.2
- As a frame of reference versus other forms of entertainment, the digital gaming industry is worth more than the global music industry ($57 billion in 2019),3 but less than the global sports market (roughly $500 billion in 2019).4
- Most importantly, the digital gaming industry has been growing faster than most of its traditional entertainment counterparts, in part due to the industry’s culture of technological innovation (see Figure 1 below).
Figure 1: 2019 year-over-year growth of select entertainment industries
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New experiences and games have reached millions who are social distancing
The experiences brought on by the pandemic help illustrate the industry’s ingenuity. For example, the music industry suffered as social distancing necessitated concert cancellations and a reduction in commuting reduced music streaming demand. At the same time, Epic Games,5 the publisher of Fortnite, saw an opportunity to create an entirely new experience. In partnership with rapper Travis Scott, Epic launched a virtual concert inside of Fortnite, where Scott’s avatar took the form of a giant and led players underwater, into space, and beyond. Twelve million users tuned in for the premier – and when including the four encore performances, an astonishing 27 million users participated in the show.6
For another example of the industry turning lemons into lemonade, look no further than Nintendo’s7 (OTCPK:NTDOY) (OTCPK:NTDOF) smash hit game “New Horizons: Animal Crossing.” At a time of growing anxiety and social isolation, Nintendo’s game provided players an escape to an idyllic island where they could build communities and safely visit their friends. From mid-March through the end of April, Nintendo sold over 13 million copies of the game, and the company’s Switch console has been sold out almost everywhere.8
The industry is positioning itself for long-term growth potential
With many parts of traditional entertainment industries shut down during the pandemic, the digital gaming industry did a tremendous job filling the void. Where other industries were forced to retract, the digital gaming industry expanded and increased its cultural relevancy. Powered by a growing base of gamers, expanding distribution platforms, and new business models, I believe the industry’s growth outlook remains bright.
Expanding Distribution Platforms
- Consoles. The highly anticipated PlayStation5 and Xbox Series X are set to arrive in late 2020.9Unlike the iPhone, which gets updated annually, it’s been seven years since the last major console refresh.
- Mobile. Nearly half (48%) of the digital gaming industry’s revenue now comes from mobile games, and this percentage is growing.10 Improvements in smartphone accessibility and mobile internet have enabled the base of global gamers to grow to 2.5 billion people.11
- Cloud. While still in its infancy, cloud gaming services are the future, in my view. Leading innovators from Google12 (NASDAQ:GOOG) (NASDAQ:GOOGL) to Nvidia13 (NASDAQ:NVDA) to Microsoft14 (NASDAQ:MSFT) are experimenting with cloud gaming and have recently launched services.
New Business Models
- Free-to-play. Free-to-play games are growing in popularity since they don’t require gamers to make large upfront purchases. Instead, publishers monetize their games through advertising and by selling upgrades and expansion packs.
- Subscription services. Services such as PlayStation Now, EA Access, and Apple Arcade15 supply a large library of games across many genres to everyone from die-hard console gamers to casual mobile gamers.
1 Source: Verizon. “How Americans are spending their time in the temporary new normal,” March 17, 2020.
2 Source: Newzoo. 2020 Global Games Market Report.
3 Source: PwC, Ovum. Global Entertainment & Media Outlook 2019 – 2023.
4 Source: The Business Research Company. Sports Global Market Opportunities and Strategies Report. May 2019.
5 Epic Games is a private company and therefore not held in any Digital Gaming Portfolio series.
6 Source: CNET. “Fortnite: Travis Scott Astronomical experience seen by almost 28 million players,” Apr. 27, 2020.
7 As of June 16, 2020, Nintendo was held in the following series of the Digital Gaming Portfolio: GAME0192, 5.22%; GAME0193, 5.33%; GAME0194, 5.54%; GAME0201, 7.12%; GAME0202, 7.27%. (Please note that only GAME0202 is available for purchase.)
8 Source: CNBC. “How ‘Animal Crossing’ and the coronavirus pandemic made the Nintendo Switch fly off shelves,” Jun. 2, 2020.
9 PlayStation is owned by Sony Corp. As of June 16, 2020, Sony was held in the following series of the Digital Gaming Portfolio: GAME0192, 5.97%; GAME0193, 5.46%; GAME0194, 5.37%; GAME0201, 6.01%; GAME0202, 7.07%. Xbox is owned by Microsoft Corp. As of June 16, 2020, Microsoft was held in the following series of the Digital Gaming Portfolio: GAME0192, 6.47%; GAME0193, 6.49%; GAME0194, 6.54%; GAME0201, 6.31%; GAME0202, 7.17%. (Please note that only GAME0202 is available for purchase.)
10 Source: Newzoo. 2020 Global Games Market Report.
11 Source: Newzoo. 2020 Global Games Market Report.
12 As of June 16, 2020, Google’s parent company, Alphabet, was held in the following series of the Digital Gaming Portfolio: GAME0192, 5.53%; GAME0193, 5.67%; GAME0194, 5.39%; GAME0201, 5.55%; GAME0202, 6.41%.(Please note that only GAME0202 is available for purchase.)
13 As of June 16, 2020, Nvidia was held in the following series of the Digital Gaming Portfolio: GAME0192, 10.57%; GAME0193, 9.96%; GAME0194, 8.69%; GAME0201, 7.29%; GAME0202, 7.07%. (Please note that only GAME0202 is available for purchase.)
14 As of June 16, 2020, Microsoft was held in the following series of the Digital Gaming Portfolio: GAME0192, 6.47%; GAME0193, 6.49%; GAME0194, 6.54%; GAME0201, 6.31%; GAME0202, 7.17%. (Please note that only GAME0202 is available for purchase.)
15 PlayStation is owned by Sony Corp. As of June 16, 2020, Sony was held in the following series of the Digital Gaming Portfolio: GAME0192, 5.97%; GAME0193, 5.46%; GAME0194, 5.37%; GAME0201, 6.01%; GAME0202, 7.07%. EA Access is owned by Electronic Arts, Inc. As of June 16, 2020, Electronic Arts was held in the following series of the Digital Gaming Portfolio: GAME0192, 3.33%; GAME0193, 3.56%; GAME0194, 3.77%; GAME0201, 3.81%; GAME0202, 6.99%. Apple Arcade is owned by Apple Inc. As of June 16, 2020, Apple was held in the following series of the Digital Gaming Portfolio: GAME0192, 8.05%; GAME0193, 7.76%; GAME0194, 6.78%; GAME0201, 6.60%; GAME0202, 7.30%. (Please note that only GAME0202 is available for purchase.)
Blog header image: Santi Nunez/Stocksy
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Lockdowns have led to a growth surge for digital gaming by Invesco US
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