JANUARY 1st, 2024 | Devon Kash

Investing: This Industry Is Set For Massive Growth

It is expected to exceed $400 billion by 2030.

One industry has undergone a remarkable transformation from a niche pastime to a dominant form of mainstream entertainment. Its exponential growth has resulted in a market that now eclipses the film and music industries in terms of revenue. For long-term investors, it offers an opportunity for growth—even through economic slumps and recessions.

The global video-gaming industry has evolved into a monster, with an impressive size and scope that underscores its investment potential. According to Newzoo's Global Games Market Report, the industry generated an estimated $159.3 billion in revenue in 2020, displaying a year-on-year growth of 9.3%. In 2023, the industry is forecasted to finish at $200.8 billion, indicating a compound annual growth rate of 9.3% from 2018.

By 2030, the gaming industry is expected to surpass $400 billion.

The global gaming market amassed revenues amounting to $175.8 billion in 2021, which represented a slight decrease relative to the previous year, which saw a boost owing to the unique circumstances of the pandemic—yet the industry has maintained a significant upward trend over the last five years. Projections have placed the industry on a trajectory to exceed an estimated gamer population of 2.9 billion worldwide. The Asia-Pacific region has been identified as the largest contributor to gaming revenue, representing nearly half of the global total.

Traditional console gaming remains significant, with major players such as Sony (PlayStation) and Microsoft (Xbox) continuously investing in new hardware and software innovations. The PC gaming market has experienced a surge in popularity, driven by the rise of e-sports and the increasing accessibility of high-performance gaming PCs. Additionally, mobile gaming has emerged as the largest and fastest-growing segment, accounting for approximately 49% of the global gaming market's revenue in 2020. The ubiquity of smartphones and the ease of access to app stores have democratized gaming and attracted a wide audience.

Roblox has been popular with younger demographics and continues to grow.

Women And Other Growth Factors

The growth of the video gaming industry can be attributed to a collection of factors, which make it an attractive sector for investment. Technological advancements have been instrumental in propelling the industry forward, with innovations in graphics, artificial intelligence, and virtual reality significantly enhancing the gaming experience and attracting a wider audience. The mobile gaming segment has seen a meteoric rise with the ubiquity of smartphones, with titles such as Candy Crush Saga and PUBG Mobile achieving substantial profitability and widespread player engagement.

The emergence of e-sports and game streaming platforms like Twitch has introduced new revenue streams through advertising, sponsorships and media rights. Contrary to dated stereotypes, the gaming demographic is diverse, with the Entertainment Software Association noting that nearly 41% of gamers in the United States are women, thus broadening the market's reach. Globally, women make up more than 30% of all gamers.

Additionally, the industry has seen shifts in revenue models, with subscription services like Xbox Game Pass and free-to-play games that offer in-game purchases, such as Fortnite, proving to be highly successful financial models.

Companies like Bethesda Game Studios have made waves with remarkable procedural generating worlds in games like Starfield. With improvements in AI, self-generating worlds will become revolutionary, along with the deployment of non-player characters that can learn and interact independently.

Classic games like Grand Theft Auto have evolved dramatically in thirty years, propelling Rockstar Games and Take-Two Interactive into the hierarchy of the industry. Their revolutionary open-world games, like Red Dead Redemption, have paved the way and inspired games like Cyberpunk 2077. The latest trailer for GTA 6 garnered more than 93 million views in less than 24 hours on YouTube.

GTA 6 is set for release in 2025.

Investing

Considering the investment potential, there are several avenues for investors to explore within the gaming industry. Investing in established game developers and publishers with a proven track record, such as Activision Blizzard, Electronic Arts, and Tencent, can provide a stable return on investment. The e-sports sector has witnessed tremendous growth, with increasing viewership and sponsorship opportunities. Investing in e-sports organizations, streaming platforms, or related infrastructure can tap into this lucrative market. Furthermore, as the gaming market expands, there will be an increased demand for gaming hardware and accessories, including consoles, gaming PCs, virtual reality devices, and peripherals. Investing in companies manufacturing or distributing these products can be a viable avenue for growth.

The growth trajectory of the video gaming industry presents an array of attractive investment opportunities. The hardware segment, encompassing consoles, gaming PCs, and peripherals, forms an essential part of the gaming ecosystem, benefiting companies like NVIDIA and AMD, who are renowned for their graphics processing units. As gaming shifts towards digital platforms, services that support online distribution are primed to capitalize on this trend, with entities like Steam and the Epic Games Store at the forefront. Additionally, companies engaged in the development of emerging technologies such as virtual reality, augmented reality and cloud gaming present investment stakes in the industry's future direction.

The gaming industry's trajectory is marked by massive growth and technological proliferation. Advancements in AI will only strengthen the potential for revolutionary new games and self-generating open worlds. With a broad consumer base, ongoing technological innovation, and evolving business models, the industry offers a promising opportunity for investors. Despite inherent risks such as regulatory challenges and the fluctuating popularity of games, the potential for significant returns is evident. Considering its current scale and the drivers of its expansion, the gaming market is positioned to provide promising investment prospects well into the future.

Weathering Economic Storms

Historically, the industry has shown a remarkable capacity to sustain profits and continue growing even during recessionary periods. This counter-cyclical tendency can be attributed to several factors. Firstly, video games offer a cost-effective form of entertainment compared to other options such as vacations, dining out, or attending live events. During economic hardships, consumers often seek ways to reduce discretionary spending, and video games provide an affordable means of leisure with long-lasting value, especially when considering hours of entertainment per dollar spent. Furthermore, the immersive nature of games can serve as a form of escapism during stressful times, potentially leading to increased engagement.

Like art, gaming thrives when people are feeling down.

The gaming industry also benefits from a diversified revenue model that includes not only one-time purchases but also micro-transactions, affordable downloadable content, subscriptions, and in-game advertising, which can generate a steady income stream. The growth of free-to-play games that rely on such alternative revenue models can continue to attract and retain users without the barrier of upfront costs. Additionally, digital distribution has reduced the dependency on physical retail channels, thereby lowering operational costs and allowing publishers to maintain margins even when consumer spending tightens.

The social component of gaming has become increasingly significant. Online multiplayer games and communities provide social interaction that can be particularly appealing when economic conditions restrict people's ability to socialize outside the home. The sense of connection and community within gaming platforms can drive user engagement and—by extension—revenue.

The gaming industry's multifaceted ecosystem, which includes not only game sales but also hardware, streaming services, and e-sports, creates a dynamic market that can adapt and thrive in various economic climates. For instance, during the Great Recession of 2007-2009, the video game industry experienced growth, with the global games market continuing its upward trend. This performance suggests that the industry may not only withstand economic headwinds but can also offer a haven for investors seeking stability in turbulent times.

The rise of metaverses will further change the gaming world entirely in coming decades.