The Global Gaming Industry: Here's How You Can Invest in This Growing Sector
I used to grow up playing a couple of PC games.
From the MS-DOS version of Duke Nukem to the Windows version of the FIFA, those games gave me a nice break from the endless hours of studying.
Since then, games have evolved into graphically gorgeous 3D entertainment featuring live video streaming as well.
Many people are turning to such games to spend more of their free time…
So much so that in 2019, revenue from the global gaming industry was already larger than the film and music industry combined!
The gaming industry is poised to grow even further.
According to Newzoo, the global gaming market will surpass US$200 billion by 2023, giving an annualised growth of almost 8% from 2018.
Here are more details about the gaming industry and how you can invest in this growing sector.
Breakdown of the Global Games Market
Last year, the gaming industry raked in slightly below US$150 billion.
But in 2020, this is expected to grow to US$159.3 billion. Of which, mobile will take up the lion’s share at 48%, followed by console at 28%, and PC at 23%.
Mobile is the largest contributor to the pie largely due to a couple of reasons:
- It has the lowest barrier to entry as many people already own smartphones, and it’s just a matter of downloading the games;
- There is a short-term spillover effect from the shutdown of PC cafes in specific markets due to the coronavirus lockdowns; and
- Mobile games have relatively low complexity to produce compared to PC and console gaming.
As the adoption of smartphone grows, revenue from mobile gaming can increase as well.
In terms of region, most of the gamers are in Asia-Pacific (55%), and it is also the fastest-growing region.
We should also address a common misconception, and that is to do with the e-sports market.
E-sports means there has to be some form of organised competition with other players, just like traditional sports. But not all video games include the competition element and can’t be classified as e-sports.
This niche market, which has been gaining popularity of late, is also just a small part of the global gaming industry, at below US$1 billion in revenue.
How the Gaming Industry Makes Money
There are two main business models for the gaming industry — premium games where players pay an upfront fee and the other is a free-to-play model.
The premium games model would be something many of us grew up with. To play FIFA on my PC, I had to buy the CD which cost more than S$50 (if my memory serves me right).
The market share of premium games has been declining, and taking its place is the free-to-play model.
In this model, games are available to download for free, and monetisation occurs through the selling of in-game items or virtual currency to spend in-game. Money can also be made through advertisements.
Some of the world’s most popular games now, such as Fortnite, Apex Legends, Arena of Valor, and League of Legends, are free-to-play games.
The Players in the Gaming Industry
Many of us might be familiar with the various companies involved in the gaming industry. But how do they all come together? Let’s take a look.
Right at the start of the industry are the game developers who design and build the games.
They use game engines to create video games. Such platforms include the recently-listed Unity Software Inc (NYSE: U) and Unreal Engine.
Following them are the publishers, who are involved in the distribution, sales, and marketing of the games. Many game companies are both developers and publishers.
Famous examples of publishers include Activision Blizzard (NASDAQ: ATVI), Electronic Arts (NASDAQ: EA), Sea Ltd‘s (NYSE: SE) Garena, and Zynga Inc (NASDAQ: ZNGA), which created Farmville.
Then there are the platforms where the games are played on or downloaded from. The main companies involved in this part of the value chain are seen below:
|Epic Games Store|
|Console||Playstation by Sony (NYSE: SNE)|
|Xbox by Microsoft (NASDAQ: MSFT)|
|Nintendo Switch by Nintendo (TYO: 7974)|
|Mobile||Apple (NASDAQ: AAPL)|
(NASDAQ: GOOGL)(NASDAQ: GOOG)
Investing in the Gaming Industry Growth
Many of the companies discussed above were also one of the top 10 listed gaming firms in terms of revenue last year.
Apart from investing in the listed companies shown above, there are other companies that you can consider investing in as well.
If you are looking to diversify your investments in the gaming industry easily, you can consider buying exchange-traded funds (ETFs). ETFs are open-ended investment funds that commonly track the performance of an underlying index.
|ETF||Ticker||Underlying Index||Top Three Holdings||Total Number of Holdings||Total Expense Ratio|
|Global X Video Games & Esports ETF||HERO||Solactive Video Games & Esports Index||Sea (7.46%), Nvidia (6.61%), Nintendo (6.58%)||40||0.50%|
|Roundhill BITKRAFT Esports & Digital Entertainment ETF||NERD||Roundhill BITKRAFT Esports Index||Activision Blizzard (6.14%), Tencent (5.79%), Modern Times (5.60%)||31||0.50%|
|VanEck Vectors Video Gaming and eSports ETF||ESPO||MVIS Global Video Gaming and eSports Index||Nvidia (9.09%), Advanced Micro Devices (8.81%), Tencent (7.55%)||25||0.55%|
|Wedbush ETFMG Video Game Tech ETF||GAMR||EEFund Video Game Tech Index||Douyu (2.81%), Bilibili (2.71%), Sciplay (2.45%)||87||0.75%|
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer may have a vested interest in the companies mentioned.
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