The future of the video game industry appears to be bright. Consumer demand is increasing, technology is rapidly advancing, and new monetization models are taking off. According to Bain’s analysis, global revenue for games could increase by more than 50% over the next five years. And gamers have a much stronger presence in virtual worlds, known collectively as the metaverse, than other consumers.
The video game industry is massive. In fact, it is larger than the combined film and music industries, and it is only growing. There are more than two billion gamers worldwide, despite the fact that it does not receive the same attention as the film and music industries. That equates to 26% of the global population.
Video games have been around for decades, entertaining both children and adults. Since the early days of computer games and the first versions of Nintendo and Atari, they’ve come a long way. Pixelated screens and limited sound effects have given way to more lifelike video games than ever before. Video games are becoming more advanced as technology advances.
Engagement with video games was increasing well before the pandemic, thanks to increased mobile connectivity and an increase in free-to-play games. Despite this, the growing abundance of ways to engage with video games and video game content has further cemented video games in consumers’ lives. Moreover, despite global mobility restrictions throughout the year, many consumers say they are spending more time engaging via their mobile devices.
Video game development has become increasingly complex, and the cost of developing a game for one of the major consoles has risen in tandem. It was once unthinkable to invest millions in game development, but today’s games can cost tens or even hundreds of millions of dollars. In terms of production and marketing costs, this has pushed game development into the realm of Hollywood films.
As a result of COVID-19 and subsequent restrictions, 55% of US consumers were playing video games at the height of lockdowns. That figure becomes even more impressive when compared to the reach of live and time-shifted TV, which stood at 83% among U.S. adults 18 and older in the second quarter of 2020, according to the Nielsen Total Audience report.
- Technical Innovations
Virtual reality will add yet another level of experience to video games, which have already surpassed many other forms of entertainment. When consoles add peripherals to accept those inputs, there will be more experimentation with controls, including the addition of voice, touchscreens, and gestures to game mechanics.
However, consumers did not stop at spending more time playing video games. They also outspent on games. Under normal circumstances, that might be unimpressive, but when viewed through the lens of a global pandemic with widespread health and financial consequences, it’s illuminating. Early in the year (January and February), game earnings were only up 6%—and this was before COVID-19 took off in the United States. As the year progressed, game earnings nearly doubled, eventually reaching 14% for the remainder of the year.
Importantly, consumers interact with games in ways other than directly playing them. Many spectators watch games as frequently as they play them. Gaming video content (GVC) is online video content about games that is very popular with Millennials. While 71% of Millennial gamers reported watching GVC late last year, GVC’s overall audience increased 18% this year to 1.2 billion people, generating more than $9 billion in revenue. Twitch has played a key role in increasing engagement with GVC, as it helped battle royale platform Fall Guys: Ultimate Knockout become a breakout hit in August, selling 8.2 million units on PC in one month. After Twitch streamers popularised the online social deduction game Among Us, it grew to have the highest monthly player base of any game in history.
- Franchise management boosts involvement
As games grow in size, cost, and lifetime, it is more important than ever to create meaningful and compelling intellectual property (IP) and manage the franchise over decades. Historically, franchise management has prioritised extending a game’s life cycle through expansions, sequels, or, more recently, recurring content drops in live service games. Big games like League of Legends, Pokémon, and The Witcher have demonstrated the possibility of expanding beyond the game into TV, movies, and other forms of media. The gamer audience’s global reach and appealing demographics make it particularly appealing to Hollywood and marketers in general.
- The customer experience extends beyond the game
As the metaverse’s applications expand and scale, video game companies will need to take players on a journey that extends beyond the game and related media. Customers will expect to be able to seamlessly transition between game play, socialising, and commerce in both the physical and virtual worlds.
- A top priority is to develop talent
The majority of video game executives we speak with rank talent as their top priority. Top talent is in short supply, and this imbalance is expected to worsen as game companies ramp up to build and maintain large virtual worlds. According to Bain’s research, video game developers are leaving for jobs in large technology firms, which typically pay 20% more.
The future of video games is a bright spot in the media landscape. However, the industry is changing dramatically and faster than in the past. If game developers and publishers want to thrive in an environment that is becoming more global, technologically complex, and deeply integrated with other media platforms and much of life, they will need to learn new skills and sharpen their focus. Competition is heating up, especially for top creative talent. Companies that act quickly to improve their capabilities, talent, partnerships, and market positions will be able to stay ahead of the competition. Are you prepared?
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