Eat. Sleep. Game. Repeat. The Expansion of Gaming Industry During COVID-19

The gaming industry is the fastest-growing sector of the entertainment industry, generating 152.1 billion USD in revenue last year. Meanwhile, the film industry turned over barely a quarter and the music industry just over a tenth of that sum.

 

Unsurprisingly, the gaming industry has benefited from a concatenation of fortunate events. The Supreme Court prohibited sports betting in 2018, fortuitously injecting additional revenue into the gaming sector. The industry has further ensured its success by adapting to the current technological climate. The increasing popularity of mobile gaming alongside the shift to player-centric technology, where games can be played on multiple devices, has altered the very nature of gaming to suit the range of devices that an individual uses on a daily basis.

 

Yet, one of the most important events that has affected the industry growth is the COVID-19 pandemic. As a result of nation-wide lockdowns, 81% of the US population has resorted to playing electronic games. The pandemic generated industry-wide revenue highs. For example, Unity Technologies, an American video games software developer, reported a 59% YOY increase in advertisement revenue this April. Similarly, the increasing availability of 5G coverage and progresses in augmented reality (AR) are at the centre of the gaming evolution. These technological developments are enabling developers to implement a new, more immersive experience without forfeiting the quality of the gaming practice. Qualcomm, a wireless technology company, for instance, has announced that it plans to issue 5G phone-based AR headsets. While previous trends have driven significant longer-term advancements in the gaming industry, it is because of the pandemic that the industry is predicting its total revenue to surpass 200 billion USD in 2021.

 

Unlike other sectors, the gaming industry has been far more resistant to the challenges posed by COVID-19. Zynga, an online and mobile games developer, has experienced a 60.3% rise in share price and has subsequently been able to acquire Rollic, a Turkish leader in hyper-casual games, for 180 million USD. Through the acquisition, Zynga is able to diversify its market share and offer new advertising platforms, securing its position as the most expansive mobile-game company in Europe and the US. Interestingly, however, the gaming giant has experienced a 14% decline in share price since July. It is believed that Apple’s expected iOS update, that will seek to hinder ad-tracking technologies, has caused the concern. Yet crucially, Rollic does not use Apple’s Identifier meaning the company will not be affected by these concerns over ad-tracking technologies. Therefore, this acquisition is part of a clear-cut strategy to limit the financial troubles caused by Apple’s potential updates. In addition, Zynga’s acquisition of Rollic embodies the power of the gaming industry. Zynga’s expansion consolidates their 1.8 billion USD acquisition of Peak Games, a mobile technology company, enabling the developer to further grow its market share and strengthen its position in an expanding industry. Acquisitions, like that of Zynga, underline the attractiveness of the gaming sector, but the lifting of COVID-19 restrictions and the damaging iOS changes may make investors apprehensive.

 

Microsoft has also demonstrated its eagerness to strengthen its position in the gaming industry. The multinational technology company revealed in late September that it will obtain ZeniMax Media and its game publisher Bethesda Softworks for 7.5 billion USD by the end of Q2 in 2021. The timing of the deal is key. This acquisition allows Microsoft to integrate Bethesda’s long-awaited future games onto Xbox Game Pass – their new cloud gaming service that has just reached 15 million subscribers. The deal will add best-selling gaming franchises, including Fallout, The Elder Scrolls, and Doom to Microsoft’s collection, which should result in increased revenue. Crucially, Microsoft will be able to supersede long-term competitors, such as Sony and Nintendo, by gaining exclusive access to these high-profile games through its subscription-based model. Such an advantage is strategically well-timed as the technology company intends to unveil the Xbox Series X game console next month, which will be competing with Sony’s Playstation 5. Microsoft’s acquisition reflects the ground-breaking transition to cloud-powered gaming. The gaming industry is being transformed and the impact of this transformation will be significant for future strategies, competition and technologies.

 

These deals, amongst others, demonstrate the growing allure of the gaming industry. The industry has been both fortunate and opportunistic recently, benefiting from COVID-19 but also taking advantage of new consumer technologies. The industry giants like Zynga are using the recent growth to diversify and Microsoft is attempting to distinguish itself from stiff competition.  The future looks promising for the gaming industry but one would expect revenues to settle down after their COVID-19 peaks. M&A activity within the gaming industry will also likely increase in Q4 of 2020, resulting in more disruption within the industry, and is then expected to decrease again as normality starts to return.

 

By Toby Pallister

Sector Head: Felix Hooper

Posted in

Leave a Comment