The lockdowns around the world caused by the Covid-19 pandemic have seen the gaming market thrive. Lara Williams looks at how the industry is hoping to capitalise on this momentum.
As the Covid-19 crisis triggers unprecedented levels of online gaming adoption, the sector is expected to generate global revenues of $159.3bn in 2020, driven by growth in emerging markets, according to games and e-sports analytics firm Newzoo. But is the immediate boost to the sector sustainable as the pandemic continues to exert pressure on the wider global economy, and will companies turn to growth market expansions as a mitigation strategy?
Emerging markets expect to gain 92 million new gamers by the end of 2020, driving the sector’s growth towards global revenues exceeding $200bn by 2023, according to Newzoo’s 2020 Global Gaming Report. The Asia-Pacific region accounts for more than half (54 per cent) of the world’s players and 49 per cent of global revenues, with a year-on-year revenue growth of 9.9 per cent from February/March 2019 until the same period in 2020. Although North America is the second-largest market by revenue, it showed the second-lowest year-on-year growth of any region at 8.5 per cent, with Europe the lowest at 7.8% since 2019, according to the report.
China’s next level
Chinese mobile game studios are rated among the best in the world and are heavily investing in Asia-Pacific, according to Newzoo senior market analyst Tom Wijman. The international expansion of Chinese gaming companies is a trend accelerated by a nine-month-long freeze in 2018 on game approvals by the Chinese government, which forced many Chinese firms to look for opportunities abroad, he adds.
“It will be a challenge for any international company looking to compete with these leading studios, especially as they might already be late to the party,” says Wijman. “The only exception is the Japanese mobile games market. Japanese-made content nearly always has an audience, so these companies can always look to compete.”
Japanese gaming firm Nintendo saw a surge in its share price in June, raising the company’s market value above many of the country’s biggest multinationals and signalling wider market confidence in the sector amid the global pandemic. Along with Sony and Microsoft the company will launch its next-generation consoles in time for the 2020 festive season, which might face disruption, says Dom Tait, an analyst at consultancy Omdia.
“Consoles are often assembled in China, so while I think companies will continue with releases in major territories, other markets may see delays until 2021,” he says.
Mobile remains the largest segment of the gaming sector in 2020, with revenues of $77.2bn, a 13.3 per cent year-on-year increase driven by activity in emerging markets, according to Newzoo. “With mobile gaming, everything is already digital so game development is typically less complex than for a PC or console games, and less susceptible to disruption,” says Wijman, who believes the pandemic will not affect multinational gaming companies’ plans for international expansion.
Tait agrees that multinationals are unlikely to stall any expansion plans.
“It is not the time for expansion unless you are backed incredibly well; for example, [Chinese tech giant] Tencent won’t be stalling any of its expansion plans soon. It will be taking major stakes in strategic intellectual property from the East and West,” he says.
The M&A game
But whether these strategic investments are followed by commensurate greenfield foreign direct investment (FDI), such as establishing development studios and other operations around the world, remains to be seen, according to NS Media Group’s chief economist Glenn Barklie.
“Gaming is a relatively small FDI subsector, accounting for less than 1 per cent of global FDI,” he says. “Chinese companies’ preferred mode of entry is typically mergers and acquisitions as it allows for key technological advancements and ideas to be brought home. This is not to say that Chinese outbound greenfield FDI in video games does not happen – it does; it is just less prevalent compared with other key source markets such as the US, UK and Japan.”
The effects of cancelled industry events such as San Francisco’s Games Developer Conference and China’s gigantic China Joy conference, where products are launched and industry partnerships are forged, may have repercussions in the long term, according to Dr Jo Twist, CEO of games and interactive entertainment trade association UKIE.
“The gaming business community rapidly pivoted these business-to-business events online. The industry is community driven, highly connected and global, but only time will tell how successful these online events and pitching will be,” she says, adding that small and medium-sized enterprises without an existing profile in the marketplace are likely to suffer most from the cancellations.
Larger, more established gaming firms such as US-based Activision Blizzard have reported positive first-quarter results in 2020. With a global presence that includes studios, sales offices and manufacturing facilities across the Americas, Europe and Asia, the company acknowledges it cannot predict the full impact of the pandemic on its business, while citing the increasingly digital, recurring and cash-generative nature of its operations as its fundamental strengths in weathering economic uncertainty.
With 12 studios worldwide, Russia-headquartered international gaming brand My.Games generated 72 per cent of its mobile games revenues in 2019 from North American and European markets. CEO Vasily Maguryan says the Covid-19 pandemic will not affect the company’s existing expansion plans, which are targeting Asia. Like many firms in the sector My.Games is looking cautiously towards a market that may hold the key to the sector’s future post-Covid-19.
“We are in the process of finalising our first partnership agreement in the Asia-Pacific region and we will continue to explore this complex market,” says Maguryan.