As the industry continues to evolve, it is facing opportunities and challenges, including new incumbents and shrinking margins.
On Thursday (November 14), EY released a report based on a survey of 240 executives in the video game industry, spotlighting key areas in the sector that are seen growing well into next year.
Overall, the executives surveyed shared a positive outlook on both revenue projections and audience growth. Additionally, the report highlights some of the risks embedded in the industry.
The report further reveals that the video game industry is the third fastest growing media and entertainment industry, following subscription video on demand and online display advertising.
In fact, over the past 18 months, total funding within the video game industry has surpassed the previous five years of funding combined. According to Digi-Capital, in the first half of 2019 alone, funding in the sector reached US$3.8 billion.
While the consensus is that the video game climate will become more challenging over the next five years due to a rise in new entrants in the industry, those surveyed said three primary trends are having a positive impact on the sector: mobile, esports and cloud-based infrastructure.
In line with expectations, mobile game revenues have outpaced game revenues for both personal computers (PCs) and consoles in 2019 to date. According to Newzoo, global mobile revenues totaled US$69 billion, followed by consoles at US$48 billion and PCs with US$36 billion in revenues.
Along with this, average mobile revenues per user are projected to outperform console and PC revenues by more than sixfold over the next three years.
Underpinning this growth will be a heightened adoption of cloud infrastructure. Providing higher resolution through 5G and the ability to play across multiple devices, cloud-based gaming is projected to be the new normal within the next five years. EY states that 63 percent of executives surveyed said that companies will be at a disadvantage if cloud-based infrastructure is not adopted by businesses.
Although many executives differed in sentiment about the potential for esports, they agreed that esports is likely to provide a viable avenue to build brand awareness. Just over 40 percent of respondents said that esports will contribute over 10 percent of revenue growth going into the next five years, while 23 percent said it will produce none.
While mobile, cloud and esports present a trio of opportunities for the video game industry, there are a number of risks projected for the industry — namely shrinking margins.
In total, 79 percent of respondents said that costs associated with creating new games are rising. Costs for security, compliance, marketing and technology infrastructure are all projected to rise at least 10 percent over the next five years, according to a large segment of executives.
Coupled with this is a broad anticipation that the number of new gamers entering the market will slow. As a result, 68 percent surveyed said that new revenue streams will be explored to drive growth.
According to eMarketer, 92 percent of 16 to 24 year olds play games at least once a month, while 86 percent of the total internet user base games at least once monthly.
In spite of these challenges, EY projects that by 2022 the industry will grow to US$200 billion in revenue, rising at a 9 percent compound annual growth rate from 2018.
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Securities Disclosure: I, Dorothy Neufeld, hold no direct investment interest in any company mentioned in this article.