Gaming is a massive, often overlooked market, but it has been popping up in more and more headlines lately.
To put the magnitude of games in perspective, the highest grossing movie of all time is Avengers: Endgame, which generated ~$2.8 billion of revenue. Grand Theft Auto V has generated over $6 billion in revenue, and despite being a 6-year-old game, GTA V recently had its best week ever thanks to a new in-game casino.
Over the next few years, gaming is going to heat up in the same way that every major media company is now jumping into streaming video. So what are the key things to watch, and what is noise? Here are the top three trends to watch in gaming right now.
Every tech company wants to become the Netflix of gaming
Netflix frequently talks about how they “compete with (and lose to) Fortnite more than HBO.” Netflix is the market leader in the $23 billion video streaming market, but gaming is a $150 billion-plus market without one dominant platform or storefront.
Now, all of the big tech companies want to grab a piece of that $150 billion market and step into the aggregator role that Netflix plays for video. Microsoft, Amazon, Google, Apple, Sony, Nvidia, and Verizon are all investing heavily in building “Netflix for gaming” services.
Each of these companies is starting with a different set of strengths and weaknesses, so the offerings look a bit different, but in general, the “Netflix for gaming” product includes a library of games, cloud streaming to multiple devices, and a monthly subscription to pay for everything.
Overall, gamers are skeptical about whether or not they would want to use this type of product because games are consumed differently than video. For example, games last much longer than a movie, gamers want to run games locally for better performance, and gamers want to own games instead of renting them.
However, this is a big opportunity with lots of capital getting invested, so we will see a lot of experimentation, and hopefully someone can build the right product that resonates with customers.
Gaming is becoming social. If Netflix is competing with Fortnite, Fortnite is competing with Snapchat
Last week, Roblox announced that they had reached a milestone of 100 million monthly active users, compared to Minecraft which has 91 million monthly users. (If you’ve never heard of Roblox, you will also be surprised to learn that kids spend 2.5X more time on Roblox than YouTube.)
The magic of Roblox is their community — all of the games on Roblox are built by other members of the Roblox community (mostly kids). And for kids under 13, Roblox is a “third place” to hang out in the same way that Starbucks is a third place for adults.
The same social dynamics are occurring in Fortnite, and Epic has made major investments in the ability to play Fortnite for free across different platforms in order to support the social side of their game.
While multiplayer gaming is not new, games where user-generated content, social interactions, and peer-to-peer competition or cooperation drive the majority of the experience result in games that look very different than the traditional model of game development.
Historically, gaming companies would invest $50 million-plus upfront in a game and hope that people bought enough copies of the game to recoup their initial investment. Today, many companies are blurring the lines between social networks and games, which makes it more important to build a platform and tools that lead to ongoing engagement and interaction than have one big upfront launch.
This has led to the social networks like Snap and Facebook building games on top of their social platforms while the gaming companies are building social into their games. Both are valid models, and we will see what types of social networks and network effects emerge from these different approaches.
Esports, despite the name, is more about entertainment than sports
“We in the sports business don’t sell the game, we sell unique, emotional experiences. We are not in the business of selling basketball.”
That’s from Dallas Mavericks owner Mark Cuban, who has spoken at length about how the “customer” for a sports team is not the hardcore fan who listens to sports radio. Rather, the Mavericks’ customers are people who want to have a fun night out with their friends and family, and the same is true of esports.
Every time there is a big esports event, the media likes to cover the crazy stories like the 16-year-old who won $3 million at the Fortnite World Cup. These are interesting headlines, but the real story (and money) is in the entertainment side of the business and the unique, emotional experiences of watching and participating in an activity.
These types of unique experiences definitely occur in the high-stakes, high-visibility, big tournaments, but just as important are the everyday streaming sessions on sites like Twitch and Mixer and the smaller events where all of the participants and fans are engaged in conversation.
Last week, Ninja announced that he is leaving Twitch to stream exclusively on Microsoft’s live streaming platform Mixer. Within five days, he had one million subscribers. At $5.99/month per subscriber, it’s clear that Microsoft and Ninja’s fans think a lot of the value in esports gets created outside of the big tournaments.
Ultimately, the companies that make money in this space will be the ones who can successfully connect all of the different ecosystem players (i.e., advertisers, content platforms, fans, teams and players, event organizers) with one another to create great experiences.
Gaming is a $150 billion-plus market, and we are still in the early innings of the next phase of gaming moving to the cloud, becoming social, and creating new forms of engagement with customers. As companies experiment with new products and services, investors are looking for the companies who have a unique point of view on how they will be a critical piece of the next-generation gaming landscape.