Games industry returns to growth, but inflationary pressures will make it worse off still
Following over a decade of stellar growth (for an industry that is 50-years-old), the growth pace of the global video games industry has arguably peaked. The grand finale of its growth heyday was artificially fuelled by the Covid bounce in 2020 (26.3% growth) and 2021 (9.8% growth), followed by a 5.0% decline in 2022.
While global revenue will return to growth in 2023, the growth will remain under the rate of inflation. Furthermore, against the inflationary backdrop, the games industry will not see more than low- to mid-single digit % growth for the remainder of the decade.
Growth of subscriptions – great for consumers, less great for developers and publishers
There are number of reasons for this, the most important one of which is the coming growth in games subscriptions and Cloud gaming. If music and video are to even just partially serve as cautionary tales of what happens (at least temporarily) to the value of an individual media asset when the ‘all access’ streaming tap is turned on, the attractivity of this proposition in gamers’ eyes will be even stronger (and, as a result, the monetary impact on the games industry bigger). While in music, a $10.99 subscription would be against the backdrop of a $10-$20 CD, or a $20-$30 DVD in film, a AAA game can cost anywhere between $50-$100 today. A sub-$20 subscription to hundreds of games, therefore, presents an unprecedented entertainment value proposition.
Combine this with the rise of free-to-play (F2P) games and it becomes clear that the traditional unit sales model is encountering significant headwinds. Furthermore, the shift towards free-to-play games monetised by either ads or in-game purchases is making the games industry increasingly commercially dependent on time spent in games. This is a metric that is increasingly harder to come by, as consumers’ available entertainment time is largely tapped out, unless they start eating into activities like sleep and work.
Time spent is now largely a zero-sum game. In order to grow it, games companies need to capture time away from competitors, rather than pursue freely available time like they once could. These effects have been apparent since 2019, but Covid has provided the last hurrah to the industry in this sense.
Tipping point How in-game spending will eat the games world
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Games industry needs a new growth driver, beyond demographics and inflation
Though the games industry is running into tougher times regarding unit economics, there are a number of tailwinds for the remainder of the 2020s that will keep the games industry on a positive (albeit modest) growth trajectory. These are, however, mostly demographic, macroeconomic, and behavioural, rather than fuelled by improving business fundamentals.
Firstly, the growing gamer population. Secondly, the ongoing inflation, resulting in price hikes, combined with gaming’s strong resilience in times of economic hardship. But these tailwinds will not last forever and are more of a growth life-support, rather than propelling the games industry towards new frontiers.
With this in mind, the games industry needs a new growth driver if it is to thrive once again. The saving grace could come in form of in-game spending (especially the cosmetic part thereof). As consumers spend increasingly larger portions of their lives in digital environments, their need to define their image, personality and identity in digital grows too. Unlike paying for a game, paying for image and identity definition can be largely uncapped, providing larger potential upside to developers and publishers who can find their ‘fandom hook’.
Not all doom and gloom for the multi-hundred-billion-dollar industry
While the immediate outlook for games publishers and developers is one of consolidation, those who action the fandom monetisation opportunity will reap the benefits of the still growing (and robust) industry, which stands to be worth over $300 billion in 2030.
This is life, post-peak.
MIDiA’s global games industry forecast is available now. Click here to find more information about what’s included in the report and how to get it.