4x larger than Hollywood: Australia’s video game opportunity

Sascha: [00:00:02] Welcome to the day of the podcast that asks Who said business news needs to be old business? Would it surprise you to know that the video game industry is worth $200 billion globally? Okay, numbers without context are always difficult. So here is a comparison that's four times as big as Hollywood, which brings in roughly 50 billion. Dan Van Boom, the technology reporter at Capital Brief, recently wrote a piece that argued that Australia is perfectly positioned to take advantage of the economic benefits of this hidden giant of an industry. It's Friday, the 27th of October. And today, I want to know, what's stopping Australia from making more of the video game economy. To talk about this today, I'm joined by Dan from Capital Brief. Dan, welcome to the dive. 

Dan: [00:00:54] Thanks so much for having me. 

Sascha: [00:00:55] For those of us who might be guilty of this, still think the video games for lazy teenagers, you know, 14 year olds locked in their rooms playing for hours at a time. Can you give me a sense of just how big the video game industry is globally? 

Dan: [00:01:11] Yeah, for sure. And, you know, video games definitely offer lazy teenagers, too, but also lazy adults with that and a bunch of other people. Video games are massive. Not only are they bigger than Hollywood, they are significantly bigger than Hollywood. So this year, it's estimated that the global industry will be worth about 200 billion, like a few million less than that. And for reference, the global box office of 2019. So we're talking pre-COVID peak with Avengers and all that good stuff was 50 billion. So. Now, that doesn't obviously when we compare film business, that doesn't factor in DVD sales. Do people still buy DVDs? I'm not sure. But yeah, in terms of box office, it's four times bigger than Hollywood. So it's big. 

Sascha: [00:01:53] That's absolutely massive when you think about that translating in terms of the cultural importance, it doesn't, you know, the way that we talk about movies and television around the watercooler, it doesn't translate in terms of money, does it? 

Dan: [00:02:05] Yeah, it's really actually strange. It's like a really weird thing where it's just like if you're like, Oh, I'm going to read a book tonight or I'm going to watch a movie tonight. People are cool, but if I'm going to stay home and play Final Fantasy, it's kind of like, okay man, whatever.

Sascha: [00:02:18] You do, you. 

Dan: [00:02:19] Yeah.

Sascha: [00:02:21] So let's get into kind of the crux of what you wrote about for Capital Brief, which is this idea that video games could be at the core of Australia's new economy. I want to pull on this thread that kind of went through it, which is Tony Burke, a minister of the arts. He announced 12 million of funding for the industry in Japan. I mean, when you put it in the context of the 200 billion, seems like small change, but that's under this new revive policy, it's paired with a tax offset for companies that spend more than half a million developing a game in Australia. So gaming teams are small, but the costs aren't insignificant. And, you know, 12 million sounds flashy in a headline, but, you know, giving us that number, that 300 billion. What's the economy of scale here like? What is the economic context of whether this is enough? 

Dan: [00:03:10] Yeah. So I think it would be helpful to first kind of point out that the, quote, games industry is actually segmented into different types of games. So at a very broad level, you could say there are triple-A games, which is kind of the equivalent of your Hollywood blockbuster. And then there are indie games, you know, like in the movies. And there is a massive difference in scale in these two. So like a triple-A game, you'll have 400 people working on it for 4 to 6 years, budgets of 350, 300 million, that kind of thing. And those are the games like your Call of Duty, which come out and make, you know, ungodly amounts of money in 24 hours. 

Audio Clip: [00:03:48] Call of Duty generates $800 million in revenue for PlayStation in 2021, just in the US, $1.5 billion in revenue worldwide. This is just for PlayStation. That's not taking into account Xbox or anything on PC. That's one console, $1.5 billion in revenue. 

Dan: [00:04:14] And then you have your indie games. In my article, I actually spoke to two developers at two different studios, and they actually were a pretty good indication of the spectrum of what indie game development can look like. So I talked to the founder of a Brisbane studio, which game, and they made a really charming puzzle game called Unpacking, which they made for about 500 grand. That was a small team who made it over a number of years. And on the other end of the spectrum, have a studio called League of Geeks, which is making Space Ship Simulator. It's probably the best way to describe it. And that's a team of about 35, 40 people for about ten, $12 million. So the range is very, very large. So when you talk $12 million, yeah, it does sound like a lot, but that would probably fund a few games. But again, it's definitely a step. The right direction. I mean, this all comes down to how big of a pot do we want gaming to play in our economy. So $12 million is much better than nothing. So for context, the Gillard administration was the last Australian government to have a federal fund for gaming and they started $20 Million Fund, which Tony Abbott axed in 2014. Then Labour promised $25 million and now they've ended up with $20 million. So that's fine, that's better than nothing. But the question is how big a role do we want gaming to play in this economy? And. And the crux of my article was basically like over the next 20 or 30 years, in theory, we will be making less money from digging stuff out of the ground and selling it overseas, which is how we make, you know, what our economy is essentially based on. And so I don't really think that you're going to replace that industry with one other large industry. I think it'll be a matter of like various other industries having to be developed. And I think gaming could and should be a part of that. 

Sascha: [00:05:54] Well, I think that's a really excellent moment for me to just ask then how do we currently compare internationally? You know, putting aside this government initiative, what does the current landscape look like? How is the indie landscape existing in Australia at this current time? 

Dan: [00:06:11] Yeah, it's actually very well respected. So essentially we had a bunch of triple-A studios in Australia and then the GFC hit and then they all basically died over a number of years and that's a whole other story. Then the gaming industry was kind of like on life support, but during that time. Screen Victoria Now Screen Vic, they had a pretty steady drumbeat of funding for games. So now Melbourne as a result ten years later has become something of a hub for indie games. So to put a number on it, the global indie game sector is worth about $2 billion. Developers in Melbourne have made some really impressive and really successful games. Last year there was a game called Cult of the Lamb, which was like an international hit that sold about 2 million copies or millions of copies, they've said at $30 each. That's at least like, you know, $60 million. And that's like if you are speaking about an industry where companies were making $60 million in exports in Australia are cool, but because it's gaming, it's kind of like, oh, well, that's just a weird game thing. 

Sascha: [00:07:12] And also just to pick up on that, you know, I'm around these investing conversations on equity mates all the time and there is this real focus on software as a service and you know, looking at SAS models and it's like gaming is kind of at its core that in itself. 

Dan: [00:07:28] Yeah, Yeah, it really is. So that's actually a really great point because gaming has really evolved in the last ten years, and one of the reasons why it's grown exponentially is because when there was a PlayStation one, PlayStation two era was you spent 100 bucks for a game, you played the game, you bought a new game. Now games are often free or quite cheap, but those games, the developers support them for years and years and years and people will buy in-game items, expansions, etc. like the market for in-game purchases. And Fortnite, for instance, is like enormous. Software as a service is actually a really good comparison because it's not like it was before you buy it, play it, forget about it. It's like people played the same game for years and years and years. Now, one other thing that is definitely worth pointing out, one thing that's unusual about the video game industry is that it's not centralised. Like Silicon Valley and Hollywood are renowned centres of their respective fields such that they've become synonyms for their respective fields. Right? Whereas gaming is not that like really a team of developers can make a game anywhere and they just whack a, an American voice actor as the main character. And you never know. It was built like The Witcher, which was made into a Netflix show Cyberpunk 2077. That's a super big game that was made in Poland, but you would think you wouldn't think these games are made in the places they are. So I forgot your question, but I agree. Whatever it was.

Sascha: [00:08:47] More of my conversation with Dan, including the challenges that lie in Australia's past in just a moment. 

Audio Clip: [00:08:58] The Australian Games industry has made massive strides recently, doubling its revenue in six years. 

Sascha: [00:09:05] Welcome back to the dive, Sascha here, your host. Before we get back into my conversation with Dan, I have a quick favour to ask you and that is to jump into your podcast player wherever you're listening right now and give us a five star review. I know, I know. I ask you every single time, but there's a reason for that. If everyone gave us a five star review takes 30 seconds of your time, it helps us get in front of new ears, and that makes all the difference to us as an independent media company. So last time, I promise that I'll ask this episode. Can't promise that next time, but I kept you waiting long enough. Let's get back to my conversation with Dan Van Boom, the technology correspondent from Capital Brief. You've already kind of given me this thread here, which is, you know, if you want to go all the way back, Australia's economy built on the back of a sheep. Now it's things that we dig out of the ground. You're arguing for the fact that we need to be looking for the next pivot. We need to be looking for the next make up of what things are and saying that video games should be a part of that. What is the case for video games to play a role in Australia's new economy? 

Dan: [00:10:09] Well, we have talent in Australia that can make them. There are software that can scale internationally quite easily and there's no reason for it not to. It's a big industry and we have an opportunity to make tens of millions, hundreds of millions, eventually maybe billions of dollars. And when it comes to replacing the economy that we have until now, for the last 30 years, sustain ourselves on and may not be able to do so for another 30 or 40 years. You know, every hundred, 200, $300 million counts. 

Sascha: [00:10:39] Hmm. So, crucially, what do you think standing between us and this happening? You know, what are the risks that lying in in our path? 

Dan: [00:10:47] Well, cutting funding would be one thing. So one thing to note on funding is that the role of funding isn't to prop up companies. It's kind of underrated how perilous game development is. So if you're a company and you make one successful game, you then typically you move on to another game, which is a bit more ambitious. But these games can take four or five or six years to develop, even the small ones. And so you bleed out of cash and if the game isn't successful, your company can just that's the end. So the grants are not really about propping up companies. It's more like a lifeline for new companies to get prototypes, which they can shop to publishers and to support companies when they go through a little bit of strife. So before you ask, what do you make of the $12 million funding? And again, I say it's a question of what our ambitions, if the ambition is for us to have a decent video game industry, then you know, that's a good start. But if we want to really thrive and kind of accelerate this to what it could be, then you know, more funding is definitely better. I am, as everyone should be, suspicious of excessive government funding because obviously that often creates bloat and bureaucracy and etc., etc.. But I was speaking to one of the developers about that exact thing, and the sense he gave me was that on the spectrum of government funding where, you know, once the industry reaches a certain size, more is less gaming. In Australia, it's still small enough where more is more like every dollar kind of counts now. 

Sascha: [00:12:12] Excellent. Dan, well, I feel like there's so much more to unpack there, but we're just going to have to get you back for another interview in the time to come. So I really appreciate you coming on the show today.

Dan: [00:12:21] Can't wait. Thanks so much for having me.

Sascha: [00:12:22] Excellent. And for those who want to find out more about where you're writing and filing. Where can they read more? 

Dan: [00:12:28] You can read more at capitalbrief.com. 

Sascha: [00:12:30] Thanks Dan. A huge thank you to Dan for joining me. If you've got any feedback for the dive team or anything that we make here at agreements email us at contact@equitymates.com. As for me I'm going to be back in your feed on Monday joined by Alec talking about tax. Now I know don't groan you know us it's going to be fun. Until then have a great weekend.