Industry Deep Dive: Video Games

BACKGROUND

Digital games industry generated $120.1 billion worldwide in 2019. 

  • $64.4 billion in mobile (or ~54%)
  • $29.6 billion in PC (or ~25%) 
  • $15.4 billion on Gaming Console’s (or ~13%)

Industry grew 4% from 2018 to 2019. 

Fortnight was the top highest grossing game of 2019 for the second year in a row, generating $1.8 billion in 2019. 

XR Revenue grew 26% to $6.3 billion in 2019 due to new headsets and general rise of the technology outside of the video game and entertainment industry. 

  • XR or Extended Reality (includes a bucket of different products but encompasses augmented, virtual and mixed reality technologies). 
  • Other uses defined include training staff
    • Walmart started using Virtual Reality (VR) to train new employees. They estimate tasks which take 30 to 40 minutes to train people on can be done in 3 to 5-minute VR modules.
    • Walmart planned in 2019 to train over a million staff in 4000 stores. 
    • Other companies using this technology for training include American Airlines who use VR to help new crew members familiarise themselves with safety procedures before ever boarding a plane. 
    • Market Data suggests the following use of VR in companies for Q4 2018
      • 71% – Training 
      • 38% – Design & Engineering 
      • 36% – Research and Analysis 
      • 35% – Showrooms and Sales 
      • 29% – Other 
  • The biggest driver of XR will be enterprises in 2019, accounting for about 85% of sales, it is predicted they will continue to represent the majority into 2022. 

IMPACT OF COVID

Impossible to say it’s because of COVID but August 2020 revenue for the industry was $10.8 billion – up 16% from same time last year. Same month in 2019 comparison to current: 

  • Console earnings grew 88%
  • PC Revenue up 15%
  • Mobile up 3%

Revenue took off in March as COVID lockdowns started, all area’s experiencing growth. For the first 8-months of 2020 Digital games were up 13% from same period 2019, to be $82.8 billion. 

A list of the most popular worldwide games as at August 2020. 

Some figures for some of these games.  

  • Fall Guys – Highest earning launch of any PC title since Overwatch (May 2016) – $185 million. 8.2 million players paid for the PC version, generating large viewership on Twitch, peaking on Twitch in August with around 709,000 viewers for the month. That has fallen to around 586,000 viewers in September. 
  • Fortnite – Revenue grew 76% month-over-month on PC and console. Player spending in August was up from new season content featuring cosmetic items from Marvel comic characters. Revenue from mobile dropped 62% after Apple and Google removed the game from the IOS App Store and Google Play store after a stoush between Epic Games and the two technology companies.
  • Pokémon Go – Absolute shock that it is still a thing, but the mobile game generated 25% more revenue that its previous peak in August 2016 when there was worldwide hype. The app is Augmented reality and falls into the XR revenue stream.  
  • Among Us – Was released in 2018 but took up popularity recently, hitting 86.6 million downloads on mobile, accumulating 18.4m in August and 41.9m in September. From mobile downloads alone it has grossed in two months about $3.2 million. Not much data on downloads from Steam (PC platform) where it costs $7.50 AUD. Again, wildly successful on Twitch at approx. 743,000 peak viewers in September. 

VIEWING VIDEO GAME CONTENT 

Viewing of video game content can be done on multiple platforms, most popular being; 

  • Amazon owned Twitch 
  • Google owned Youtube 
  • Microsoft owned Mixer (discontinued).

Total revenue from viewing video game content was $6.5 billion in 2019. With the following breakdown; 

  • Twitch – 23% – Generated $1.54 billion from Streaming 
    • Ad revenue made up 8% of this 
  • Youtube – 22% – Generated $1.46 billion from Streaming video games
    • Ad revenue only made up 2%
  • Huya – 8%
  • Mixer – 1%
  • Other – 46% 

LOOKING FORWARD

A trend in the gaming world is consumers drifting towards subscription-based services for games, similar to how Netflix revolutionised streaming, Google Stadia and Xbox Game Pass are new services that give gamers access to popular on-demand titles on launch day. 

  • Subscription Revenue by Year: 
    • 2019 – $784 million 
    • 2020 – $1.15 billion (estimated) (would give a 47% increase). 

Bunch of new services from some of the biggest gaming companies – demonstrating the large potential of the industry. 

  • Playstation Plus – $9.99 USD a month 
    • Prerequisite for online games and has wide range of games. 
  • Playstation Now – $9.99 USD a month 
    • Some games free to play for a limited time and some have ‘ongoing access’.  
  • Xbox Live Gold – $9.99 USD a month 
    • Need to pay for Xbox live to play online
  • Xbox Game Pass – $9.99 USD a month 
    • Gives you day one access to certain games
    • Quite a wide range of games. 
  • Nintendo – $3.99 USD 
    • Cheap but no new games. 
  • Prime Gaming – $12.99 USD (Amazon)
    • Bunch of free stuff monthly, it links to Amazon Prime so anyone with Prime has Prime Gaming.
  • Google Stadia – $9.99 USD 
    • Can play across multiple platforms, good range of games. 

Global Viewers of streaming is expected to surpass 1 billion unique viewers. Hence the growth potential of these platforms. Competition is already on for platforms to secure streamers, for example Twitch signing exclusive deals with many streamers, after top Fortnite Streamer Ninja and Shroud made history going to the now defunct Mixer platform. Shroud has since been exclusively signed to Twitch. 

New consoles from Microsoft and Sony to open new avenues of digital gaming growth into future; 

  • 2019 – Console market flat at $15.4 billion. Next generation consoles represent large opportunities.  

XR revenue and consumer software revenue is projected to reach $6.9 billion in 2020. 

The industry as a whole is expected to be $124.8 billion by 2020 end. Thanks a lot, to an expected $20 billion growth in premium games with new game releases on next generation consoles.


COMPANIES

Some of the major companies include: 

  • Tencent 
  • Sony 
  • Microsoft 
  • Nintendo 
  • NVIDIA 

Notably Tencent, the Hong-Kong company has large stakes or wholly owned subsidiaries of many popular video game platforms and games that many have heard of. 

  • 100% ownership of Riot Games 
    • Games such as League of Legends and Valorant 
    • League of Legends player base in 2014 was about 67 million players monthly, in 2019 this was around 80 million monthly players. 
    • League of Legends 2019 Worlds (World Championships streamed globally) topped 4 million active viewers for the final game (excluding Chinese viewers), if you include Chinese platforms that number peaked at 44 million views. 2020 Worlds peaked (excluding Chinese) at a mere 1.1million viewers (ex Chinese viewers). 
  • 40% in Epic Games – Fortnite, and Unreal game engine. 
  • ~84% in Supercell – makers of Clash of Clans 
  • 80% in Grinding Gear Games which does Path of Exile.  
  • 5% in Activision Blizzard (Call of Duty franchise, World of Warcraft, Overwatch, Starcraft, Hearthstone etc…). 
  • 1.5% in Bluehole who own PUBG, Tencent subsidiary also markets and developed the mobile version. 
  • Capital (undisclosed amount) in Reddit. 
  • Subsidiary of TiMi Studios develops Activation’s COD: Mobile

Consoles

Microsoft – Xbox Series X release date is November 10, 2020. 

Sony – PS5 release date is November 12, 2020

  • Both have AMD created CPUs meaning AMD will inevitably profit from large console sales. 

PC

NVIDIA Most popular for their GPU products (Graphics Cards) and for being a major competitor of AMD in the PC hardware market. 

  • Nvidia released their new cards which are 2x better than the previous cards on a spec basis. Arguably trying to get some market share away from the Consoles and back to PC market. 

AMD – Semiconductor manufacturer, they make CPU and GPU units. Essential for computers. 

Live Streaming and Game Viewing

Amazon – Amazon has Twitch streaming, as discussed above a growing area of the industry is watching streams. Live streaming esports events which is an entire beast in itself, but in summary is a growing part of sports generally, especially in viewership and sports gambling.

Google – Same as Amazon, Youtube would benefit from growth of viewing games live and video game content creation. Esports comment applies to Google as well. 


ETF OPTIONS

Most of these ETFs are new and therefore don’t even have a year’s worth of returns. So year to date returns (YTD) was used for comparison. 

List of ETFs for ease

  • ASX: ESPO – VanEck Australian Version
  • NASDAQ:ESPO – VanEck US Version 
  • NASDAQ:HERO – Global X
  • NYSE:NERD – Round Hill Investments 

VanEck – ASX:ESPO 

‘Invests into the largest and most liquid companies involved in video game development, eSports and related hardware and software globally’.

Main Considerations

  • Management Fee: 0.55% p.a
  • Number of holdings: 25
  • YTD Return: n/a
  • Net Assets: $16.6m

Benchmarked against the MVIS Global Video Gaming and eSports Index

  • Index tracks largest and most liquid companies that generate at least 50% of revenues from video gaming and/or eSports. 
  • That index is something else; 496% gain since inception in Jan 2014.
  • Three years returns are 118.57%

The ESPO ETF is relatively new, listing on ASX on 10 September 2020. 

Holdings in ETF. 

VanEck – NASDAQ:ESPO

Same as the Australian one just much bigger. 

Major Considerations: 

  • Management Fee: 0.50% p.a.
  • Number of Holdings: 25
  • YTD return: 62.56% at market price 
  • Net Assets: $521.6m

Pretty much same holdings in similar sizes between the two. 

Global X – NASDAQ:HERO

‘The Global X Video Games & Esports ETF (HERO) seeks to invest in companies that develop or publish video games, facilitate the streaming and distribution of video gaming or esports content, own and operate within competitive esports leagues, or produce hardware used in video games and esports, including augmented and virtual reality.’

Tracks this index: Solactive Video Games & Esports Index

Major Considerations: 

  • Management Fee: 0.50% p.a.
  • Number of Holdings: 40
  • YTD return: 65.73% at market price
  • Net Assets: $351.97 million 

Interesting, this ETF/Index does not hold Tencent holdings or AMD and index benchmark statement is silent on the issue. 

Roundhill Investments – NYSE:NERD

‘The Roundhill BITKRAFT Esports & Digital Entertainment ETF (“NERD ETF”) is designed to offer retail and institutional investors exposure to esports & digital entertainment by providing investment results that closely correspond, before fees and expenses, to the performance of the Roundhill BITKRAFT Esports Index (“NERD Index”).’

Major Considerations: 

  • Management Fee: 0.50% p.a.
  • Number of Holdings: 32
  • YTD return: 50.70% at market price
  • Net Assets: $351.97 million 

There is Tencent in this ETF but no Nvidia or AMD.

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