Why Gaming Industry is so interesting (and why it’s difficult to stay on top as an investor or operator)
I’ve become fascinated by Gaming Industry aka Video Games. And for anyone in the industry, there are few people who write or talk about it with more insight than Matthew Ball (full attribution of any insights below come from him). He is a keen observer of media in general but also states that gaming is its own unique beast.
If you contrast movies versus games, despite massive increase in technological & experience, movies have not changed dramatically in the last 2 decades. But the video games experience progresses every year. Games literally get better every year. Not sure you can say the same thing when it comes to Movies & television.
This has led to two very major factors in Gaming that make it so distinct.
- Power Law Differential: Hits driven, Winner take-all dynamics like in most of technology business.
- Red Queen Effect: It’s so competitive you have to run twice as fast to stay in the same place.
Gaming legend Yoichi Wada said “All media industries are a product of content, business model and technology. Tech usually comes first, which informs the business model which drives content.”
One of the things that is so unique about this industry is that new technology platforms do not cannibalize or undercut old prior ones. So for example, the arcade industry is now as big as it was 40 years ago. PC and Mobile games did not cannibalize console games growth. Same with Live services gaming. Each new technology platform acts as a new geological strata on top of each other and unlocked new customer segments. The clear counterexample is in Music where Digital replaced CDs, which replaced Cassettes, which had replaced Vinyl.
When we see new technology platforms like Augmented Reality (AR)/Virtual Reality (VR) emerge, we can expect little to no cannibalization. But we will also see new major players take the lead in those segments (like Niantic in AR/VR).
What is not surprising (or maybe it is surprising) is the dominant players in old platforms usually do not lead in the new tech platforms. So for example in Mobile it was Supercell, Rovio or King. In Console Gaming, Sony/MSFT/Nintendo were leaders. For PC Games, Activision & Blizzard were winners. We see Minecraft & Fortnite really own the Live Service gaming space. Based on history, with every new technology, we should expect the rise of new dominant platforms and gaming content studios.
The Gaming industry is expansive and unlike most media sectors, there are a multitude of dominant players that are multi-billion in valuation. Basically there is room for a multitude of players unlike in other sectors. And there is a rich M&A market as these big players gobble up smaller startups.
Cloud gaming as new tech platforms seem to be the new emerging battlefield. I see some big moves from Stadia from Google, Microsoft Live, Sony Playstation Now. But we are probably decades away from mass penetration due to bandwidth costs. Additionally the consumer experience is not as plainly not as good as the present technology platforms. The clear unique experience for cloud gaming is still to be determined but the promise is there.
Why should you pay attention to Gaming industry?
If you have read the Science Fiction book “Ready Player One”, the fully virtual world could potentially be bigger than our offline world. This metaverse or fully digital universe might seem like science fiction but for many of our lives in 2020 pandemic point to some semblance of this. We can only expect that digital will slowly become a bigger part of our world. Many experts believe Gaming will be a key entry point and onboarding to the metaverse.
Net net: Gaming is going to be an exciting place to be and I can’t wait to see all the new developments happening here from both a user and investor perspective.