Video games software/hardware combined could be in the $165 billion to $170 billion range this year (if mobile outperforms again), and reach between $230 billion and $235 billion by 2022 if strong performance continues. That might make games software/hardware bigger in 5 years than 150 countries’ individual GDPs today (somewhere between Vietnam and Finland). Games software alone could drive around three-quarters of total market revenue in 5 years, with hardware taking the rest. Games are great fun, but they’re also serious business.
Three giant sectors to dominate market revenue
Digi-Capital’s new Games Report Q1 2018 details how the three big sectors of mobile games software, PC games hardware (including gaming computers, upgrades and peripherals), and PC games (online) (including DLC, IAP and subscriptions) could take just under three-quarters of total games market revenue by 2022. If mobile games software continues its outperformance of recent years, it could deliver in the $55 billion to $60 billion range this year, and grow to $90 billion to $95 billion by 2022. PC games hardware sales could hit $30 billion to $35 billion in 2018, growing steadily to between $40 billion and $45 billion in the same timeframe. Lastly PC games (online) could drive $20 billion to $25 billion this year, also growing steadily to $25 billion to $30 billion by 2022.
Fifteen sectors driving market growth (and decline)
Console games (physical sales) could still produce significant revenue by 2022, despite long-term decline. All the other sectors might be in the high to low single digit billions in 5 years, including steady growth console games (digital sales), high growth AR games (from a low base), long-term ex-growth console games hardware (even with Nintendo Switch’s recent outperformance), high growth VR games (from a low base), solid growth console games (online), steady growth games advertising, low growth PC games (digital sales), steady growth VR hardware (from a low base), declining web games, strong growth (but small) eSports and declining PC games (physical sales).
At a platform level, mobile games (software only) could approach two-fifths, and PC games (software/hardware) one-third of all games revenue by 2022. Console games (software/hardware) remain huge fun, but could see less than one-sixth of all market revenue in 5 years. VR games (software/hardware) and AR games (software only) are both going to be big, but they’re not the same scale as the three major platforms. Web games are not growing, and exciting eSports might still produce less than 1% of total industry revenue long-term (but do wonders as a marketing tool for games on the major platforms).
USA, China, Japan and South Korea dominant
The US, China, Japan and South Korea together could take nearly two-thirds of global games market revenue in 5 years. But when grouped into regions with the 50 other games countries Digi-Capital covers, Asia should continue to be bigger than North America and Western Europe combined.
There are huge differences in games industry growth rates across countries, but at a regional level Asia’s combined scale and growth are driving the industry forward. Some of the highest revenue growth rates are also coming from countries which won’t hit the top 10 in 5 years, with several Eastern European, Latin American and Middle Eastern/African countries seeing significant revenue growth from a small base.
Record games investment in 2017
All of this scale and growth has led to two consecutive years of games investment growth, with VCs from Sand Hill Road to China pouring a record well over $2 billion into games startups in 2017. The biggest investments were in games core tech, mobile games and AR/VR games sectors. eSports also generated a huge amount of interest, but not the same level of investment.
In contrast, games M&A dropped back below $5 billion to its most recent low point of 2015 due to a lack of giant games acquisitions in 2017 (unlike 2016’s record over $28 billion). To balance this decline, the games IPO market rebounded to a record high last year led by Netmarble, SEA (Garena) and Rovio. The next 12 months could determine whether the last decade’s 3 year games IPO cycles hold true, with one big year followed by two quiet ones. Altogether 2017’s total games market exits (M&A/IPO combined) delivered lower dollar value, but higher deal volume than the year before.
Games has become a largely consolidated market where giants rule, but indie developer hope springs eternal. The next few years could see a new wave of giants emerge from early-stage sectors that promise to become the future of the industry. Game on.
(You can read more in Digi-Capital’s new 206 page Games Report and Database Q1 2018, including games market analysis and forecasts from 2017 to 2022 for all games sectors, platforms, countries and regions, including AR games, console games (digital sales), console games (online), console games (physical sales), console games hardware, eSports, games advertising, mobile games, PC games (digital sales), PC games (online), PC games (physical sales), PC games hardware, VR games, VR hardware, web games, startup investments/VC investors/M&As/IPOs – includes bundled sectors, platforms, countries and regions forecast and 2,000+ deals database)
[Top image copyright Niantic]