- The video-game industry is poised to change dramatically over the next decade.
- Cloud gaming, digital distribution, fresh revenue models, new players, and greater regulation are likely to be some of the biggest trends.
- View Markets Insider’s homepage for more stories.
The video-game industry is poised to change dramatically over the next decade. Cloud gaming, digital distribution, fresh revenue models, new players, and greater regulation are likely to be some of the biggest trends.
Here are five ways the industry is likely to change over the next decade.
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Microsoft, Google, and other video-game companies are racing to make video games as easy to stream as songs on Spotify or movies on Netflix. Microsoft’s Project xCloud and Google’s Stadia promise to allow people to play games on their smartphones, tablets, internet-connected TVs, and other devices.
Allowing people to stream games without needing a computer or console promises to transform the industry. Many more people would play games if it didn’t cost upwards of $500 to buy the necessary hardware. A Netflix-style interface would also allow gamers to enjoy a wide variety of games without having to blow $60 on each of them.
Players wouldn’t have to twiddle their thumbs for an hour while downloading and installing them, or worry about deleting other games to free up space. They could also play games in more situations if they could use their smartphones and tablets to stream them.
The global video-game streaming market is predicted to grow by 27% a year between 2018 and 2026, according to Zion Market Research, surging from about $800 million in annual sales in 2017 to north of $6.9 billion.
The digital revolution
Consumers have largely ditched CDs and DVDs in favor of downloading or streaming their songs, TV shows, and movies. Video games are already following suit, moving from physical discs and cartridges to digital files. Physical PC- and video-game sales have plunged from 80% of total sales in 2009 to 17% in 2018, according to Statista, and that trend is set to continue over the next decade.
Digital distribution is hugely beneficial to video-game publishers such as Ubisoft and Electronic Arts, as they save on manufacturing, shipping, and storage costs. They can also cut out the middlemen — retailers such as GameStop — and sell games directly to consumers through their own digital storefronts, boosting their profit margins.
Virtual purchases are also convenient for consumers, who can buy the latest Assassin’s Creed or Madden game without having to travel and stand in line or wait for it to arrive in the mail.
Of course, retailers such as GameStop and Best Buy lose out if customers don’t have to visit their stores. They’ve tried to diversify their revenue streams by selling electronics, collectibles, and gift cards that can be redeemed for digital currency, but the new status quo remains a challenge.
Fresh revenue models
Video games have historically been expensive, one-off purchases, meaning publishers and retailers earned the bulk of their revenues during the holiday season.
In-game purchases such as FIFA packs, paid downloadable content such as extra levels on Overcooked, and monthly-subscription services such as Xbox Live are becoming more and more popular.
As a result, video games increasingly generate cash for months or even years after their release, smoothing developers’ revenues and cash flows and earning them a superior return on their time and resources.
For example, Electronic Arts racked up $714 million in revenue from live services last quarter, which made up about 58% of its total sales — up from 44% a year earlier
Faster and cheaper smartphones and tablets, the spread of wireless internet, and popular mobile games such as Candy Crush have created a new generation of casual players and enabled more to join in the fun. An estimated 2.3 billion people — more than 30% of the world population — actively play games, according to Newzoo.
The growing number of gamers is likely to attract more companies to the sector. Amazon is developing a video-game streaming service, according to The Information, and could grab a sizeable chunk of the market given it’s already a leader in cloud computing with Amazon Web Services and owns Twitch, a video-game viewing platform. Google is also taking on Microsoft, Sony, and Nintendo with Stadia. Even Walmart is exploring a video-game streaming service.
Video games are likely to be caught up as regulators target tech companies such as Facebook, Google, Amazon, and Apple over their sprawling ecosystems, handling of user data, privacy failures, moderation of their platforms, anti-competitive practices, and other issues.
Lawmakers are already discussing ways to crack down on lootboxes — random rewards that can be bought with real money. Critics argue developers are encouraging minors to engage in online gambling, often with their parents’ money but without their knowledge. They’ve also gotten in trouble for micro-transactions in games, such as purchasing extra lives or speed boosts, as there have been several cases where children unwittingly spent hundreds of dollars.
Yet video-game developers continue to push the boundaries of behavior. For example, Rockstar Games recently added an in-game casino to Grand Theft Auto V where players can deposit real money in exchange for gambling chips but not withdraw their winnings, according to the BBC.