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 (which includes gaming computers, upgrades and peripherals), and online PC games (including DLC, IAP and subscriptions) could take just under three-quarters of total games market revenue by 2022. If mobile games software continues to outperform forecasts, it could deliver in the $55 billion-$60 billion range this year, and grow to $90 billion-95 billion by 2022. PC games hardware sales could hit $30 billion-$35 billion in 2018, growing steadily to between $40 billion-45 billion in the same timeframe. Lastly PC online games could drive $20 billion-25 billion this year, also growing steadily to $25 billion-$30 billion by 2022.
15 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 five 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 of all game revenue, and PC games (software/hardware) one-third, by 2022. Console games (software/hardware) remain huge fun, but could see less than one-sixth of all market revenue in five 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 percent of total industry revenue long-term, even as they 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 five 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 three-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.
(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)
Tim Merel is managing director of AR/VR and games adviser Digi-Capital.