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Games are the gateway to younger consumers, and that became even more obvious during the pandemic. Games grew revenues 10% in 2020, according to professional service firm PricewaterhouseCoopers (PwC). The game industry is forecast to grow at a 4.4% compound annual growth rate through 2025.
That’s a healthy growth rate, considering the movie theater box office revenues fell 71% in 2020 and the overall global entertainment and media industry fell 3.8% in 2020 to $2.0 trillion, a shrinkage of more than $100 billion (though this should bounce back somewhat as the pandemic abates, as Black Widow‘s opening box office shows) By comparison, the global economy shrank 5.1% in 2020, according to the PwC annual Global Entertainment & Media Outlook, which provides five-year outlooks for 14 entertainment and media segments across 53 territories.
Games benefited as people found they could play online with friends remotely during the lockdown. Gaming will be the fastest-growing content category over the forecast period, with games accounting for 6.1% of consumption globally by 2025. Mobile gaming grew rapidly during the pandemic, and its portability and accessibility will keep consumers engaged after lockdowns have been lifted.
If big brands and other companies want to find younger consumers where they are already spending their time, that means focusing on gaming. Traditional consoles grew thanks to the launch of next-generation consoles from Microsoft and Sony in late 2020. More broadly, gaming is a global language and a global market, with strong communities of creators and players all over the world, said PwC. We know that at GamesBeat, but it’s nice that mainstream and objective research companies like PwC recognize the power of gaming. While game-focused market research and analyst firms like NPD, Newzoo, Sensor Tower, and App Annie provide more focused data on the game industry, it’s good to get a top-down, global view of where games fit within all of entertainment from PwC.
PwC said China’s games producers have been expanding overseas in search of new markets, including setting up new headquarters in other Asia Pacific centers. PwC called out the March 2021 initial public offering of Indian gaming and sports startup Nazara Technologies as heavily oversubscribed.
Most of the growth will be digital. Facebook Gaming and Amazon’s Twitch have recently been active in acquiring premium games-related video content, including media rights to esports competitions and exclusivity deals with prominent games streamers. Google plans to integrate its cloud gaming unit Stadia with YouTube, which will make games seamlessly playable by viewers of game-related content and live streams, PwC said.
Overall, PwC expects growth due to the new consoles, digital offerings, a resurgent global PC market, the growth of social gaming, and gains in casual games (which account for nearly 60% of the market). By 2025, game revenues are expected to reach $194.7 billion. For overall games, physical sales will fall from 48.2% of the global console market in 2019 to 35.5% by 2025.
VR continues to surge
Segments of gaming include virtual reality (VR), which was the fastest-growing segment covered by the report in 2020, with revenue of $1.8 billion, up 31.7% from 2019, albeit off a very low base. VR will also be the fastest-rising E&M segment over the forecast period, with revenues rising at a 30.3% CAGR to $6.9 billion in 2025.
In 2020, sales of headsets increased along with engagement with existing ones. According to Steam’s PC user survey data, the release of the much-anticipated Half Life: Alyx caused a spike in the number of Steam users with VR headsets. The sector got a further boost with the launch of a competitively priced $299 Oculus Quest 2 headset at the end of 2020.
Driving forces like the shift to streaming
In general, entertainment saw dramatic shifts in 2020, according to PwC. COVID-19 brought economic disruption on the one hand, with many in-person industries shutting down and powerful shifts in consumer behavior to online content. Overall entertainment and media revenues saw the sharpest contraction in research history, with the aforementioned drop of 3.8% in 2020 to $2.0 trillion in revenues.
With the box office shut, Hollywood turned to premium video on demand, with titles like Disney’s live-action Mulan launching on Disney+ for $30 in September when theaters were closed. The film saw 1.1 million households viewing in the opening weekend, and it took in $35.5 million from streaming revenue.
These were just a few “tipping points” toward digital behavior that the report marked for the year. The forces include shifts to streaming platforms, creators of user-generated content tapping into vast new audiences, regulators taking on Big Tech, and studios losing ground to star individual producers who ink massive deals with streaming platforms. The internal dynamics of the industry continue to shift.
And yet the volatility masks stability. However asymmetric the pandemic’s impacts on the segments, the forecast for revenues at an industry level remains robust, PwC said. The pandemic-induced contraction of 2020 is giving way to a strong rebound this year and a return to continued growth above global gross domestic product (GDP) over the coming five years.
The central role that the ever-expanding array of media experiences plays in consumers’ lives is set not just to endure but to strengthen over time.
The asymmetric world
Some segments embraced the change and dodged the worst effects of the pandemic, while others were clobbered. What had been a widely shared global experience is now diverging between different territories and industries. A global recession, the first since 2009 and only the second since 1944, is being followed by a rapid but highly asymmetrical snapback, fueled by scientific innovation and forceful government policies.
The vast entertainment and media industry contains some sectors that were among the most heavily affected by shutdowns and others that were among the chief beneficiaries of shifts in behavior.
As a result, a lot of power shifts are happening, thanks to the advances in technology and in the delivery and distribution of content. We see tensions between consumers and providers, between creators and producers, between producers and distributors, between advertisers and publishers, between governments and companies, and between the giant global platforms and everybody else. Business models are changing, with a big impact on profits.
The common threads
These power shifts have common threads. First, it’s vital to meet consumers where they are now and where they will be in the future. Increasingly, that means online, on mobile devices, at home, and at the time and place of their own choosing. Second, we live in an age of near-constant discontinuities; companies can’t assume that existing trends will continue indefinitely.
The music industry, which many analysts believed had been left behind by the digital era, is enjoying a renaissance, spurred by strong growth in digital streaming and a strong rebound in live performances. Internet advertising, thought to be entering a period of slower growth, has been buoyed by the rapid global adoption of ecommerce. And although the largest platforms have enjoyed a spectacular run of growth off ever-larger bases, the forces of regulation appear to be awakening, PwC said.
The most obvious — and most global — of the drivers of change in entertainment and media is the move to digital consumption. As consumers stayed home and in-person venues shut down, the use of in-home digital services soared. Movie theatre box-office revenues fell 71% in 2020, even as Netflix attracted a record 37 million net additional subscribers, pushing its subscriber rolls past 200 million.
Historically, rising digitization was a challenge, as analog dollars were frequently replaced by digital dimes. But in 2020, consumers’ embrace of all things digital helped offset sharp revenue losses across the broader global entertainment and media sector.
The rebound gathers pace
The 3.8% decline in global entertainment and media revenue, from $2.1 trillion in 2019 to $2 trillion in 2020, represents the most significant year-on-year drop in the history of the Global Entertainment & Media Outlook. And it has left some scars.
According to PwC’s 24th Annual Global CEO Survey, released in 2021, only 34% of entertainment and media CEOs were very confident in their organization’s prospects for revenue growth over the next 12 months, slightly lower than the global average of 36%. However, they may have reason to be more confident than that.
PwC expects industry revenues to rise 6.5% in 2021 (more than making up for 2020’s overall contraction), as more territories emerge from lockdown and a further 6.7% in 2022. From 2020 to 2025, PwC project a healthy five-year CAGR of 5.0%, taking revenues to $2.6 trillion in 2025.
In March, the International Monetary Fund (IMF) projected global economic growth of 6% in 2021 and 4.4% in 2022.
Over the coming five years, growth in entertainment and media revenues will be the norm across all 53 territories PwC covers. PwC said that no country’s combined consumer and advertising revenue will rise at less than a 3.0% five-year CAGR to 2025, with Japan the lowest at 3.1%. By contrast, in the 2019 version of this analysis, 26 countries dipped below a 3.0% five-year CAGR, including almost all of Western Europe.
India, where consumer and advertising revenue fell just 0.2% in 2020, has the highest growth forecast to 2025, at a 10.4% CAGR. Despite the challenges it faces with COVID-19, India — which should surpass China in 2022 to become the world’s most populous country — has immense potential for expansion.
Other outliers include Saudi Arabia, whose market has been strengthened greatly by the lifting of a 35-year ban on cinemas in 2018, and Nigeria, where booming video games and TV subscription revenue will push the five-year CAGR to more than 10%.
Multiple tensions emerge
Managing the recovery isn’t going to be a cakewalk. Just as COVID-19 had an asymmetrical impact on the world, so, too, will the recovery be asymmetrical. The IMF estimates that income inequality increased more sharply in 2020 than in previous global crises, and in April, it warned that the global recovery was uneven and fragile.
Due in part to the varying speed of vaccine rollouts and the return to lockdown in some countries throughout the year, notably in India, we see wide differences in growth rates across territories.
As the world strains to return to a sense of normalcy, tensions arise between protecting populations and maintaining people’s economic and psychological well-being — including the freedom to enjoy collective entertainment and media experiences, PwC said. The drive to return to enjoying live music and cinema is real. Over the Chinese New Year in February 2021, strong demand and limited supply caused cinema ticket prices to leap in some first-tier cities, helping push box-office revenue to a record for a single week of more than $929.6 million. Godzilla vs. Kong, which debuted in March, has been a bona fide blockbuster, garnering $438 million in box-office revenues — $99 million in the U.S. and $339 million internationally as of June.
But audiences’ urge to return to theatres will be tempered by residual fear of public gatherings. Meanwhile, some consumers will find themselves flush with cash after long periods of restrictions on their activities and working from home, though unemployment will persist in service industries that are struggling to recover, such as tourism and hospitality, PwC said. Within territories, high- and middle/lower-income earners face starkly varying prospects.
Despite all these tensions, PwC said that a significant proportion of the habits accrued over those restricted periods will endure. Many of the shifts that were already in play — the move toward digital products and online sales, the relentless rise of streaming, the growing influence of gaming and user-generated content — gained momentum and are poised to barrel forward. The resulting power shifts will transform the industry in the years to come.
One of the signal impacts of the pandemic was that more people spent more time at home and more time online, PwC said. The rapid move to digital content services during the pandemic was part of a wider migration. People streamed shows and read e-books instead of going to movie theaters and bookstores, pedaled along with Peloton instructors instead of going to SoulCycle studios, and formed digital communities on the audio app Clubhouse instead of attending debates. This shift fueled ecommerce, which in turn attracted more advertising — even if consumer activity overall was muted. Cross-currents were evident in the three main sectors into which entertainment and media spending is divided: access, consumer spending, and advertising.
As internet access and data became a lifeline and a form of utility, access was the only one of the three main sectors that rose in 2020, up $14 billion, or 2.1% and accounting for 34.1% of all spending. Consumer spending shrank 5.5%, making up 37.1% of total spending, and advertising was stable, at 28.7%.
Creators are flocking to TikTok and Roblox
Nothing exemplifies this shift like the rise of ByteDance’s global short-form and self-generated video platform TikTok and its Chinese incarnation, Douyin, PwC said. As of late 2020, TikTok and Douyin had built up, in just four years, a combined global base of more than 1.29 billion monthly active users in 141 countries. That’s nearly one-of-every six people on Earth. In July 2020, at a TikTok Live event at Billboard Live Tokyo and Billboard Live Yokohama, more than 285,000 viewers logged in to the live stream to watch performances by Japanese pop artists including Novelbright and Milet.
Not surprisingly, commerce and ads are following all this attention. TikTok has a creator marketplace that helps brands in 40 countries find partners, and its Creator Fund enables people whose self-generated content makes waves on the platform to earn money from their posts, PwC said.
Young creators are also at the core of the business model of Roblox, a gaming platform that enables users to build their own games and play games developed by others. Roblox, which is most popular among children, went public in a blockbuster IPO in March 2021 and boasts a market capitalization of about $55 billion. In April, the company reported that 43 million active users spent a collective 3.2 billion hours on the platform during the month — about 2.5 hours a day.
Taking back control
Across the board, creators are striving to claw back control, agency, and, increasingly, revenues from employers, publishers, and distributors. Substack, the newsletter platform company whose slogan is “Take back your mind,” has emerged as the portal of choice for hundreds of independent writers — many of whom have left struggling newspapers and digital media operations (or were laid off by these) and are now eager to sell subscription newsletters to their fans and audiences.
Unionization is another sign of creators asserting themselves. This trend, which has been underway in digital media for some years, gained added impetus from the pandemic. In Hollywood, a standoff between the Writers Guild of America and the Association of Talent Agents resulted in a new code of conduct for agents, aimed at ending the “packaging” or bundling of talent by agents for TV or film production.
Musicians are seeking a bigger payback Against the odds, and despite widespread predictions of doom, music has been one of the standout entertainment and media performers in recent years, as streaming has finally gained critical mass, PwC said. Revenues from live music slumped by 74.4% in 2020 and are expected to return to 2019 levels only in 2023. But between 2020 and 2025, the music sector as a whole is expected to grow at a 12.8% CAGR, fuelled by rapid growth in both live performances and digital streaming, which will be a $29.3 billion business in 2025.
The rapid growth in streaming has powered corresponding increases in the value of large catalogs of music and their associated rights. That’s good news for formerly embattled creators who aim to monetize their portfolios of work. Taylor Swift, after a long-running dispute with the company that owned rights to her master recordings, began rerecording and reissuing her previously recorded hit songs to regain ownership. Other major transactions included Paul Simon selling his catalog to Sony for $250 million, Stevie Nicks selling a majority stake for $80 million to independent operator Primary Wave, and Bob Dylan selling his 600-plus song catalog to Universal for a reported $300 million.
PwC even called out a category that seemed small and full of hype: Non-fungible tokens (NFTs). represent a notable innovation in the ability of creators to go directly to customers. NFTs are irreplaceable blockchain-based tokens that effectively assign ownership, in some form, for a specific digital item. NFTs use the transparent and secure digital ledger of the blockchain to verify authenticity for one-of-a-kind items.
A robust market for NFTs has sprung up among collectors and speculators. Key milestones in the market’s development included the sale of a digital collage artwork by the artist Beeple for $69 million and the sale of the first-ever tweet (by Twitter founder Jack Dorsey) for $3 million. The NBA Top Shot licensed digital collectibles NFTs launched in June 2020 and had traded over $700 million to date.
And although musicians may have missed out on live performances and the merchandise sales that go with them, the artist Grimes sold thousands of NFTs at $7,500 each for two short videos — the digital equivalent of signed, limited-edition prints. The Kings of Leon launched an album in March 2021 as an NFT that included a limited edition vinyl disc, along with MP3 files and a GIF of the artwork.
One of the clearest trends is that players are realizing they may be better served by figuring out how to meet consumers at their convenience. People prefer the ease and convenience of self-directed podcast listening to adhering to radio stations’ schedules. As a result, audio content providers are diversifying their offerings to become more of a destination where consumers will linger and browse. For example, although podcast platforms in many territories tend to specialize in particular topics — comedy, politics, and so on — the leading providers in the mature Chinese market, such as Ximalaya and Nasdaq-listed Lizhi, aggregate many different subjects and types of podcasts into a single offering. Clubhouse and Spotify use live and recorded podcasts to re-create a personalized radio-type experience.
Definitions and methods
All forecasts are prepared as part of a collaborative, integrated process involving both quantitative and qualitative analysis. The forecasts are the result of a rigorous process of scoping, market mapping, data collection, statistical modeling, and validation.
The 14 segments covered by the report include books, business-to-business, cinema, data consumption, internet access, internet advertising, music (including radio and podcasts), newspapers and consumer magazines, over-the-top video, out-of-home advertising, traditional TV and home video, TV advertising, video games and esports, and virtual reality.
My own reaction to all of this is that it verifies GamesBeat’s longstanding belief that games are the most powerful form of entertainment because they are digital, social, user-customizable, and interactive — combining many features of other industries all in one kind of medium that crosses many platforms.
Gaming was so fortunate to grow 10% in a year when overall entertainment slipped 3.8% and the global economy fell 5.1%. It’s going to continue to grow fast. All of the powers that be in entertainment, media, and tech would do well to consider gaming in their overall strategies for attracting consumers and brands.
It’s good, however, to keep our head on straight and see that games are still a small part of overall entertainment, accounting for $194.7 billion of a $2.6 trillion industry by 2025. We haven’t taken over the world yet.
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