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However, the industry is expected to resolve these challenges and recover in mid-term, as games become more embedded in everyday life (Exhibit 1). Games have consistently held a 40% share of global mobile app downloads over the past 5 years. The number is even higher in the Middle East, reaching 45-50% in 2020. 5 5 App Annie Notes: 5 App Annie
The Middle East is a unique market for gaming. Governments in the GCC region have invested heavily in the industry and recognized its potential, implementing strategies to attract gaming companies. In Saudi Arabia, a National Gaming and Esports Strategy plans to create 40,000 jobs and develop 30 games by 2030, while in the UAE, AD Gaming and DMCC Gaming Center aim to attract global businesses and support local talent.
While PC/console and mobile experiences are different, they have started slowly converging. Mobile devices can now offer very high-quality graphics and gaming experiences, while smartphone evolution increasingly reflects and enables the sophisticated gameplay that was previously available on PC/console only. Also, as smartphones are tailored to communication, mobile games can integrate social gaming features better than PC/console.
The mobile gaming industry has experienced significant growth in recent years, with the widespread adoption of smartphones and the increasing power of mobile computing. And PC/console game publishers are actively investing in this trend. Factors contributing to this growth include:
Despite mobile being the top-line driver of the gaming market, it does not mean that the PC/console is in decline. Core gamers still prefer playing on PC/console as games are more immersive and complex.
While streaming growth has slowed, viewership is still up 6% from its COVID-19 pandemic peak in 2020, and 164% higher than 2018. Live streaming slightly decreased in 2022, but Twitch was the least affected, dropping only 6% YoY and keeping its strong leadership position. Facebook Gaming was hit the hardest in 2022, dropping 56% YoY from 2021. While YouTube Gaming has also seen a decrease in hours watched, it has since pulled away from Facebook as the definitive second most-utilized live streaming platform in the West. 11 11 Stream Hatchet Video Game Streaming Trends - 2022 Yearly Report Notes: 11 Stream Hatchet Video Game Streaming Trends - 2022 Yearly Report
Innovation in the mobile market incentivized publishers to explore new monetization methods, in particular "free-to-play" with in-game monetization instead of upfront purchase. Electronic Arts released its flagship shooter franchise Battlefield with a free-to-play version called 2042. 15 15 Gamesradar Notes: 15 Gamesradar
The potential to extend the life cycle of their titles through new content and in-game purchases makes this shift attractive compared to developing completely new games every few years. However, publishers must carefully design monetization to ensure it supports the game and its community, not harm it with:
Considering the variety demanded by core players, it is not realistic for publishers to shift to few games with longer life cycles in near future. Instead, hundreds of high-profile AAA games are released each year, though only a handful of those have budgets at the level of GTA V or Cyberpunk 2077.
While this model expands opportunities to generate a return on investment over a longer shelf life, major games still require large upfront investment and long development periods, which can delay cash inflows for several years.
Focus on proven IP is a strong media industry trend, extending well beyond gaming. Considering the significant investments required to create blockbusters and high audience expectations, recognized IP reduces commercial risks. In film and video, franchises like Fast & Furious and Marvel have gained substantial investments and extensions. Gaming follows the same path, with publishers such as Activision-Blizzard, Naughty Dog, and Tencent aggressively building on their existing IP. For example, Activision-Blizzard has focused on its Call of Duty, Diablo, Warcraft and StarCraft IP for many years.
Over last decades major IP franchises have created active, loyal communities. As with comics two decades ago, the movie industry noticed this trend and has turned to gaming IP as a source for new content (Exhibit 6). In return, this provides an opportunity for game publishers to extend the community for their games and attract new audiences. Beyond movies, publishers are also leveraging gaming IP in other segments like amusement parks, toys, and retail. These further strengthen the connection with IP fans and benefit the games.
How will the gaming sector change moving forward? There are multiple technological, demographic, and media industry trends, many mentioned above, that will continue to play major roles. Among those, four will likely have the largest impact:
1. Consolidation of game development
Gaming companies are consolidating to achieve economies of scale and support the increasing costs of game development. Such scale also facilitates experimentation with new intellectual properties to ensure success in the medium- and long-term. Both Microsoft and Sony are building gaming ecosystems:
The Metaverse. The concept is a virtual world with its own economy, built upon Virtual Reality, Augmented Reality, and Non-Fungible Tokens (NFT). Gaming has a significant influence on the Metaverse, having first created the concept decades ago. Games like Second Life and World of Warcraft established compelling places for players to spend time and multiple digital items to acquire, which the Metaverse seeks to re-establish with more advanced technology.
Today there are many potential Metaverse use cases, though games remain central to driving early adoption and attracting a wider audience. Recent examples of the intersection between gaming and the Metaverse:
In addition, the gaming sector is instrumental in making the Metaverse a reality. The Metaverse faces several challenges, such as enabling multiple people to interact in virtual reality simultaneously. Gaming technology is crucial in overcoming these challenges. For example, game engines like Unity or Unreal Engine are essential for real-time 3D rendering, while rendering and tracking technologies like OptiTrack or Vicon are vital for proper functioning of VR cameras.
Many factors and different dynamics move the gaming market. Microsoft is a one example to look at as we try to imagine the gaming offering of the future. The company is currently building on all the key trends, with the result that:
Its portfolio of assets allows Microsoft to create a single convenient subscription to access all of its offerings at a better value price for the consumer. It also gives Microsoft a "flywheel" with multiple data and income streams increasing the value of its overall offering.
Companies from many different industries are expressing strong interest in entering the gaming sector. Their rationale ranges from opportunistic investments to participate in the growth opportunities, to strategic investments to drive synergies with core businesses through IP and technology, brand positioning, or additional monetization.
Irrespective of the sector, one important factor to consider is the geographical market for such investments. While China and Western markets seem to be obvious candidates, the Middle East has growth potential driven by two fundamental factors. Firstly, its demographics trend toward a young digital savvy audience that actively consumes gaming content. Out of 35M people in Saudi Arabia, 23.5M (67%) identify themselves as game enthusiasts. This creates a sizeable market not only for gaming, but also for many brands that target this audience.
Gaming has been on the rise and is destined to outperform other sectors in the media industry in the next decade. And while gaming is itself evolving quickly, it will also shape other media and technology sectors due to its:
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