The Prof G Pod with Scott Galloway
State of Play: The Video Game Industry — with Joost van Dreunen
Wed Jul 12 2023Description
The episode discusses the growth and consolidation of the gaming industry during the pandemic. It explores the impact of major acquisitions, such as Microsoft's acquisition of Activision Blizzard, and the competition between companies like Sony, Microsoft, and Nintendo. The importance of online socialization in gaming is highlighted through the success of Fortnite. The episode also delves into emerging trends like blockchain technology and the potential geopolitical shifts caused by Saudi investment in gaming. Additionally, it examines the expansion of companies like Nintendo and Sony beyond games and consoles. The dominance of Apple and Google as platform holders is discussed, along with potential challenges related to regulation and labor practices. Overall, the episode provides insights into the current state and future prospects of the gaming industry.
Insights
The gaming industry experienced significant growth during the pandemic
The gaming industry saw a surge in demand initially but has since cooled down. Mobile gaming has leveled off due to increased costs, while the console market had a boost with the release of PlayStation 5 and Xbox Series X/S.
Consolidation and competition shape the industry
Microsoft's acquisition of Activision Blizzard raises concerns about consolidation. Sony focuses on high-quality media devices, while Microsoft focuses on software platforms. Fortnite's success highlights the importance of online socialization in gaming.
Emerging trends and future prospects
Blockchain technology is being explored by larger game companies. The influx of Saudi investment money may shift the geopolitical relevance of different regions. Nintendo and Sony are well-positioned due to their intellectual property and expansion beyond games and consoles.
Chapters
The Gaming Industry
00:01 - 07:27
- The gaming industry is a $300 billion dollar industry that has seen significant growth during the pandemic.
- Initially, all game makers experienced a surge in demand, but since then, the market has cooled down.
- There has been consolidation and expansion into different categories within the industry.
- The majority of the money goes to game publishers, but platform holders like Apple, Sony, and Microsoft have gained power over the past decade.
- Mobile gaming has started to level off due to increased costs for game publishers on platforms like Apple.
- The console market had a boost with the release of PlayStation 5 and Xbox Series X/S during the pandemic, but it has subsided as we enter the second half of the hardware cycle.
- On the PC side, spending and time spent in online worlds have decreased as people return to normal social settings.
- Legacy publishers are becoming more risk-averse and focusing on sequels and established intellectual property (IP).
- Microsoft's acquisition of Activision Blizzard raises concerns about consolidation in the industry.
Consolidation and Competition
06:59 - 21:23
- The acquisition of Activision Blizzard by Microsoft would give them ownership over the popular shooter title Call of Duty, which could disadvantage Sony.
- Regulators are responding to large transactions and there is a need for a simpler and more transparent policy-making process.
- The absence of discussion around Chinese companies like Tencent and NetEase in merger conversations is limiting competition in the West.
- Sony's focus on building high-quality media devices sets it apart from Microsoft and Nintendo.
- Sony has been shifting its focus towards becoming a media empire, while Microsoft focuses on software platforms.
- Fortnite's success highlights the importance of online socialization in gaming.
- Epic Games, the maker of Fortnite, is a privately held company that generates significant revenue through its games and software products.
- Epic's big play is to sell its Unreal Engine, which is now in its fifth version.
- Epic aims to get into the film industry by providing landscapes rendered by the Unreal Engine.
- Epic Game Store offers lower percentages for developers, challenging incumbent distribution platforms.
- Apple's Division Pro announcement seems disconnected from practical use cases.
- Tech companies like Facebook and Apple are motivated to dominate the VR space.
- There is ongoing skepticism about the delivery of virtual reality promises.
Blockchain and Future Trends
14:20 - 34:09
- Web three and the gaming industry have a natural intersection.
- Free-to-play economics have become the dominant revenue model in gaming.
- There is potential for a sub-layer of super fans who want easier access and digital wallets connected to multiple games.
- Blockchain technology is still rudimentary and inefficient, but larger game companies are starting to explore its potential.
- Consolidation will be a major topic in the gaming industry for the remainder of 2023.
- The influx of Saudi investment money into gaming may shift the geopolitical relevance of different regions in the industry.
- Activision, Take-Two, and Electronic Arts are going through iterations of their existing franchises, with mixed performance.
- Saudi Arabia's public investment fund is becoming a major investor in gaming companies.
- Companies may need to compromise or make compromises to enter new markets like China or work with Saudi investors.
- Nintendo is well-positioned due to extensive intellectual property and investments in building out their assets.
- Nintendo has been successful in expanding its business beyond games and consoles by building theme parks and creating real-life experiences like Mario Kart.
- Sony, with its vast library of intellectual property across multiple categories including games, music, film, and anime, has the potential to leverage its content on various platforms.
- Apple and Google are expected to continue dominating the market due to their strong positions as platform holders.
- Regulation and academic investigations into platform labor practices may pose challenges for these companies in the future.
- European publishers like Embracer may face difficulties as their debt structure collapses, leading to job cuts and investor hesitation.
- North American companies and Asian companies like Sony, Nintendo, and Tencent are likely to thrive in the gaming industry.