Global Economics Archives

The Economics of Gaming

Startup Costs of Modern Gaming

Video games, what great fun. I’ve been noticing a lot more people getting into gaming who may not have ever played before, and or people are getting back into gaming for one reason or another. On my flight back home I downloaded an emulator in the airport on my phone and played some of my favourite childhood games. Then back in Canada, I found myself in a major big box store, so for the heck of it I went into their gaming section. It has been a while since I bought a new console. The last console gaming related activity I did comprised of modding a Nintendo Wii that I got second hand for $50. The sticker shock in the store was real. A new PlayStation 5 for $659 (+tax) is a nice chunk of change. Want a second controller with that. Try $95 (+tax). Want a new game that came out in the last 6 months, try another $80. Want to play online with your friends, try a $95/year subscription to access “PlayStation online”. So doing some quick math, just to get up and running is $930 (+tax). Over $1000 net. This is in Canadian Rupees by the way. Needless to say $1000 to get started with a modern gaming console is quite the steep price. Although, you could make the argument that it will last longer than a phone and those things cost more than $1000 often times. The point of this exercise is that if you’re not really a gamer day-to-day you likely won’t understand how this pricing makes sense. Let’s just say there is a LOT of money in gaming. So much in fact that it is larger than ALL of the global music, film, and TV markets combined… let that sink in. Now lets try to find out how that makes any sense.

Larger Than TV, Film, and Music… Combined

According to statista the revenue in 2022 from the global gaming market was 347 Billion USD. Sony, the creator of the PlayStation, has sold 36 million of their $500-600 consoles since release in 2020. Xbox has sold 22 million of their Series X/S consoles in a similar price range. Doing some more quick math, for Sony, that’s 18 Billion in revenue in around 2 years. We’ve all lost out minds recently that Taylor Swift is a Billionaire, and she’s top of the top in the music industry, so you know just 9x that in one year for Sony. Not to mention that the 9 Billion is a tiny portion of the overall market. So where is the rest of the money going? Well statista says that around 248 Billion of their 347 Billion is all mobile games, games on your smartphone. Which is kind of crazy to think about, but makes sense. Every single person has a smartphone. So naturally, some are going to play games, some will even pay money for those games or will buy in-game items. The barrier to entry is so much lower since everyone already has a phone, and the price can be more affordable since the size of the market is gigantic. One of the most successful recent games was Fortnite, it was free to download, available on almost all platforms, and they made an absolute killing off in-game purchases. Many games are completely free to play and make their millions just from running ads in between sessions. From the mobile side most people have heard of Candy Crush, and Angry Birds. They are both absolutely huge games, Candy Crush has made $20 Billion in lifetime revenue.

Apple and Google in Gaming

Something to point out here are the companies that truly benefit from the huge mobile gaming market (and arguably make it accessible). Apple with the App Store, and Google with the Play Store. Each respectively taking a 30% cut on any game purchases, in-game purchases, etc. Up until quite recently they have had a strangle hold on the App market for their devices. There have been some anti-trust cases coming up against them for monopolistic practices in recent times. Apple and Google have probably been some of the largest benefactors of the mobile gaming market, alongside the fact that their smartphones already tend to sell quite well. So if you hold any Apple or Google stock, you are already technically benefiting from quite a large segment of the gaming market (among other things). Without getting too much into the details of the lawsuits, a 30% commission on any sale when you can replicate code with the snap of a finger is not a very popular price, especially when you are forced to pay it no matter which platform your game is developed for. Hence the anti-trust lawsuits.

Microsoft and Nintendo’s Dominance

There are also some other major gaming companies. Microsoft, the creators of Microsoft Office and major investors in OpenAI. Own the Xbox and own Minecraft which is the most sold game of all time. They also recently purchased one of the largest publicly traded gaming studios Activision Blizzard who created the Call of Duty series which has been ultra-successful as well. Microsoft, also owns many other gaming franchises and studios which have done quite well. Then there is Nintendo, who recently have created the Nintendo Switch, which is one of the best selling consoles of all time, they also have many classic franchises that I grew up playing like Pokémon, Super Mario, and Legend of Zelda. Nintendo was actually one of the first companies to come out with a small handheld video game console and pioneered that market. Today we are seeing things like the Steam Deck from Valve which allows people to pay PC games on the go. These major studios control a large portion of the non-mobile market.

PC Gaming and Independent Developers

There is also the PC gaming app store Steam which like Google and Apple takes their 30% cut. They are the major gateway to PC games. On the PC there tends to be more room for indie game developers who work solo or with a small to medium sized teams because coding games for PC’s tends to be much more accessible than for consoles (startup costs for console development are in the tens of thousands of dollars). If these PC games become successful, sometimes they will be ported over to gaming consoles by request of the major console makers. The nice part about PC gaming and Mobile gaming from a development perspective is that you don’t have to be a billion dollar corporation to release your game. There have been some super successful games that started off small with one or two developers and have become smash hits, like being a professional musician that gets an early break with a popular song. Some examples that come to mind for me are Hollow Knight which is developed by a team of three, and Stardew Valley which is developed by one guy and has sold over 30 million copies. He’s probably one of the most individually successful game makers of all time. Like being a famous musician however, there are millions and millions of people trying to make their video game, and some become minor hits, but only a tiny few become ultra famous. You’re competing against the incumbents who have collective knowledge among their developers on the scale of millenniums of time spent building games. But hey, no harm in trying, always fun to start a new hobby, and with the sheer size and diversity of gamers (try 3 billion or so), you may find your market.

Watching People Play Games

Another gaming adjacent activity, is livestreaming and watching other people play video games, sometimes on a professional gaming team. If you’re like my parents, when they first saw me watching YouTube videos of other people playing video games, they thought it was weird. I sort of get it. But the best way that I’ve found to explain this phenomenon is like entertainment, or sports. You watch a good movie because the characters are funny, or charming. And you watch a professional gamer because you want to exclaim when they are doing something wrong that you’d never be able to replicate in a million years. Same story, different medium. YouTube itself made something like 30 billion dollars in advertising revenue in 2022, which it shares with the people who post videos on the platform. Many of whom are gaming content creators. There are layers and layers on gaming, and if you get involved enough the rabbit holes can go quite deep. But it has become such an all encompassing medium. You can play it directly on about 10 different platforms. You can develop your own games or work as a developer with a studio or you can watch other people pay for fun or professionally (e-sports).

Gaming Will Only Grow

Gaming is not going away, and the market size is projected to more than double by 2030. With a phone in everyone’s pocket and a computer in everyone’s house, there is always going to be space for a game or two… or three, who’s counting. With the layers of entertainment, modification, customization, development and more. There is space for every type of person within video games and something that will appeal to everyone’s tastes. Each successive generation becomes more and more interested in video games and this will naturally allow the market to continue to grow. It’s still somewhat hard to fathom that gaming is larger than all of TV, film, and music combined. But when you consider all that encompasses a “game”, it can be a very broad term. You never know where inspiration will strike, like this post. But if you get inspired to make a video game, you should go for it, it’s never a bad idea to participate in a growing market. I’m always interested in learning about different markets and gaming is one that you don’t frequently think of as being the behemoth that it is. Hopefully I was able to give a decent synopsis and education about why it is the way it is. As always thank you for reading and have a great day!

Keep Investing,

Oliver Foote

Why Exchange Rates Vary, Canada’s Weakening Dollar

Exchange Rates Introduction

Recently, I have had been lucky enough to go travelling through some countries in Europe and paying for things in a different currency gets one thinking about economics, naturally. To start of my discussion I’m going to mention my visit to Edinburgh because last time I was in the UK it was July of 2022 and I noticed that the exchange rate was significantly different than it is today in September 2024. Back in 2022 the exchange rate was about 1.5 CAD to 1 GBP. This time it was closer to 1.8 CAD to 1 GBP. Basically, it got more expensive for me, but if you think about this on a surface level, currency rates are somewhat of a silly thing. I haven’t changed much, the amount of money that I make hasn’t changed much. On an individual level it’s kind of weird that at different points in time if you want to go and travel, the value of the money you make in your home country can decide the types of things that you can do and how expensive your vacation will be. With so many countries accepting your credit card it makes exchange rates feel even more fake. For example, I was in Denmark and I didn’t see a single Danish Kroner. I couldn’t tell you what that currency looks like, it didn’t even occur to me to exchange money before I went over there because everyone accepts cards. When money is digital it’s somewhat funny to me that there’s different “currencies” at all, it’s just numbers on a screen.

Why Currencies Strengthen or Weaken

Getting past the fact that digital payments are a somewhat funny concept, let’s talk about how the strength of your currency is determined. The different currencies and exchange rates are mostly based on your home countries economy. But this encompasses many things. Employment rates, inflation, Gross National Product, health of trading partners, imports/exports, government policies, etc. All currencies are technically free markets, this means that the market for your countries currency could hypothetically react to a bad piece of news and the currency could temporarily strengthen or weaken, sometimes significantly, on a single news story. Often, there is also a comparison going on, generally the benchmark is the United States, the European Union and various other large economies which are the benchmarks for healthy economies which other currencies are compared against. You may notice in your home country that there is inflation or it’s harder to find a job for a large part of the population, or foreign governments are not buying your governments bonds because the interest rate they are paying is lower than a competitors government. There are a lot of economic dynamics that can determine the value of your currency compared to the currency of another country.

Example of Bad News Affecting Exchange Rates

Let’s take the time that I went to the UK in 2022, arguably, it was a great time to travel to the UK because around that time the country was having governmental problems and their prime minister at the time was ousted, then an interim prime minister was given power, proceeded to break everything by implementing policies everyone agreed were horrible, then was ousted in a matter or weeks or months, all I remember was that a piece of lettuce lasted longer than the PM. These terrible policy decisions led to a loss of confidence in the UK, not quite as crazy as Brexit was, but this period of instability meant that the British Pound took a nice little fall, it was temporary, but the recovery wasn’t immediate. At that time buying British pounds from a foreign exchange perspective would have been a great time to do so since the country itself is largely stable, but this was just a temporary moment of instability. Now, one could argue, that we are getting closer to what the historical exchange rate was. I remember prior to Brexit the British pound was closer to 2.1 CAD to 1 GBP. There’s no saying if it will ever return to that value since Brexit is quite a permanent decision. But we can look towards other interesting economic indicators to get an idea of what exchange rates might look like in the future.

Canada’s Dollar Will Weaken in 2025

For Canada, unfortunately, the Canadian dollar is anticipated to weaken a little bit more in the coming year 2025, which means travel will become more expensive, and arguably makes now a good time to buy foreign currencies such as the USD or the GBP. So why is the Canadian dollar predicted to be weaker? There are a few reasons. Canada is beginning to see quite a jump up in the unemployment rate, people are continuing to lose jobs and new jobs are hard to find. Fewer jobs means fewer people spending money, less demand for goods, less goods produced, this slowing becomes a cycle and our economy “slows”. Since employees are basically business investment, and business investment leads to production or exports/imports. If there is less business investment, and fewer people working, it generally follows that the GDP or GNP of Canada will decline. Another reason this is problematic for Canada is because in the US the GDP has actually been climbing and they are our largest trading partner, so by comparison, we are doing worse, and our currency suffers. Additionally, Canada still has a largely resource based economy, with the largest one being Oil, and Oil prices have not been as strong in recent months, you may see this as a good thing since it’s cheaper to buy gas at home, but it does cause our currency to suffer somewhat. All of these problems, and inflation finally coming down led to the Bank of Canada to cut interest rates in an attempt to stimulate the economy.

Interest Rates, Bonds, and Currencies

Canada was notably the first G10 nation to cut rates. The country has now cut rates three times with another rate cut anticipated before the end of the year. Cutting interest rates means it should in theory be easier for businesses to get loans and invest back into producing goods and get consumers spending again since their loans will also be cheaper, this may also increase housing activity in Canada, which is also a huge part of the economy. But in the interim, our currency will likely suffer while we try to increase output because fewer people will want to purchase Canadian government bonds since the Fed in the United States has yet to cut their rates, making their bonds a more attractive place for people to leave their money. When the government sells bonds, it takes money out of circulation, meaning there are fewer dollars, which means less inflation, less inflation usually leads to a stronger currency. We did somewhat benefit from this since our inflation wasn’t as high as the United States during covid so we had a stronger currency for a while, but the US continues to surprise with their economic output, the machine continues to operate well, while Canada’s is suffering a bit at least from an economics point of view.

Conclusion

In conclusion, Canadians can expect travel to become a bit more expensive over the coming year or two, with the future TBD. I think we need to be pushing to improve investment in technology companies, so much of the world relies on tech and our only claim to fame is Shopify. Economics are a complex problem, and tech won’t solve all of our issues, but we do need to find a way to benefit from the knowledge that we have in the country, because we also suffer from a pretty significant brain drain, the best and highest paying jobs are in the US for our smartest students, so most of them will naturally decide to go there. The US is a great country if you have lots of money and good benefits, and if something goes wrong while they are there, they can always come back, it’s sort of a win-lose for Canadians and Canada. The best way for a Canadian to start a tech company is to move to California, at least last time I checked, so that needs some fixing. This will be a bit of a shorter post because I’m technically on vacation. Currently, I’m sitting outside a coffee shop called Przystanek Kawa in the wonderful Dutch inspired old town square of Gdańsk, Poland (bit of a mouthful, but the city is beautiful), and I’m going to get back to being a tourist and enjoy the sights. I’ll be in Warsaw tomorrow, then it’s off to Lauterbrunnen before returning home (sadly). I will say this solo travel thing does sort of get old quickly (this is only day 2 of 7 days solo) especially when you’re in a place where you aren’t speaking your first language, you can only see so many museums, castles, and church’s before it all starts to feel the same, and hostels have their own quirks and problems, definitely have some stories for another time about rough roommates. Anyway, it’s easy to complain, but I’m extremely happy and lucky that I can do this kind of travel even if it’s not high class luxury travel, I’m quite enjoying the experience and continue to love each new city I go to. That’s all for now, see you in Canada!

Pros and Cons of Being Employed vs. Self-Employment

After having attempted to operate a few businesses over the course of my education and now post graduation, while also working some good jobs and some not so good jobs I have learned a few things that I thought might be interesting to discuss in this next blog post. What are the pros and cons to each way of doing things and what are some things that you should think about if you’re considering one or the other. Let’s start with the pros of being employed.

The Case For Staying Employed:

The nice thing about being employed, is that most of the time, someone else is telling you what needs to be done, depending on the job you can somewhat turn off your brain when it comes to deciding what to do day to day. When I’ve done self employed work, it becomes much more challenging to know what to prioritized, do you focus on marketing? Do you focus on building systems? Do you try to schmooze clients to make sure that you have clients going forward? The answer is yes, yes, and yes. You need to juggle many more priorities with self-employment that can compete for your time. When you’re employed, hopefully, you have a team to work with, while being self-employed inherently means that you are likely working solo at least in the beginning, so you don’t really have other people to lean on.

The Ugly Truth of Entrepreneurship

This goes well into my next point, when you are self-employed it can often be lonely work and this can be very demotivating, you need to build up a team of people or business associates who are doing, or trying to do a similar thing to you. No one can accomplish anything alone, so it’s important to get people on your team who you can consult with and bounce ideas off of, and often times that person will not be your group of friends who are working regular jobs and who aren’t concerned with what happens in a business. This doesn’t mean to stop hanging out with your regular friends, in fact, you’ll probably need them more than ever. It just means that you need to make sure that you are also building up a network of like minded people who can better relate to the struggles that you will inevitably go through while trying to launch a business. So lets call this a bit of a pro for being an employee, often the company is looking for a specific culture and if you fit in the culture you can make some great friends. At the very least you’ll probably be on ok terms with the people you work with and maybe even have a few people who are doing a very similar job to bounce ideas off of. Forced friends as I like to say. Obviously, if you don’t like the people you work with it can also suck just as much as having no people to work with, but at least in theory there is the option to find a new place of work that again doesn’t require you managing so many competing priorities. Regardless of whichever path you choose, I’ve learned it extremely difficult to go anywhere if you don’t build relationships or work on your ability to build relationships. In our current social media isolation era it’s easy to think all the answers are online, but the person to person component is still one of the most important factors in having both a successful business and a successful career.

Income “Potential” is Only Potential:

You will frequently see online that the way entrepreneurship or self-employment is sold nowadays is higher income potential. The important word in that phrase is “potential”. There is always potential, in whatever you do, but this seriously undersells the sacrifices that you have to make in order to reach that potential. The phrase entrepreneur comes from the phrase for someone who creates something new. So if someone is selling you on a form of self employment that is cut and paste, run away, every type of entrepreneurship is its own battle and everyone’s path is a bit different. I’m all for learning how people have come before you, but the most important thing in entrepreneurship is being a constant experimenter and being ok with constantly failing and trying something new until you find what works for you. There is so much free information, and so much information in books that you can read (for FREE, if you get it from the library) that you really should not be spending a significant amount of money when you are starting out to get your feet off the ground. The best use of money is running a short marketing experiment for the service or product you are selling for minimum a month and trying to learn from the experience and iterate.

Patience is Extremely Important

This brings my to my next point, specifically related to entrepreneurship, is that when you are trying something new, you have to accept the fact that it will take time to see the results of your experiments. You can’t expect an instant sale if you’re just running your first facebook ad, or after knocking on your first door. It’s a long, iterative, slog. A lot of entrepreneurship simply comes down to how many times you are willing to do the same thing over and over, rejection after rejection, until you finally see results. You have to be, or become someone who doesn’t give up easily.

The Rejection Goal – An Entrepreneurs Lifeline

I read a book recently, Million Dollar Weekend by Noah Kagan, in it Noah relates the story of his father who was a door to door salesperson and his frame of mind when it came to getting rejected was to set a “rejection goal” every single day. Inevitably, within that rejection goal, you may have one or two people who are actually interested in talking to you, and one or two people who are interesting in what you are selling. If you make the goal the number of times you can be rejected, rather than seeing rejection as having failed, you are much more likely to get somewhere with your business. Contrast this to a job in which your goal is to create something, or build something. The only person likely to reject you is your boss or manager. If you are somewhat more client facing then you may also have to face rejection every day, but it’s likely that your income doesn’t completely depend on this one single client. When you are self employed and looking for work, it can be easy to feel like your income does rely on one single client and this can put you in a mindset of scarcity and fear, and while a little fear might be good to help you get motivated in the morning, too much can be debilitating. So it’s important to approach a business with the mindset of working with multiple clients, and even before you start a business trying to see if there might be potential clients that would want what you are selling is a great idea to validate a business idea, even better if they give you a deposit for the thing you are selling. It’s important to not rely too heavily on one single client for all of your income for all the reasons I stated above.

Employees Can Be Self Employed Too

Another pro for being an employee is that, frequently, there is a path to becoming self-employed. If you work in an industry long enough or become respected enough in the skills that you have and the things that you do, and have people that you know would want to continue working with you specifically. Then you have the foundation of a good business, and you’d be doing what you are already doing which would reduce the overall amount of skills that you’d have to pick up that relate to entrepreneurship, and you may be able to avoid marketing altogether and simply operate off referrals. From this point of view being employed can be very beneficial, but you’d have to work in an industry where your skills are important to the job, not just being a warm body that most anyone can replicate. The more regulation, the more difficult, the more qualifications you need the better because it will make the work that you do and the skills that you have valuable. I’m going to point to something that doesn’t immediately jump to most people’s minds when they things of “business” and that is healthcare. Depending on your healthcare profession, there may be a path to either a very high income, or opening your own practice, and “professional” degree in which you can open a practice or some kind can be a good path to self-employment if you work in the industry for a while first because there will be demand for your skills.

No Matter What You Do You Can’t Do It Alone:

There is no real right or wrong way to start a business, but there is a right and wrong mindset to operate from, ultimately, you are going to be working with people, and people involve relationships, so if there’s any one skill you absolutely need or need to learn its how to be a relational person, everything other skill or talent you have is not useful if you have no one to show it or sell it to. This doesn’t mean that you can’t create a business from nothing, there are lots of software companies that pretty much exclusively exist in website or app form. But these companies are still relational companies because they are solving a problem for people, without the people there would be no company. So it’s fine to make software, to learn skills that you can sell, to do something similar to what someone has done before, but at the end of the day it will always come down to how do you reach people and get them interested enough to pay you for the thing that you are doing or the product that you are selling. I’ll leave the discussion here for now, I’m still learning and reading a lot about building businesses and becoming a better communicator and working to build better relationships. All of these little things are important in the grand scheme of life and in the grand scheme of business as well.

Keep investing,

Oliver Foote