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