Let us share some market trends regarding video games industry: large vs. indie studios, new monetization models, blockchain, metaverse, AI and others.

Large vs. indie studios

The decline of midsize developers, which happened in the 2010s, has left the video games market largely split into large expensive studio-developed projects and smaller independent teams dubbed indie studios. According to the 2023 Unity report, larger studios increasingly tend to focus on multi-platform developments, and 88 percent of teams larger than of 50 members release games on more than one device. Among them, the most popular are consoles, PCs and mobiles, although virtual reality is gaining traction. Smaller indie developers are focusing in 90 percent on single-platform development. To survive in an increasingly competitive market, these teams now focus increasingly on release speed. As of 2022, 62 percent of them ship complete games within a year. This development was enabled by new technological solutions such as the popularization of third-party premade asset packages for quick prototyping.

New monetization models

The free-to-play model with ads and in-game purchases is expected to remain dominant, but industry analysts expect the hybrid monetization model (where a single game can use different monetization models at the same time) to develop further. Advertisers are becoming increasingly interested in games, as according to Newzoo, 79 percent of the online population engages with games in some way. While ads are common in mobiles, they are likely to gain ground in consoles and PCs (e.g. Microsoft and Sony are contemplating in-game advertising). Another emerging model are subscriptions allowing to play multiple A-class games with full DLCs (game expansions) for a relatively small monthly fee. Earlier, such a model was used mostly for online multiplayer games such as Blizzard’s World of Warcraft MMO, which has been successfully running and attracting players since 2004. Although not owning the games played faced significant resistance from gamers, initiatives such as Microsoft’s Xbox Game Pass quickly gathered positive reviews among users. Companies can also monetize experiences (such as live events) and further develop the microtransactions economy by offering more unique in-game items and content.

Blockchain

An interesting development gaining traction is the play-to-earn model, which uses blockchain and allows players to sell assets from the game for real money. There’s also a separate category of blockchain games where players are rewarded with cryptocurrency (e.g. Axie Infinity). So far, it remains a fringe phenomenon in the market and is favored mainly by crypto fans. The blockchain technology can also allow players to make fast and secure in-game purchases (paying for avatars, power-ups, unique items etc. in cryptocurrency). NFTs are a way for gamers to truly own a particular digital asset, and they can subsequently trade it. The tendency significantly weakened after the 2022 crypto and NFT crash but remains an interesting alternative for video game companies to gain additionally in revenues and the player base.

Metaverse

According to a survey published by EY in 2022, 97 percent of gaming executives believe the video game industry is the center of the metaverse today, and nearly half of the respondents (49 percent) said they were prioritizing investment in virtual, augmented, or mixed-reality experiences. For video game companies, the development of the metaverse creates opportunities for new business models and for building closer relationships with consumers and brands. The metaverse will be driven by such technologies as VR/AR – which creates immersive experiences – and NFTs – which enable users to own and trade virtual assets that can be moved across applications. In recent developments, Meta (aka Facebook) is winding down its metaverse division. The company announced a pivot to the metaverse in 2021 and wanted to be seen as a leader in the field, but it has failed to dominate the scene. The Reality Labs division lost nearly US$14 billion last year, and Meta now plans to focus on generative AI instead.

Cloud gaming

The practice of streaming video games to portable devices with fast network connectivity is expected to revolutionize games, just as the cloud has revolutionized such media as video and music. It is expected to gain traction as more and more countries roll out 5G networks. As users gain remote access to game content, they do not need to invest in costly hardware updates to play the latest high-end games, which makes it more affordable and thus can broaden the customer base and drive market growth. EY estimates that cloud gaming will grow from US$2.5 billion in 2021 to US$6.1 billion in 2025. As the market matures, we can expect consolidation and bigger players acquiring smaller competitors (smaller companies will benefit from partnerships with renowned brands, and big companies can use M&A to tap into innovations and talent from smaller rivals). Cloud gaming can bring about innovation in distribution – playing in the cloud can be used for trying out games before download and cloud gaming services are already experimenting with bringing cloud gaming to TVs (Tencent has been doing it since 2020, LG and Samsung TVs have either started supporting such services or are about to).

Multiplayer

Although multiplayer games and vibrant online communities are nothing new, the late Z and upcoming Alpha generation approach them with novel attitudes. This includes a rise in out-of-game communities such as Discord and Reddit, as well as user-created content on platforms like TikTok and Twitch. Games are no longer solely intended for entertainment; they now provide virtual spaces where younger generations can meet and hang out with their peers. According to a global survey conducted by Bain & Co, 13- to 17-year-old gamers tend to spend more time on games than on any other medium (for 18-to-34-year-olds social media come first) and over half of them choose to spend time with their friends in a game rather than face to face. It's worth noting that this behavior may change over time, but upcoming generations are relatively more involved in games, which should drive revenues in the video game sector in the near future. Bain estimates that this growth could achieve as much as a 50 percent CAGR by 2027, although it should be said this is an optimistic scenario.

AI

While AI has been widely used in video games for a long time and, so far, it has mainly focused on machine-human interaction – for example, it is used to guide actions of non-playable characters or bots that players can compete with. Now, with the recent progress made in generative AI, there is speculation about how it can be used for game creation, inspiring controversy. However, industry insiders say we are still far from generative AI revolutionizing the game industry, but it can already be used to help with prototyping at the early stage of game development, and inventions such as ChatGPT can be used as an ideation tool because it can help tap into a broad range of inspirations. Still, developers see it as a tool that can change the nature of their work, but not a replacement.

E-sports

E-sports refer to competitive video game tournaments that draw in professional players and teams to compete against each other in front of a live audience. These competitions include a broad spectrum of games across various genres, with popular titles like Dota 2, Fortnite, League of Legends, CS: GO, and Mobile Legends: Bang Bang (prominent in Southeast Asia). E-sports involve multiple top video game companies such as Activision Blizzard or Riot Games, also constituting a focal point for streaming platforms such as Twitch. Tournaments are typically held in large arenas or online platforms, with significant crowds watching the games live. E-sports have seen an unprecedented surge in recent years.

According to Newzoo's 2021 report, e-sports events were watched by 234 million fans and 240 million occasional enthusiasts worldwide, with over half of the viewers coming from the Asia Pacific region. The most profitable e-sport markets are currently the US, China, Brazil, and South Korea. Fortune Business Insight has estimated that the market was worth US$1.22 billion in terms of revenue in 2021. Although it might seem fairly small (ca 1 percent of total gaming revenue), it is expected to grow at an impressive speed of 21 percent CAGR at least up to 2029, when it is expected to significantly exceed US$4 billion. Within e-sports, the largest revenue generators are media rights (25 percent), advertisement (23 percent), game publisher fees (18 percent), and sponsorships (15 percent).

Author of the article: Břetislav Šimral, Europe Insight & Intelligence Director

More insights together with some numbers and statistics in our Video games industry report