Game on: Why Big Tech is betting big on gaming
When Bill Gates said “content is king” back in 1996, he opened a can of worms that has become increasingly hard to contain.
This content obsession has evolved in different ways in the last two decades, with the latest bet from Big Tech being on gaming.
While the evolution of video games has been progressing since the 1970s, the turning point for many firms was the pandemic, where suddenly fringe gamers were suddenly glued to their Nintendo Switches.
As a result, Big Tech is betting big on this space, making huge investments to nab the attention of the near three billion people that currently play video games.
Head of Tech at Enders Analysis Joseph Teasdale said that although gaming had an “explosion” during the various lockdowns, there is still a huge amount of untapped growth ahead of it: PwC reckons the global gaming industry will be worth $321 billion by 2026.
Amazon spends nearly $500m in game development according to Bloomberg, while Facebook owner Meta has doubled down on building a metaverse gaming world.
Nevertheless, as we head into a post-pandemic era, which is increasingly characterised by supply chain woes and tightening consumer spend, Teasdale said the face of gaming has changed significantly.
A land grab
He told City A.M. that the industry has become a lot more “device agnostic”, with intellectual property (IP) for franchises becoming the new prized asset.
“The business model has shifted away from products and widgets, like your standard Xbox or Playstation, and more towards subscription models, where you can pay £50 and have access to a whole range of live service games and franchises,” he said.
This in itself has been a huge opportunity for monetization, opening the world up to a whole new demographic of players. “It’s a bit of a land grab,” Teasdale told City A.M.
However, the ultimate “land grab” this year was perhaps Xbox maker Microsoft’s monster deal to snap up Call of Duty maker Activision Blizzard for $68bn ($50bn).
As one of the largest gaming deals on record, and currently being probed by the UK competition watchdog, Teasdale said Microsoft has embraced the shift away from consoles and “jumped into the world of gaming intellectual property”.
Indeed, the push for IP has become more and more important as supply chain issues and chip shortages continue to batter traditional console sales.
By contrast, Teasdale said that its biggest rival Sony has been much more reluctant to break out of the console system: a point that was seen with the Japanese firm’s recent Playstation price hikes.
Netflix and game
Another major emerging player in this market is Netflix, which just last week announced a partnership with one of Europe’s biggest video game firms Ubisoft to launch three new mobile games, including one of Assassin’s Creed.
Moves like this have been on the streaming giant’s radar for a while now. In a letter to investors last year, Netflix named Epic Games as one of its biggest rivals alongside TikTok.
Head of TMT Research at Mirabaud Neil Campling told City A.M. that Netflix’s ambitions in this sphere was simply “another form of media that extends the life cycle of franchises”.
He said because video streamers invest millions into TV and film production, they want to roll these out in video game form to see more bang for their buck by “taking this investment to multiple screens”. By making games, streamers can also hope to boost engagement with shows and combat stalling subscriber growth.
Teasdale echoed this rationale, saying that gaming creates “stickiness” for the consumer. He suggested it could play a role in the US streaming giant introducing a subscription tier model amid stalling subscriber growth. Netflix declined to comment on this speculation.
But there is a clear cautionary tale here. “Gaming is something you could sink a lot of money into, but has no guarantee of success,” Campling told City A.M.,
This is arguably something that Google learned the hard way with the launch of cloud gaming Scadia, which received gamer backlash and slow uptake.
There is also the added concern of Apple and Google acting as the essential gatekeepers for gaming – as providers of software on phones and computers to host games- being the essential gatekeepers of gaming, and the subsequent fees they rake in.
It was this arrangement that gave Apple the third biggest gaming revenue in the world without actually needing to produce any of its own games.
The overarching message is that success in video gaming is a slow burner, with the likes of Sony and Microsoft still trying to crack in 20 years later.