There has been some negative sentiment surrounding the games industry recently, with stock prices of public games companies in question in both the U.S. and China. While being contrarian to market sentiment is always risky, it’s also possible that folks might be taking a long-term solution to a short-term problem. Games industry software/hardware combined revenue could drive well over $200 billion of revenue by 2023, and there was a record $5.7 billion investment in games companies in 2018. So what’s going on?
The games industry isn’t one monolithic sector. Depending on how you slice it, the market is made up of 15 sectors, eight platform types (e.g. mobile, PC, console) and even more proprietary hardware/software platforms (e.g. iOS, Android, Xbox One, Sony PS4, Nintendo Switch).
Mobile games rule
We first forecast mobile’s dominance of the games market way back in 2011. At that time, many traditional games companies didn’t believe mobile/online games could become the driving force for games. Some of those companies no longer exist, so what’s happening today is nothing new.
Total global mobile app store revenues (gross across games and non-games apps, including app store revenue share) topped $100 billion for the first time in 2018. Mobile games delivered around three quarters of that number, as they have consistently for years. So where mobile games drove more than $70 billion gross revenue globally last year, they could top $100 billion revenue (again gross, including app store revenue share) in their own right in the next five years. But like all games sectors, mobile games are hit-driven. And this could be the source of some of the mismatch between the market’s understanding of short-term trends and long-term potential.
For example, Supercell’s Clash of Clans and Clash Royale have delivered over $10 billion revenue to date. However, Supercell also saw revenues and profits decline in 2018 for the second year in a row as its franchises matured. Yet Supercell’s newest franchise, Brawl Stars, delivered $100 million revenue within its first two months. Swings and roundabouts.
Epic Games had the biggest breakout mobile games hit of 2018, with Fortnite contributing significantly to a reported $3 billion profit in 2018. It also anchored part of the interest behind a record $1.25 billion fundraising round last year. Yet the company removed once-dominant mobile franchise Infinity Blade from the App Store, and redirected internal development resources to focus on Fortnite by closing Paragon and stopping further development on Unreal Tournament. We will come back to Fortnite in the context of mobile games becoming platforms in their own right.