Episode 5: How gaming is fuelling the early Metaverse

  • Public Equity
  • TMT
  • North America

Third Bridge’s Global Sector Lead for TMT, Scott Kessler, and Chris Collins, former Development Director at EA’s DICE Studio and owner of global video game consulting firm 16bit, discuss how the nature of gaming has changed, gaming as a precursor for the metaverse, recent consolidation, and the sector’s biggest challenges and opportunities.

The gaming industry is at the forefront of some of the world’s most cutting-edge technology developments, with the metaverse beginning to revolutionise many elements. At the same time, consumer habits and demographics are shifting; taking the world by storm, the rise of Wordle showcases the democratisation of gaming, Scott Kessler and Chris Collins said.

Advances in mobile and cloud capabilities have been leading catalysts, with the former category now representing well over half (60%) of gaming revenues, Kessler noted. “The iPhone was only introduced in 2007 and the iPad introduced in 2010. Those were major drivers of opening up the market in that way.”

Developers now also come in various shapes and sizes but achieving scale at a level of sophistication that gamers have come to expect requires expertise, and is one of the reasons why “we have seen and we will see substantial consolidation in the category”, Kessler said.

Indeed, the “big three” US players – Activision Blizzard, Electronic Arts and Take-Two Interactive – have engaged in substantial M&A activity to diversify their mix of players, revenue streams, and business models. “It’s something that a lot of the companies are acutely aware of at this point, and it’s super important as we think about the future going forward.”

Big tech is also a “wild card”, with Amazon now owning a gaming studio and Netflix building out its games business. But as Kessler pointed out, regulators are increasingly focused on the footprint and power of such behemoths.

Demographics have become “incredibly important”, particularly in the US, where there has been a “dramatic” increase in female gamers in a historically male-dominated hobby. “And it’s, again, largely thanks to the emergence of technology,” said Collins. The COVID-19 pandemic has also boosted the number of 45-54 year-old players. More interestingly, he said, spending in that same segment is also on the up.

All trends discussed reinforce the substantial growth in the size of the category. “When Microsoft announced that it was intending to buy Activision Blizzard earlier this year, they talked about 3 billion gamers expected to go to four and a half billion by 2030,” said Kessler. This implies a 15x increase in the number of gamers from 200 million 15 years ago – “and we’re going to see another substantial increase of, say, 50% by the end of the decade”.

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