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Digital gaming = serious business

Time to read: 4 min

In a world where new video games can have bigger opening weekends than Hollywood blockbusters, it’s clear that digital gaming is serious business. The digital gaming industry’s global revenues have almost doubled over the past seven years (from $71 billion in 2012 to $135 billion in 2018) — and over the next three years, revenue is forecasted to grow at a compound annual growth rate of approximately 9%.1

Source: Newzoo. April and October 2018 Quarterly Updates. Global Games Market Report. Please note that 2019, 2020 and 2021 are estimates and may not come to pass.

Five long-term growth drivers

Five long-term themes have driven this growth and continue to underpin expectations for the future: new monetization opportunities, new delivery platforms, new game structures, eSports, and virtual reality.

Growth driver 1: New monetization opportunities

Beyond the obvious point-of-sale migration from brick-and-mortar stores to online and mobile marketplaces, the digital transformation of video games enables brand new forms of monetization such as game expansion pack downloads, microtransactions, and in-game advertising.

  • Game expansion pack downloads are in-game add-ons — such as new storylines and features — that can prolong an existing game’s revenue stream. Before the arrival of expansion packs, game publishers could typically only sell a video game at a fixed price with static content. Now publishers can evolve games over time by releasing additional content, creating new monetization opportunities.
  • Microtransactions involve the sale of in-game virtual goods, such as cosmetic items, tools and powers. Analogous to selecting a premium trim for a car, gamers are encouraged to upgrade their characters’ outfits and abilities in order to enhance their gaming experience. The immensely popular game “Fortnite: Battle Royale,” which is free to download and play, makes its money entirely from microtransactions. According to several media outlets, Fortnite generated approximately $3 billion in 2018.2
  • In-game advertising, which is used extensively in free-to-play mobile games, allows companies to monetize casual gamers. Since it’s difficult to convince casual gamers to directly pay for games, developers can now generate revenue from this customer base by compelling them to watch intermittent advertising before advancing to the next level of a game.

Beyond generating revenue growth opportunities, these new forms of monetization can also provide the added benefit of improving operating leverage since revenue from digital sources is typically higher margin.

Growth driver 2: New delivery platforms

Today, most graphic-intensive games still require a dedicated gaming console or high-end PC to play, but that is expected to change soon. With the global growth of broadband and the advent of 5G mobile service, streaming graphic-intensive games is becoming increasingly possible. Rather than the user’s device powering the game, a datacenter in the cloud can provide the processing power, which would then stream the output to the user’s phone, TV, or other device.

In addition to the two major digital game distribution companies — Microsoft and Sony — other large technology companies including Amazon, Google, and Apple are racing to develop and bring to market the first digital gaming streaming platform. The potential market opportunities to whichever company can become the “Netflix of gaming” are considerable. Companies that excel at both quality of technology and depth of content library could potentially win lucrative customer relationships that could be monetized over the long term via subscription services.

Importantly, streaming services would likely expand the customer base of core gamers by lowering their upfront costs. By removing the upfront cost of an expensive gaming console or graphics processing card, many more people, especially in emerging markets, could afford to play the top games.

Growth driver 3: New game structures

The old stereotype of lonely gamers frittering hours away in their parents’ basement does not reflect the digital gaming reality today. Single-player games are increasingly giving way to multi-player games. The two leading multi-player networks are Microsoft’s Xbox Live and Sony’s PlayStation Plus. The social aspect of multi-player games makes them more engaging, fosters a sense of community, and enables new game genres such as team-based strategy and battle royale games. In battle royale games, such as “Fortnite: Battle Royale,” multiple players compete against one another until only one player is left standing. The success of Fortnite has taken the digital gaming world by storm. Launched in July 2017, Fortnite has quickly amassed a global base of 200 million players.3

Growth driver 4: eSports

eSports is a form of professional video game competitions. Having grown up with the Internet, younger generations are accustomed to the blending of the physical and digital worlds and view eSports as a natural extension of traditional physical sports.

Like traditional sports, eSports derive revenue from sponsorship, advertising, media rights, merchandise, and tickets sales. Still in its infancy stage, eSports has the potential to mature into a multi-billion-dollar industry over the next five to 10 years. From a revenue base of $865 million in 2018, eSports revenue is projected to reach approximately $1.8 billion by 2022.4 While eSports revenue is still modest compared to the revenue earned by established leagues like the NFL5, its audience base already rivals, and in some cases exceeds, that of traditional sports, and is projected to continue growing rapidly. Comprised of 173 million enthusiasts and 222 million occasional viewers in 2018, the global audience for eSports is projected to reach 645 million total viewers by 2022.6

Source: Newzoo. 2019 Global eSports Market Report. Please note that 2019 and 2022 are estimates and may not come to pass.

Annual viewership for eSports as of 2018 and professional sports leagues as of 2017. eSports annual viewership from Newzoo, shows enthusiasts only. Traditional sports viewership from Nielsen, CBS, ESPN, Goldman Sachs Investment Research.

Growth driver 5: Virtual reality

Remember Pokémon Go, the mobile game that went viral during the summer of 2016? Pokémon Go involves superimposing digital images onto reality, otherwise known as augmented reality, and serves as a preview of what is to come if virtual reality goes mainstream. With software and hardware continuously improving, augmented and virtual reality are poised to significantly impact digital gaming by enabling more immersive experiences. Instead of experiencing a game through a monitor, virtual reality enables users to step into three-dimensional worlds and interact with the digital environment.

While virtual reality technology is rooted in the digital gaming industry, the technology is also applicable to industries beyond gaming. Potential use cases include remote surgeries (health care), virtual classrooms (education), virtual property tours (real estate), and virtual changing rooms (retail).

Talk to your advisor: Invesco Digital Gaming Trust

Interested in the growth opportunities that the digital gaming industry can provide? Talk to your financial advisor and explore the new Digital Gaming Trust from Invesco Unit Trusts, a thematic portfolio of common stocks and American Depositary Receipts (ADRs) of companies that produce and distribute leading products and services related to the global digital gaming industry.

1 Source: Newzoo. April 2018 and October 2018 Quarterly Updates. Global Games Market Report.

2 Source: Forbes, “’Fortnite’ Creator Epic Games Reportedly Earned $3 Billion in Profits in 2018,” Dec. 27, 2018

3 Source: Forbes, “The ‘Fortnite’ Monster: 200 Million Players, 8.3 Million Concurrents,” Nov. 28, 2018,

4 Source: Newzoo. 2019 Global eSports Market Report.

5 Source: Bloomberg, L.P., “The NFL’s Very Profitable Existential Crisis,” Sept. 13, 2018

6 Source: Newzoo. 2019 Global eSports Market Report.

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