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Oct 3, 2022

Game On: How Mobile, Mega-Caps, And The Metaverse Are Transforming Video Games

by Rita Silvan

Lately, it hasn’t been all fun and games for gaming companies, video game publishers, chipmakers, and console manufacturers. After the boom times of the pandemic when shut-in players spiked demand, now that the world is returning to a semblance of normalcy, folks are prioritizing IRL (in real life) experiences over virtual ones. Stacked on top are headwinds like rising inflation causing rapid hikes in cost-of-living and the looming spectre of a recession. 

These factors combined are showing up in lacklustre quarterly earnings reports from several key players in the gaming ecosystem such as Sony and Microsoft (console makers), Nvidia (gaming chips), Take-Two Interactive, Activation Blizzard, Electronic Arts (game publishers), as well as Roblox (game-making platform), and Unity (game development platform).

Okay, so recession-proof, it’s not. But for those investors playing the long game, the games industry has a bevy of attractive tailwinds. According to the 2022 Global Games Market Report from Newzoo, a consultancy, this year, the global market is expected to reach 3.2 billion players spending US$196.8 billion, with the fastest growth in Latin America, Asia-Pacific, Middle East, and Africa demand well into 2025.1

Ka-Ching! Welcome To The “Future Human Experience Platform.”

When asked to comment on his company’s drop in net bookings and slowing daily user growth, David Baszucki, chief executive of Roblox, replied it was more of a “future human experience platform” than a straight-up gaming company. He remained sanguine about the recent volatility saying, “we’ve been through these cycles before, and we’ve been relatively immune to them.”

Baszucki has a point. According to Newzoo, the growth of “future human experience platforms” looks compelling. By 2025, it forecasts the gaming industry to generate over US$4 billion and global players numbers to grow to over 3.5 billion. The next generation of gamers is expected to be more engaged in interactive entertainments and to play more frequently.2

The key to attracting and keeping gamers in play is to offer high-quality and original content, which is best served through a monthly subscription model. However, to attract an even larger number of players, nothing beats “free” or “freemium”, which generated nearly three-quarters of the industry’s revenues in 2020.

More games are now being offered under the “free to play” business model, which has attracted criticism for its sneaky monetization strategies. These include goading players into completing frequent microtransactions, which increase in cadence as players progress through the game. Enticements include offers to buy extra lives, improvements and accessories to avatars, cosmetic and clothing upgrades, “legendary crests” that increase the likelihood monsters will drop “loot boxes” containing desirable gear, and season passes for rewards. While the games are virtual, the cash handed over is very real. One estimate is it would cost a player US$110,000 to fully upgrade their character in the popular game Diabolo Immortal by Activation Blizzard.3

Companies make most of their revenues from a small sub-set of big spenders, called “whales”, who spend thousands on these virtual upgrades. However, even dropping money isn’t a guarantee to find “high-tech gear” in loot boxes. Gaming companies employ consulting psychologists who coach designers on how to make the games as addictive as possible. Some strategies include nesting and layering smaller gameplay loops inside the full game. These micro games involve quick tasks which boost players’ egos and earn them points, and, most importantly, keep them playing. Based on studies on rats, players receive semi-random rewards rather than predictable ones to keep them hooked. Using foreign currency has been shown to encourage people to spend more freely, so games transact with “gold”, “crystals”, and “v-bucks”. Some sub-games employ virtual animals or crops, which players must tend regularly. In some cases, games punish players who do not log in frequently by destroying their in-game assets, and the only way to revive them is to pay up.4

Game On: How Mobile, Mega-Caps, And The Metaverse Are Transforming Video Games   

Mega-Caps: Wanna Play?

Big players such as Netflix, Apple, Amazon, Meta, Google, Zoom, TikTok, and Microsoft all have ambitious gaming plans. For example, at a time when it’s losing subscribers, Netflix aims to leverage hit shows such as The Witcher, Arcane, Castlevania, and Resident Evil, into games. In a symbiotic relationship, Arcane is a show derived from games in the League of Legends series. (Very meta.)

At the end of 2021, the company launched its Netflix Games division offering mobile games to subscribers at no additional charge. It now has 50 new games in the pipeline by the end of 2022. Netflix has two games based on its hit Stranger Things and is adding games based on Shadow and Bone, Money Heist, Too Hot to Handle, and The Queen’s Gambit. Since it acquired three gaming studios, it’s also raising the stakes with higher-end, artistic games. Currently, Netflix Games has 1.7-million users and around one per cent subscriber engagement, which means it has a very long runway ahead.5

Earlier this year, Microsoft dropped US$75 billion on games publisher Activision Blizzard in a move to gain market leadership from Sony. Microsoft already has a very robust games business since it launched the Xbox console two decades ago. The acquisition will juice the pipeline of its recently launched Game Pass subscription service, which has 25 million customers. Like other big tech companies, Microsoft is betting on the metaverse as the next technological innovation and video games as the portal into that world. As more of our lives are conducted online, tech companies are trying to ensure they maintain a central role in how we spend money and amuse ourselves. In-game purchases already account for a sizeable portion of Sony’s game profits, for example.

Globally, the size of the total addressable gaming market is gigantic; today, it already exceeds other forms of mass-market entertainment. Mega-caps are not only able to acquire leading companies. They have the heft and know-how to manage large online businesses and distribute costs among various business units.

Companies like Apple and Google attract big audiences to their mobile app stores, which is the main shopping platform for games. According to Newzoo, mobile is the primary driver of market growth and will generate US$103.5 billion in revenues this year. Amazon’s Twitch and Google’s YouTube attract huge audiences to view video games. And Meta Platforms has a lock on virtual reality experiences through its Oculus headsets. As for Sony, it continues its focus on mobile gaming and subscriptions to fuel business in new markets.6

Like gambling, gaming is highly addictive, which is good for company coffers but comes with undesirable personal and societal effects. This year, for the first time, the World Health Organization (WHO) included “gaming disorder” in the latest edition of its International Classification of Diseases (ICD) manual. ICD is used by physicians and health insurance companies. The disease skews male, with patients facing school expulsion, lost jobs, and poor relationships.

Despite its rosy revenue outlook, the gaming industry will be under growing scrutiny by governments. China, Belgium, the Netherlands, and Britain all have implemented some form of regulation, such as limiting play to those over the age of 18. As games proliferate, there may be additional rules, taxes, and fines. To head politicians off at the pass, some industry members are attempting to self-regulate by running educational campaigns such as “Get Smart About Play”, and Apple and Google point to their parental controls on smartphones.7 For investors, the gaming ecosystem offers an attractive risk/reward opportunity. Just watch out for monsters!

Rita Silvan, CIM is a finance journalist specializing in women and investing. She is the former editor-in-chief of ELLE Canada and Golden Girl Finance. Rita produces content for leading financial institutions and wealth advisors and has appeared on BNN Bloomberg, CBC Newsworld, and other media outlets. She can be reached at