The growth of the video game industry over the past 18 months has in many ways reflected human behavior during the pandemic.
When everyone was locked inside, we turned to gaming to connect with friends, pass the time and spend discretionary income no longer reserved for nights out and vacations. The industry boomed as a result, and this past year we've seen the effects reflected in record gaming investments and consumer spending.
But new reports out this week on the financial state of the industry point to a more complex picture emerging. While COVID-19 marks a definitive turning point for the industry, game makers are now grappling with the reality that the industry may never again see the same level of cultural diffusion and unprecedented financial growth it did in 2020, when analyst firm Newzoo says the industry grew more than 23% from the year prior.
As expected, last year's growth hasn't been replicable as consumers become reacquainted with leaving their homes, returning to the office and traveling more often. Now, the industry has to chart a path toward a post-pandemic future that recognizes what worked during the pandemic, what won't keep working in the future and what's a more realistic expectation of gaming's new normal going forward.
This reality check hasn't stopped investors, for now. The game industry has emerged as one of the hottest investment markets in the world over the past nine months, with a record $71 billion in deals across nearly 1,000 transactions according to a report released this week from investment firm Drake Star Partners.
Scores of companies that never dabbled in games before now want a piece of the fast-growing pie. New studios are opening left and right, investments are pouring in (more than $9 billion across 493 deals), gaming startups have had massive, high-profile IPOs (Roblox and Unity, to name a couple) and buzzy new markets like NFTs and blockchain-related gaming startups are popping up around the industry.
The frenzied state of investments and industry consolidation illustrates just how confident the industry is that its best years are still ahead. But in many of the areas that count most for the short term, the industry's growth is starting to lag, and it's going to take careful maneuvering for game developers to weather the slowdown after last year's high.
Spending on video games in the U.S. jumped 35% in the first six months of the year compared with 2020, according to The NPD Group, but the percentage of players who play games dropped three percentage points to 76% of Americans compared with last year. That 3% drop is evidence of just how fickle audience growth and retention can be, as people are prone to abandon hobbies they picked up during lockdown once they're able to return to old habits.
Newzoo, which tracks global game spending, reported earlier this year the industry was on track to shrink roughly 1% to $175 billion, mainly due to remote work disruptions causing delays in big releases like Sony's Horizon Forbidden West and the global chip shortage resulting in drops in console and PC gaming spending. Those issues are expected to persist well into next year.
Looking ahead, these reports paint a picture of more tempered growth in more predictable fashion, but growth nonetheless. NPD says that while the number of Americans playing games this year has dropped from last year, it's still much higher than it was in 2019 and those that are playing games still are doing so far more on average.
"Despite the decline in number of people playing video games, the industry continues to see growth in the number of hours spent gaming," NPD wrote in its report. "There was a dramatic increase in time spent playing games from 2019 to 2020, with average hours played per week jumping from 12.7 to 14.8, respectively. And the growth continues, increasing to 16.5 hours per week this year."
NPD makes an interesting observation in its report: One age group, the lapsed gamer aged 45 to 64, is helping contribute to new audience growth. "We had a number of lapsed gamers in the 45-64 age group re-enter the market last year, not only for entertainment, but to stay connected with family and friends. And these gamers have continued to play more than other age groups," said NPD analyst Mat Piscatella. "Despite an overall decline in the percentage of folks that play games in the market, the time 45–64-year-old gamers spent playing continued to increase."
Mobile is another bright spot. While much of the global decline in game revenue this year can be attributed to contractions in the PC and console market, it's mobile holding the industry afloat with an estimated 4.4% year-over-year growth, Newzoo said last month, primarily because it's the type of gaming that doesn't require players to stay in one place all the time.
The firm now says the overall gaming industry will grow at a compound annual rate of 11% per year through 2024, to a record $200 billion. And mobile's ascendance will continue, with mobile gamers making up the largest chunk of new audiences (now expected to grow to 3.3 billion people by 2024) and the biggest spenders globally.
The game industry is already among the largest and most powerful entertainment sectors in the world, and it's only going to keep growing as more people play games, buy gaming hardware, try mobile gaming for the first time and spend more money more often on free-to-play games. 2020 marked a watershed moment for the industry, and it's not one easily or likely ever replicable again without another world-changing shift in behavior like the pandemic. But it's clear now more than ever the industry has only its brightest days ahead.
