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Game on! How computer games are taking over entertainment

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Summary

Forget the movies, forget TV, forget rock and roll – computer games are becoming the biggest entertainment industry on the planet.

3 min read

As the world waits on the edge of its collective seat for the results of the 2018 World Cup in Russia, the players of another global football tournament are preparing for their play off in London in early August – the contestants in the FIFA 2018 eWorld Cup.

This computer game competition has been running since 2004 and has grown steadily in popularity. Over 20 million players competed online for a place in the playoffs held in Amsterdam in May and June, where 128 players on each of the Xbox One and Playstation 4 competed for one of the 16 places for each platform in the world final.

If all this seems like fun and games, the money involved is deadly serious. Last year’s winner – the UK’s Spencer Ealing – also known by his online handle ‘Huge Gorilla’ – walked away with a massive trophy and a US$200,000 prize, and the final was watched by nearly 50,000 people.

 

This esporting life

FIFA isn’t the only game in town. In fact, it’s fairly small scale compared to the millions who play – and watch – games like Fortnite, League of Legends, Defense of the Ancients 2 and CS: Global Offensive every week.

The audience and revenues for esports are rising:

  • Market intelligence company Newzoo estimates that the audience size for esports in 2016 was 6.5 million people, with 3.1 million tuning in to esport events more than once a month
  • Consultancy firm PWC predicts that esport ticket sales will reach £8m in 2021, and advertising will reach £12m

The prizes in the big games can be huge. Members of the winning team in the 2017 Defense of the Ancients 2 international tournament each made more than the individual team members of the winning team of the Superbowl. Game publisher Epic has just put up a prize pool of US$100m for competitive Fortnite players in 2018/19.

As Coutts wealth management specialist for esports Jamie Regan explains, “Prizes in competitive esports are rising to levels that rival traditional sports, with players earning six- and seven-figure sums. Video game ‘vlogging’ is another distinct area, with many non-competitive gamers attracting millions of views, as well as lucrative sponsorships and advertising income via their social media channels. These are exciting times.”

Recognising the growing importance of esports, Coutts held an event last October to highlight this growing area. We brought together prominent figures in this burgeoning field to explore ways to grow audiences and revenues, and talk about ways to generate investment in this new sector. Another event is planned for later in 2018 to build on the success of last year’s event.

“Prizes in competitive esports are rising to levels that rival traditional sports, with players earning six- and seven-figure sums.”
Jamie Regan, Coutts Wealth Manager

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The 10th muse?

The rise of esports is just one aspect of the growing importance of computer games in the media landscape. Earlier this year a video game – Grand Theft Auto V – became the most financially successful media title of all time. Its total revenue of US$6bn compares to the inflation-adjusted US$3.6bn made by Gone With the Wind, the highest grossing movie ever according to the Guinness Book of Records.

As well as games titles, games hardware is big business. Microsoft has sold around 36 million XBox Ones, while Sony has sold over 75 million Playstation 4s. Both companies also operate subscription-based services that support their platforms – Microsoft estimates there about 48 million Xbox Live users, while Sony puts the number of PS Plus users at about 31.5 million.

Companies we hold in our portfolios with direct exposure to the gaming market include Tencent, the Chinese technology giant which owns 40% of Epic Games, the publisher of Fortnite.  We also have exposure to Microsoft and graphics card manufacturer Nvidia.

This booming industry is more evidence of how people are embedding tech in every aspect of their lives. It aligns with our own view that technological innovation in all walks of life will be a major driver of returns for investors in the coming years. As we point out in our Mid-Year Outlook, all companies are now, one way or another, technology companies, and this is no less true for entertainment.

Technology is changing the world of entertainment in exactly the same way that it’s changing every other aspect of our lives. Computer games are overtaking movies and TV as our preferred mode of entertainment. And if we’re not playing games ourselves, we’re watching the burgeoning field of esports. These changes mean that the technology sector is likely to remain at the forefront of investors’ minds.

About Coutts Investments

With unstinting focus on client objectives and capital preservation, Coutts Investments provide high-touch investment expertise that centres on diversified solutions and a service-led approach to portfolio management. Our investment process is as disciplined as it is creative – ensuring tailored solutions with robust results.

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