Why it pays to play: Video games and the creative industries

What long-term trend are we observing?

Creative industries like media, film, music and advertising are playing an increasingly significant role in today’s digital economy, creating investible opportunities beyond the traditional technology sector. This ‘flat white economy’ – referring to the ‘flat white’ coffees so popular among London’s creative professionals – has now become the UK’s largest economic sector, growing at more than three times the pace of the broader economy (source).

We see many once-niche or digital-native creative industries growing their audience and gaining mainstream credibility. For example, competitive video game tournaments, known as e-sports, have emerged as a large and expanding arena. These tournaments were once a way for video game publishers to publicise their games, but have since developed a serious following. This has in part been driven by the popularity of high-profile games like Activision Blizzard’s billion-dollar ‘Overwatch’ franchise, and Riot’s ‘League of Legends’ World Championships. Last November the latter attracted nearly 100 million unique views for the final games of the tournament. For context, last year’s Super Bowl attracted a similar viewership of around 103 million (source).

Elsewhere the popular game Fortnite – which won a BAFTA in early April for Evolving Game of the Year – recently hosted an online event in which Marshmello, a popular electronic dance music (EDM) artist, performed a live 10-minute set within the game. This event bought an estimated 10 million players into the game, and millions more participated via Youtube or Twitch (source). This is a great example of the future of play: the fusion of digital and physical worlds.

What does this mean for investors?

Revenues from video games reached a new high of $43.8bn in 2018, up 18% from the previous year, which we feel reflects a significant investment universe (source). What’s most interesting is that this rivals the $28.8bn revenues generated from media streaming services – which suggests that the media space could still see further disruption as younger generations in particular seek higher levels of community and interactivity from their entertainment (source). Research firm Statista also estimates that global revenues associated with e-sports could surpass $1bn this year and $1.6bn by 2021, primarily driven by sponsorships and advertising (source).

In addition to Activision Blizzard mentioned above, there are a number of high-profile companies operating in this area that we think could benefit from the expanding audience and monetisation of these trends. For example, Electronic Arts (EA) recently launched a game called ‘Apex Legends’ which attracted more than a million players in its first eight hours; a tally which rose to 50 million in the first month after its release (source). The game utilises EA’s successful Titanfall franchise, and incorporates it into a ‘battle royale’ mode of play, made very popular by Fortnite. It is also worth noting that Epic Games, the developer behind Fortnite – which reportedly hit 250 million registered players in March 2019 (source) – is 48% owned by Chinese internet firm Tencent (source).

Read more about the ‘4 Ds of the digital economy’

Outlook

The examples above demonstrate a coming together of gaming and popular culture across multiple platforms, reimaging the future of entertainment. Investors therefore need to think more broadly about the wealth of opportunities coming from a range of interconnected creative industries, across today’s digital economy.

Find out our views on why the consumer is king for thematic investors

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