By James Soutter

A structural growth area that has been gathering momentum in recent years is egaming (electronic gaming). Gaming has evolved through technological advancement from traditional arcade-style and console gaming to mobile applications across 4G networks. 

Superior content cffering

Gaming companies are effectively creating ‘content’ which encapsulates consumer interest in the same way Disney, Fox or Netflix create TV shows and movies. Many consumers can identify with gaming brands such as Assassin’s Creed, Grand Theft Auto, Call of Duty or FIFA. Large scale traditional media companies are demonstrating a keen interest in gaming. In Europe, Vivendi, which owns part of Universal Music Group and Canal (a pay TV service in France), acquired a 10% stake in Ubisoft, a game creator known for its Assassin’s Creed franchise. Vivendi’s acquisition highlights the importance of gaming content and demonstrates traditional media’s appetite for digital content is likely to continue to grow going forward. In addition, Ubisoft has sold the rights to 21st Century Fox to produce and release an Assassin’s Creed movie in December 2016. We envisage gaming franchises to continue to be branched out into animation, movies and merchandising. Gaming is therefore an obvious place for increased media spend and product placement for advertisers. 

The global gaming opportunity

The popularity of gaming brands are not only encouraging existing gamers to play more, but also bringing new people to the gaming universe. Activision Blizzard, a leading global game publisher, suggested that the total hours spent gaming increased by 28% from 2014 to 2015. Further, Activision also estimated their monthly active user base is now larger than Twitter and Spotify combined. In fact, it has been estimated that gamers are now spending approximately 22 hours per week playing games, fast approaching the average television hours watched at 28 per week. To put this in context, hours spent gaming has risen to 22 in 2015, up from 6 hours in 2013. This clearly emphasises the pace at which the global gaming industry is growing. The increased prevalence of egaming has also attracted the attention of high profile corporates, with Coca-Cola, Nissan, SK Telecom and Red Bull all sponsoring egaming related contests. 

Gaming…gone digital…

Gaming has moved away from typical console games to online via computers, tablets and mobile phones. When playing online using a gaming company’s server, the company is able to build a profile for all of its egaming participants. For example, if Electronic Arts (a US-listed gaming company) has hundreds of millions of gamers playing online, it knows who each person is, how they play, who they play with and why they’re playing, which is valuable to gaming companies who can target advertising to their audience. This is compared to traditional gaming where the consumer would purchase a hard copy of a game on a CD and then play individually on their console. Electronic Arts estimates that their marketing spend has decreased from approximately 21% of sales to 14% of sales in 2 years (and sales have risen almost 20% in the same time period). 

It has been estimated that consumers spend almost double the time on their mobile phone playing games compared to using Facebook. As depicted in the chart below, research indicates that consumers using smartphones spend approximately 17% of their time on their phone using Facebook, whilst gaming makes up approximately 32% of this time. The potential for mobile gaming is significant, and is largely driven by casual gamers. Going forward, we expect mobile gaming to meaningfully outpace the growth of traditional gaming through consoles. This in turn generates higher margins for gaming companies and opens up a broader consumer audience.

 

Source: Aviate Global Research

Egaming is a structural growth area in its relative infancy. Gaming companies have developed superior content which is constantly increasing in popularity. This content is able to be monetised and presented across digital platforms via smartphones and tablets. We believe egaming will provide significant investment opportunities in the medium term.

James Soutter is a portfolio manager for K2 Asset Management.