The Future of Gaming
Trends around players, content, business and regulation, technology and game development
This is a bi-monthly newsletter on everything gaming. To receive this newsletter in your inbox, subscribe here:
Key Trends
Hi everyone! Welcome to my first real post on So What Gaming. 2020 is coming to a wrap soon and a lot has happened this year. We had to deal with Covid-19, recession, natural disasters, elections, among many other things. Gaming and socializing via games helped many people cope with these hardships. Before we head into the new year, I want to share some of my thoughts on the future of the gaming industry. I think of these changes in 5 vectors: (1) players, (2) content, (3) business model and regulation, (4) technology and (5) game development.
(1) There will be more gamers and more demand for gaming-related content.
(2) User generated content (UGC) will be an important growth driver.
(3A) Free-to-play games is becoming the norm.
(3B) There will be more regulatory scrutiny.
(4A) Cloud gaming is coming, but adoption is dependent on scale, technical improvement and anchor content.
(4B) Advances in AR/VR, graphics and AI are blurring the line between the virtual and real worlds.
(5A) The development engine is being standardized and modularized.
(5B) Development employment continues to transition from the hire + fire to a steady-state model.
(1) There will be more gamers and more demand for gaming-related content.
There are more gamers and gamers crave more content. The definition of a gamer has expanded. Previously, one needed to be a “hardcore” gamer to be considered a gamer. Nowadays, gaming is more mainstream and the gamer profile more diverse. Anyone who plays on their phone or watches streams could be considered a gamer. The gaming audience is also expanding demographically to younger teens (over half U.S. kids play Roblox) and older adults (more than 10M Americans ages 50 and older became active video gamers over the past 3 years). By 2023, there will be ~3 billion gamers worldwide, with majority of them on smartphones. That is 40% of the worldwide population!
Secondly, gamers also crave more content, from playing games to watching others play games. According to Limelight Networks, gamers are playing ~6 hours each week and younger gamers also prefer video games over watching TV and movies. In fact, watching gamers play video games is more popular than watching sports for gamers who are 18-25 years old.
Pros: growing gaming audience; growing demand for more gaming-related content
Cons: negative consequences from gaming (e.g., addiction, cyberbullying, privacy, etc.)
(2) User generated content (UGC) will be an important growth driver.
Professionally developed content has dominated the gaming market but UGC is becoming more relevant. Just like the video/movie industry, the gaming industry could expand its scope, size and audience through more user generated content (e.g., YouTube + TikTok supplementing HBO + Warner). There are 2 main categories of UGC – games and videos/streams related to games.
Minecraft and Roblox were the first-gen UGC gaming platforms. According to Roblox’s S-1, as of September 30, 2020, there were over 18 million experiences on Roblox, and 12 million of these were played in the last 12 months. As game development becomes more standardized and modularized - to be discussed further in this blog - and demand for content increases, there will be a greater need for UGC to supplement professionally developed content.
User-generated content in terms of videos/streams has also increased in popularity, aided by the pandemic. The top game streaming platforms had a total of 7.4B hours watched this quarter. Hours watched increase 23% from 2018 to 2019; that figure could double from 2019 by end of 2020. UGC is also increasingly responsible for the marketing of games – Fall Guys and Among Us are examples of games that blew up over streams. In the future, we could see a barbell-shaped gaming content space where professionalized and UGC content creators together serve a broader range of experiences and players.
Pros: cheaper and more personalized content for players; more self-made developers and content creators
Cons: fragmentation of development space where indie studios may struggle to be economically viable, unless they are able to capitalize on virality
(3A) Free-to-play games is becoming the norm.
Historically, there has been a clear divide between premium (paid) and free-to-play games. The mobile market and PC multi-massive online (MMO) games are almost 100% free-to-play. These games make money by charging players for upgrades or cosmetic (these purchases are called microtransactions, or MTX). AAA gaming studios sold premium single-player PC and console games for $20-$60. However, Epic really disrupted the market by offering Fortnite, a high-quality game for free. Since then, many AAA games such as Apex Legends, Call of Duty Warzone, Genshin Impact have followed suit. Historically premium games such as Destiny and Counter Strike: Go have also “turned” free-to-play. According to SuperData, in 2019, F2P digital games contributed to $87 billion in revenue, up 6% from 2018. At the same time, premium digital games contributed to $20 billion in revenue, down 5% due to release of blockbuster Red Dead Redemption in 2018. Premium games are unlikely to go away because players will pay for superior experience and IPs they love (e.g., NBA, FIFA, Call of Duty). However, F2P will be the norm for new games and IPs entering the market.
Pro: more free-to-play high quality gaming experiences for players
Cons: harder for smaller studios developing new console/PC IPs to breakthrough, given capital and manpower required to fund this development model; player fatigue and frustration around potential aggressive microtransaction
(3B) There will be more regulatory scrutiny.
As games become more mainstream, their impact on the society is also becoming more present. Critics of video games point to addiction, toxicity, privacy concerns and predatory business tactics in the industry. At the same time, the gaming audience has expanded to younger and older audience, who are vulnerable populations subject to protection laws. While there is no industry wide regulatory review today, we can expect more scrutiny in the future given the regulatory attention on tech giants now.
Geopolitical tension could also negatively impact the gaming industry. Over the summer, the US administration threatened to ban WeChat (messaging app owned by Tencent, a Chinese company) and shut down gaming partnerships. Tencent is the largest video game producer and investor in the world. It owns 100% of Riot (League of Legends), 40% of Epic Games (Fortnite), and is the development and distribution partner for tons of studios (e.g., Activision Blizzard, Take-Two, etc). This could be an ongoing dynamic to watch out for.
Pros: more consumer protection
Cons: potential restriction on freedom of speech/expression from developers; disruption from geopolitical tension
(4A) Cloud gaming is coming, but adoption is dependent on scale, technical improvement, and anchor content.
What is cloud gaming? A simplified answer: cloud gaming is to traditional gaming as Netflix is to DVD. It means we can access our games anywhere and from every device. On the surface, it seems like a no brainer – why wouldn’t we move to cloud gaming?
Cloud gaming adoption is a triangular relationship involving the cloud provider, content provider and gamers. On the cloud provider side, cloud gaming must eventually be economically and technologically viable. Cloud gaming requires huge investment on data centers, content, and technological improvements (e.g., gaming experience must have low latency and high reliability and fidelity). Well-capitalized tech companies such as Microsoft, Amazon, Google, NVIDIA are all investing in the cloud gaming ecosystem, whether through hardware or infrastructure. Google Stadia is free, and its gaming performance is comparable to or better than PC/console. But why isn’t everyone using it?
Because on the player side, cloud gaming needs to be equal or better than existing solutions (e.g., PC, console and mobile). While there are a lot of issues that cloud gaming could resolve, such as on-demand play and local storage constraints, the biggest draw for players is content. My friends love PS5 for many reasons – great controller, sleek design – but the main reason is the exclusive, high-quality content. Cloud gaming needs anchor content like HBO needs Game of Thrones and Netflix needs Stranger Things.
Why aren’t publishers more proactive about cloud gaming? Publishers such as EA and Take-Two are not prioritizing cloud gaming because they have limited development resources and most of their players are still on console and PC. Most importantly, cloud and content providers have yet to figure out a long-term business model (i.e., who gets paid what).
Cloud gaming is truly a chicken-and-egg situation. Ultimately, cloud gaming will only work if two of the three corners of the triangle can come together and draw the last corner in.
Pros: potentially broader user base and lower barriers to entry for users (no need to buy console or PC)
Cons: large infrastructure and technology investments required; business model between content owners and distributors uncertain
(4B) Advances in graphics, AI and AR/VR are blurring the line between the virtual and real worlds.
In the short term, AI-powered ray tracing (DLSS) is making games more cinematic. The Unreal engine is used to render real-time sets for the Mandalorian. In the medium term, AI will make gaming experiences more personalized and development more efficient. In the long term, new breakthroughs in AR/VR (wide field of view, AR Mapping), which leverages more sophisticated AI to perceive, analyze and create content, are making gaming more immersive and a part of life. Pokémon Go commercialized AR gaming and I am excited to see more to come in the space.
Pros: more immersive gaming experience; wide applications outside of gaming, including entertainment, education and medicine
Cons: lack of successful AR/VR content and scale in hardware creates a chicken and egg situation; technological constraints on hardware; AR/VR has limited research on impact on users (Stanford VHIL has some interesting learnings on impact of AR/VR)
(5A) The development engine is being standardized and modularized.
As games become platform agnostic (i.e., games are not tied to specific platform and players can keep progression across platforms) and content cadence becomes evergreen (i.e., games become always-on), it will become increasingly important to have robust engine and development toolkit to support the game. Thanks to Unity and Epic, developers have access to a state-of-the-art engines and toolkits without much startup cost. Unity and Epic have also layered on additional monetization and live operations services (e.g., Unity ad network and Epic Online Services) to make their engines stickier.
Few large studios (e.g., Riot, Activision Blizzard, Take-Two and EA) will continue to use their legacy internal proprietary engines for PC and console games. New studios are likely to leverage Unreal and Unity for game development. In fact, 7.5M developers are using Unreal and 50% of all new mobile games are created with Unity. Especially in the mobile space where agility and consistent content cadence are critical to success, even giants like EA are moving to Unity for new games
Pros: faster, more efficient, and more agile development cycle; standardized development process enables mobility across games, studios and “platforms”
Cons: lack of customization for games
(5B) Development employment continues to transition from the hire + fire to a steady-state model.
As games move away from hit-driven business to more of an always-on operating business, development cycle will also follow. Studios will need to have permanent artists, developers, QA on staff to support the content cadence required for always-on games. Secondly, game developers have also criticized the burnout and layoffs within the industry and called for unionization for a long time. As gaming becomes more mainstream, labor issues within the industry will face a bigger spotlight (Hasan Minaj coverage)
Pros: fair compensation and treatment for workers
Cons: development cost will increase, which may pass onto consumers
Final Thoughts
The industry is constantly changing due to internal and external factors and there are a ton of trends (e.g., esports, unified gaming ecosystem, new gaming genres, emerging business models) that I haven’t covered. However, out of all the gaming trends, these are the ones that are top of mind for me. I am super pumped about the future of gaming and really look forward to what 2021 and the rest of the decade will bring.
If you are still craving more…check out the below:
What industry leaders think about the future of gaming: IGN interview
Matthew Ball’s essay on Cloud Gaming
If you found my thoughts helpful or interesting, subscribe for more content, leave a comment below, or message me directly on LinkedIn. I welcome any feedback and suggestions.
Hey there, great primer so far. A few comments:
1. Regarding 2a, is there a period of time you're restricting your analysis here? I think Second Life would actually be a better starting point if we're talking about UGC in general, but definitely understand if you're going for a more curated angle.
2. For 4a, I think a bigger point to bring up for Google Stadia in particular is its lack of a good value proposition compared to its competitors because you must purchase license to play the games exclusively on its platform, which is a bit worse off compared to compared to Microsoft and Sony's offerings that allow for a Netflix-like model or Nvidia's offering that allows you to play with your own accounts. However, the points you bring up are excellent and apply to all.Regarding the payment model, that's actually gotten Nvidia into hot water (https://www.theverge.com/2020/3/2/21161469/nvidia-geforce-now-cloud-gaming-service-developers-controversy-licensing)
3. (4B) A lot of the user-focused research is under way, but it can be a bit hard to find because academia has not done a great job in focusing on which areas it applies to, so there's a massive spread in the conferences that papers are being submitted to. I also feel that there's a bit of a potential conflict of interest when giants like Oculus/Facebook are directly funding some of the research, but that's a separate point.
4. (5A) Game engines as a solution are definitely looking more attractive, especially with the latest releases of the SDKs, but I'd caution against labeling the proprietary engines as legacy overall, especially when EA's Frostbite engine continues to deliver as an example. I think this might also be a good place to talk about the legal challenges that Unreal have faced against Apple and the battle between Unity and Improbable.
4. (5B) Labor issues in the industry are unfortunately rather cyclic when it comes to public perception (EA Spouse, Team Bondi), but I am hopeful that this round will make things more interesting, especially with the rise of mainstream advocates like Jason Schreier. Unions are still a bit of a mixed bag if we consider the usual model for labor unions, as the most widespread industries of traditionally non-unionized professionals have been sounding the horn, but not succeeding as well in forming.
I love that you've organized this into a great introductory guide, and looking forward to seeing more.