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Video Games: Investment Banks are Getting in on the Action

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The value of the video gaming industry is projected to grow to over $200bn in 2023, roughly a 30% increase from its estimated value of $160bn in 2020, according to Juniper Research.  

Now, large companies such as Marvel Entertainment are sponsoring e-sports , a category of sport that involves gaming.  

Since a lot of revenue for esports comes from these sponsors, this could be the start of strong cross-industry relationships.  

Recently, investment banks have seen this potential and formed their own e-sport divisions. 

For example, Barclays has partnered with NSE England to pay for the prize funds of student gaming tournaments, helping to bridge the gap between amateur and professional gaming. 

The rapid and consistent growth of the industry amid the COVID-19 pandemic, suggests an encouraging level of resilience that would favour long-run investors.

Gaming Has Been a Commercial Success Story

Many of the most popular games released in recent years have been free to play (F2P) and generate revenue through in-game purchases. This business model may seem questionable on the surface but has proven very successful in some cases.

For instance, Fortnite (released in 2017) has over 350 million players and generated over $1.8bn in 2019. 

These games have relied on consumers being willing to buy additional cosmetic items such as skins (character outfits) for revenue but lowering the barriers to entry with the F2P model surely had an impact on the number of new players they had.

Social Media has had a Key Part To Play  

An emerging trend in the gaming community is to watch other players through live streaming platforms such as Twitch, YouTube or DouYu.  

Whether it is professional e-sports or a casual session, gamers have done well to reach people who are not direct consumers. 

Credit: Twitch

A young audience without the capacity to purchase every game cannot avoid the hype around the most successful ones.

Fortnite, DOTA 2 and League of Legends - three examples of popular F2P games - have been watched on Twitch for over 300 million hours in February 2021 alone, according to Newzoo data. 

Social media trends have made gaming investors/entrepreneurs out of many young people. 

Fortnite has used celebrity endorsements, amongst them Travis Scott, to widen its audience and in-game events to engage its existing fans.  

Likewise, Minecraft has been trending on Twitter for the Dream SMP - an exclusively multiplayer game mode that involves role-playing, storytelling and online scavenger hunting.    

Gamers are adapting the games they are playing to suit their ever-expanding audiences and to ensure that there is now something for everyone.

Gaming is at the Heart of Innovation 

NVIDIA has been a reliable and popular stock amongst investors and its value has more than doubled in the past year to exceed $500 as of March 2021.  

It has been at the forefront of gaming technology with its powerful processors that have benefitted from the growing trend of building your own PC.

It has even supplied processing units aimed at Bitcoin miners, who are part of another growing market with plenty of media attention.

The Potential of 5G is Yet To Be Seen

As our internet connection speeds up, streaming games and e-sports will become even easier. 

Popular services such as NVIDIA Geforce Now and Google Stadia, which are used to play games over the internet on computers that do not have the necessary processing power, will surely benefit from this.

This is a further demonstration that gaming is becoming easier to access. The mentioned streaming services run on subscription payments which seem relatively inexpensive ($9.99/mo for Stadia Pro). This model has already proved lucrative with Netflix, Spotify and Amazon Prime. 

Pokemon Go. Credit: Pocket-lint

Furthermore, 5G will have a very positive impact on Augmented Reality (AR) and Virtual Reality (VR) technology.

We saw a hint of AR with the sudden popularity of Pokemon Go and even property apps such as Rightmove have adopted the technology for virtual tours. 

As rapid internet becomes more accessible, this technology is expected to make a breakthrough into mainstream gaming.  

Finally, gaming has been a useful means of bringing NFTs (non-fungible tokens) to the mass market of investors. NFTs use blockchain technology- just like cryptocurrencies – to create entirely unique items, such as digital art.

Jack Dorsey, the founder of Twitter, recently sold his first tweet as an NFT for $2.9m. This is a promising piece of technology that is yet to be fully understood, and hopefully gaming can enable a smoother integration into investment portfolios.  

At one point, we may have imagined gamers to be a select few fanatics, but the market is diversifying to reach almost anyone.

We cannot deny the promise of modern innovations like 5G, and the gaming industry is already giving this technology the platform that it needs to fly.

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