Video Game Publishers In For Rough Patch

While global video gaming revenues have almost doubled in the last five years, 70% of video game senior executives believe the next five years will be more challenging than the last, as a growing number of new entrants vie for market share. This is according to a new global EY study, How is your business powering-up for the next video gaming challenge?

The study indicates that the rapid growth and now mainstream appeal of video gaming heralds a new era of opportunities and challenges. Key among them, 68% of respondents say slower growth of new gamers will drive video gaming companies to seek alternative revenue streams, while new entrants continue to flood the market. And 77% say an influx of new games and titles are increasing competitive pressures. As businesses look to differentiate themselves in this highly competitive landscape, 45% of video gaming executive respondents say sales and marketing costs will rise by at least 10% over the next five years.

John Harrison, EY Global Media & Entertainment Sector Leader, says:

“While video game executives are optimistic about future industry revenues and the broadening popularity of video gaming, companies are now faced with unique market forces that they may not be prepared for. Following a decade of jackpot earnings, growth is set to be slower at a time when companies face rising risk, escalating content costs and new, disruptive business models. Executives are therefore feeling the pressure to evolve and find game-changing opportunities that will set them apart from the competition.”

Video gaming margins squeezed as competition accelerates and costs escalate

Overall, companies are becoming increasingly challenged to protect margins. Seventy-nine    percent of executives believe that the costs of developing a great game experience are growing, and 42% anticipate that overall development costs will grow by at least 10% over the next five years.

The study finds that companies also face escalating personnel costs, as competition extends to the war for talent. Forty-two percent indicate that the cost of technical and creative talent is set to increase, while more than half (52%) say a shortage of development and technical talent will accelerate over the next five years. To offset this shortfall, 67% of executives expect the number of mergers and acquisitions to increase as they look to ease the talent shortage.

In an environment where maintaining trust is an imperative, video game executives further expect the costs of enhancing cybersecurity and regulatory compliance to grow. Following recent reports of cyber-related issues across the industry, 43% expect cybersecurity costs to grow by at least 10%.

Cloud and eSports are primed to be industry disruptors

The study unearths key trends and technologies that will define the future of video gaming. Sixty-three percent of executives agree that if major game companies do not offer consumers cloud-based games, they will be at a disadvantage in five years. Meanwhile, 70% believe video gaming companies will distribute most Triple-A games wirelessly through the cloud within five-to-ten years.

Scott Porter, Partner – Advisory Services, Ernst & Young LLP, says:

“As competition continues to intensify, cloud-based streaming is poised to be the next major video gaming disruptor. The advent of cloud gaming, especially when combined with the rollout of technologies such as 5G, represents more than just an opportunity for the industry – it’s a strategic imperative. By seizing the opportunities to adopt the latest technologies, leading companies can prevail and potentially reverse the trend of slower growth.”

The findings further indicate that eSports has the potential to improve brand awareness across the industry. Seventy-two percent of respondents say eSports is already making a strong contribution to the brand and image of video gaming companies, and 70% believe that it has the power to draw new customers to games. However, survey respondents are divided around whether eSports will become an important source of new revenue: 23% anticipate it will contribute nothing toward industry revenues in the next five years, while 34% expect it to contribute up to 10%, and 43% say it will add more than 10%.


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