Video games growing fast, China is new gaming capital
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Video games growing fast, China is new gaming capital

Video games are continuing to grow, becoming an even more dominant sector within the entertainment industry. Last year, revenue from video gaming exceeded $100 billion globally for the first time. And almost a quarter of it was down to the Chinese market, which generated $24.6 billion of the industry’s $101.1 billion. There are two key takeaways from this: first, video gaming is one of the most important forms of entertainment in the world; and second, China is increasingly becoming an entertainment powerhouse.

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It’s worth noting that the global box office for 2016 was worth $38.6 billion – little more than a third of video gaming revenue. Yet this still dwarves another fast-growing entertainment sector: streaming video on demand (SVOD). According to the Global SVOD Forecasts Report, in 2016, SVOD revenue climbed to $17.5 billion, and will grow to $32.2 billion by 2021.

It’s the combination of fast-growth (in 2015, video games were worth 91.8 billion) and huge market (there are, currently, over 2 billion gamers in the world – a figure that, itself, is growing rapidly) that makes video gaming such a compelling proposition. The sector is ripe with innovation, as more and more potential gamers become actual gamers through the proliferation of smartphones, and important trends like augmented-and-virtual reality and eSports continue to grow. According to Bloomberg, by 2020, the video gaming market will have increased to $129 billion, with ‘casual gaming’ on smartphones providing 51% of that total.

A snapshot of Dominion’s gaming investment performance so far this year

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SOURCE: Yahoo Finance

A brief look into Dominion’s Ecommerce Fund demonstrates the incredible growth gaming companies are undergoing. In the first half of 2017, Activision Blizzard is up 64%, Electronic Arts is up 45%, Take Two Interactive is up 58%, and Tencent (not only China’s biggest internet company, but a market leader in mobile gaming) is up 44%.

China’s swift adoption of smartphones and casual gaming may be what has propelled the country to the front of a global phenomenon. It is also quite possible that the Chinese taste for mobile gaming is indicative of a global shift even further in that direction: in regards to Ecommerce, China is more developed than its western counterparts, with a higher proportion of its population spending more of its money through online platforms.

According to Mattias Ljungman, a partner at technology investor Atomico, Chinese gamers have bought more deeply into the trend than those of other nationalities. He said: “the average revenue per user is higher in China than the U.S., which to me would probably make most people fall off their chairs.”

Ilkka Paananen, CEO of Supercell, the developer behind hugely popular mobile game Clash of Clans, said: “Games have become truly mass market and it’s a massive, massive opportunity that’s only going to get bigger. One of these days somebody’s going to build a game that reaches a billion users a month.”

Disclosure

Dominion holds significant exposure to the video gaming sector through a number of companies, including Activision Blizzard, Electronic Arts, Take Two Interactive, and Tencent.


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The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Fund Management Limited. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.