Structural Headwinds for the Video Games Industry ?

E3 2019

• Recently, the E3 event was held in Los Angeles, a premier trade expo for the video game industry. It is clear that there are an abundance of structural tailwinds that are likely to drive the industry forward over the coming years.

Theme 1 – streaming is the dawn of a new age

• Leading up to and during E3, Google announced that its streaming platform, Stadia, will launch in November 2019, and Microsoft stated that public testing for its xCloud streaming service will begin in October 2019. Streaming offers new avenues for game companies to monetise their IP, with these platforms offering publishers minimum revenue guarantees or licence agreements to their secure content.

Theme 2 – digital distribution competition accelerating

• At E3, it was clear that competition in digital video game distribution is only intensifying further, with Xbox and Ubisoft launching new PC distribution and subscription platforms.
• Furthermore, Epic Games Store announced that many big games will be joining its exclusive platform as it looks to build its audience base.

Theme 3 – the next console cycle

• A new console war dawned at E3 between Xbox and PlayStation, with both announcing new, backwards-compatible consoles to be launched in Q4 2020.

Theme 4 – outsourcing outlook is positive

• 1) Outsourcing is at the core of a developer’s business model and the proliferation of games-as-a-service business models and, more recently, streaming are accelerating the adoption of outsourcing. The market is likely to consolidate over time to a handful of large global turnkey providers,
• 2) scope for M&A remains material, with Keywords commonly highlighted as the key consolidator. The organic and M&A outlook for services companies therefore looks robust.