Future prospects for the video game industry are promising. New monetization models are gaining ground as consumer demand increases and technology advances rapidly. The analysis conducted by Bain predicts that the global revenue for games will increase by more than fifty percent over the next five years. And gamers’ presence in virtual realms, known collectively as the metaverse, is far superior to that of other consumers.
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All of this suggests that gaming will steal consumers’ time away from other forms of media and serve as the foundational platform for both media and nonmedia experiences, thereby increasing its presence in our everyday lives.
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In the next five years, global video game revenue could increase by more than 50 percent.
This model will not be winner-take-all. There is place for success across the board, from high-resolution, immersive games (like Red Dead Redemption 2 and Horizon: Forbidden West) to low-cost, independent, pixel-art games (like Stardew Valley, online roulette and Among Us). Due to the prevalence of mobile phones, even free-to-play casual games will attract massive audiences and contribute significantly to market revenue.
Given the opportunities for microtransactions within games, as well as other media experiences, virtual events, and commerce, it is likely that large virtual world games, played by fewer but more engaged gamers across multiple platforms, will contribute more to the industry’s profits.
How should developers and publishers of video games prepare to capitalize on this opportunity? Since 2019, venture capital, private equity, merger-and-acquisition (M&A) plays by technology and media titans, and robust investment by traditional gambling companies have poured over $240 billion into the industry. This is the time for game companies to wager large and advance to the next level, just as we’ve seen with video streaming companies over the past few years, when massive investments generated a flood of content.
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In addition to making games quicker and more visually enticing, new technology is altering the nature of games. Increased processing capacity and decreased latency, partially as a result of increased 5G connectivity, allow developers to construct larger virtual environments that can be played on any device. miHoYo’s Genshin Impact is one of the most recent titles to utilize this innovation.
Virtual and augmented reality are beginning to provide experiences commensurate with their excitement and at more affordable costs. More Meta Quest 2 devices have been sold than Xbox Series X and S combined.
Advancements in game engines (primarily Unity and Epic Games’ Unreal) are facilitating the development of higher-fidelity games, thereby attracting more developers. In addition, they are becoming a key development platform for other entertainment experiences, and advances in 3-D graphics may be transferred to applications in other industries, such as healthcare and construction, potentially opening up new revenue streams.
These new development tools equalize the playing field by allowing more developers to create realistic virtual environments. Graphics will not be the primary differentiator. Virtual environments that are successful must be entertaining, social, and well-designed. Innovative game-play and monetization models are what will revolutionize the gaming industry.
Consumers desire more immersive virtual environments, presenting an opportunity for technology and media companies to maintain participants’ engagement across a variety of experiences. Live virtual events, e-sports, and socializing are already included; additional media experiences and commerce will follow.
Certain characteristics of these virtual environments make them ideally adapted to serve as platforms for new experiences. Immersive, but overlapping with the real world. A person may share an identity across multiple games or the virtual and actual worlds, for instance. They are persistent; they continue to exist after a user signs off. They frequently include an e-commerce component that is essential for monetising user customization.
Younger players (13 to 17 years old) are more likely than older players to assume that they will spend more time in virtual environments in the future, as previously mentioned. Developers should be aware that cross-play is essential to many of these players, who are 30% more likely than elder players to value “device interoperability.”
In the past decade, the free-to-play model has been crucial to the success of virtual-world games by vastly expanding the addressable player base and facilitating the network effects required for those games to prosper. At 78% of game revenue, the free-to-play model has evolved, with ad-supported mobile games becoming more accepted and in-app purchases becoming more distinct. As virtual-world games become a foundation for numerous other monetizable experiences (such as live virtual events and commerce) and more players join the metaverse, the economics of free-to-play will likely continue to expand.
Following other forms of media that have transitioned from paid bundles to individual subscription services, subscription models are emerging. Despite extensive marketing and early indications of subscriber satisfaction, this model has received a lukewarm reception from the gaming community as a whole, due to the success of free-to-play and the unique way games are consumed in comparison to other media—fewer titles are devoured more profoundly.
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Additionally, an increasing number of games are employing blockchain technology to facilitate ownership of characters and accessories. However, the use of blockchain technology in games is still novel and primarily limited to crypto enthusiasts. To successfully expand beyond a niche segment of the gaming market, developers must prioritize the user experience over the market.
Long-term, these various monetization models will coexist with increasing harmony. While some premium games will continue to charge for the initial purchase, the predominant model will be free-to-play with in-game purchases and subscriptions.
