Gaming Market Analysis

Authors note: start of a trilogy, the "Gaming Market Analysis", "In-Game Advertising Market Analysis" and "How Vreo aims to solve the Problems" - the right approach to the status quo of both Markets.

Gaming is a global phenomenon with a firm hold in nearly every country. The industry broke through 100 Billion USD in revenues in 2016 — well ahead of the reported sales for film at 62 Billion USD and music at 18 Billion USD. Between 2016 and 2020, gaming is projected to grow by 8.2% a year — closing in on revenues of $150 Billion USD until 2020.

The top 20 gaming countries represent 1.5 Billion gamers and generated more than 100 Billion USD in revenues in 2017. It all adds up to a booming business.

Who are today’s gamers?

Gamers can be anyone. In Germany, almost half the population are gamers: 34+ million people averaging 35 years old, divided evenly between genders. In the U.S., 160 million gamers have the same average age: 35. Men outnumber women about 60:40. And more than one-third of Americans gamers play on all three platforms: mobile, console, and PC. Demographics like these make gamers a highly attractive market.

Issues of current game monetization

For their part, gamers constantly demand better quality and more complexity, so that developing each new game requires a higher budget. Higher costs push up selling prices for commercial games in a continuing spiral.

Another model of games financing is Free2Play games, which are especially popular in Asia, the biggest gaming market. Developers often monetise these through in-game micro-transactions using real money or purchased tokens. Ads can be used in Free2Play games as well.

But in-game purchases that provide an advantage (Pay2Win) or conventional ads like pop-ups and interstitials are met with disapproval. Recently Belgium and the Netherlands even banned loot boxes from games because they resemble illegal gambling.

?Problems in the gaming market

For developers and publishers, the industry is fraught with problems: technical, creative, and financial. The largest game publishers have many resources to commit to solving these problems. The smallest do not. Yet indie games now have a growing market share. Here are the main problems that plague the gaming industry, especially the smaller studios.

Rising development costs

As touched on in my previous articles, the costs to create a video game are constantly rising. But customers are more and more unwilling — and in some regions unable – to pay ever-higher prices. To increase their incomes, even AAA game publishers sometimes resort to Pay2Win mechanics or loot boxes in full-priced titles. Few publishers enjoy any ongoing monetization from models like a monthly subscription.

Threat from Free2Play

Free games are constantly trending upward. Regions with lower per-capita income such as China, Eastern Europe, the Russian federation, South East Asia, or South America are seeing a strong increase in F2P. Of course, a free game delivers no upfront revenue. This often leads a developer to use irritating advertising and pesky in-game sales that hurt gameplay.

Little market intelligence

There is next-to-no market intelligence available for smaller game studios, a problem that sometimes leads to mistakes that could have been avoided. This also makes choosing the theme or genre for a project more difficult. And this means that calculating possible costs and revenues becomes little more than a guessing game.

Difficult to extend reach

Especially for smaller developers, it can be very hard to publish, market, or distribute their game in other regions. An indie developer working alone seldom has the resources, contacts, or knowledge to reach a broader market. For example, an indie leader with limited time may never develop a clear understanding of in-game advertising. Meanwhile, a brand in another country perfectly suited to that indie game may never discover it. This disconnect leaves money on the table.

Labor-intensive APIs

Even if an indie developer decides to include advertising, many ad solutions (especially for mobile) require a lengthy process to integrate SDKs into the game software. But many indie studios only think about monetization after a game is published. Retrofitting an API soaks up lots of labor and can create confusion or a heavy impact on gameplay.

Currency conversion difficulties

International sales and conversion of foreign currencies can be difficult and expensive. Blockchain and cryptocurrencies seem to provide an excellent solution that would appeal to tech-savvy developers. But so far there are no blockchain solutions available to help.

Slow ad revenue payouts

Payouts for ad revenues can be critical, especially for smaller developers. But it sometimes takes months until the ad revenue generated by a game is paid out. This slow and uncertain payout can lead to budget shortfalls or even bankruptcy.

Saturation of impressions

Many advertising models show the same ad over and over to gamers. This can be highly irritating, and can even lead to a negative impression of the brand—the one thing advertising is not supposed to do.

In the next article I will touch on the In-Game Advertising Market Analysis and round up with the solutions & approaches by Vreo to the current status quo of the biggest entertainment market (Gaming) and advertisement (digital) out there.