Understanding the potential of Sustainability in the Video-gaming Industry

The last one and a half year have been a challenge for the world with the pandemic and the following economical hurdles. Yet and at the same time, we can acknowledge some silver linings. One of the biggest silver linings I personally see is the rise of Sustainability as a top of the agenda topic, for Governments, corporations, and above all, in the overall opinion (our customers).

From global warming to biodiversity loss & diversity and inclusion, the Sustainability agenda is growing as a top concern in our societies and this is not limited to the West. Consumers are integrating it in their purchasing behaviors and governments everywhere are under pressure to start or accelerate the change. One resounding fact that speaks for this new era is the court case led against the Oil & Gas giant Shell to cut by 45% it’s greenhouse emission by 2030 vs 2019 levels. The same started with additional regulation coming to the airline industry with France banning short airline travels when train options exist.

But even other less-polluting industries would be ill-advised to think that such actions would not be taken towards them by 2030. While the Video-Gaming industry is not pointed at currently, the recent industry boom through the rise mobile, e-sport, and now the pandemic related lockdowns are fast-forwarding its global footprint and prominence & visibility – and with that consumer & societal expectations.

What is however key to conceive is that Sustainability is not only Corporate Social Responsibility or a cost sink. By learning from other front-line industries and using what they do best – creativity and community building, the Video-Gaming industry can leave its mark and make it last. Sustainability can and should improve your P&L results.

Sustainability does not only help you reduce your costs, increase your commercial footprint, secure better financing, attract talents or improve your brand equity. It also helps your operations gain in resilience with shorter and circular supply chains and longer lifecycles. With the “Green Packages” being voted across the globe, it can even help you develop your business through external funding such as governments and associations, provided that you are ambitious and serious about it. With all that, it helps you build a better business and increase your long term prospects and valuation.

Long story short: Sustainability is an opportunity. And the race has just started.

And now is the time to get seriously into business! In order to do this properly, allow me to go through a simple yet important process in this paper:

1.?????Defining Sustainability – What is it?

2.?????What methodologies exist to address the topic ?

3.?????A few ideas across the value chain to trigger thoughts

1.????Sustainability – What does it entail?

As Gunter Pauli, a famous Sustainability expert said: “Sustainability is about creating a system whereby we are offering in the first place Value for everyone. It goes together with Efficiency, using what we have and not more, and Resilience to ensure our economic & social system sustain crisis”.

There is a usual misconception (that your humble servitor himself had until recently) that Sustainability is only about environment protection. But that is actually only one part of Sustainability.

Sustainability is about having a positive contribution to society & the planet in general. This can translate in multiple ways – as listed in the 17 UN Sustainable Development Goals for 2030 . This internationally recognized framework shows many more topics on top of the environment to help the world tend towards a more inclusive, greener place that allows for fairer & equal opportunities in the future.

What I personally like a lot about this new definition is that it allows for many more routes to action. In order also to keep focus and help with the thought process, I try to regroup those goals into fewer categories, as written below :

A.????Resource focused: All initiatives that contribute to reduce waste, energy consumption and promote circular economy vs linear community. (Goals 7, 9, 12, 17).

?B.????Community focused: All goals contributing to ensuring healthier and more independent communities. Includes initiatives allowing emancipation & stronger institution for social stability. (3, 4, 5, 8, 10, 11, 16)

?C.????Basic Human Rights focused: All initiatives ensuring universal access to minimal services for well being and support individuals in focusing on topics beyond day to day survival (1, 2, 6).

?D.????Climate focused: All initiatives that contribute to climate and ecosystem protection. This also includes sea and earth life preservation initiatives. (Goals 13, 14, 15)

On top of this definition, some frameworks also exist to help define which action can or should be taken.

1. The Re-use, Repair, Recycle framework, on top of being simple and straightforward is a powerful brainstorming framework to generate and test new ideas. On top of those 3 comes a fourth and newer one, Remanufacture , which covers the rebuilding of a product using a combination of reused, repaired and new parts.

2. In order to think beyond the company itself but also through the value chain players and other suppliers,?The GHG Protocol came with a classification of Greenhouse Gas emission to help companies measure and address their direct impact and also the one of their ecosystem.

2.?????Organize yourself to maximize outcomes

Beyond ideas and in order to avoid wishful thinking, it is paramount that whatever action is thought and sought after is properly addressed to ensure that results are delivered and are beneficial both to the ecosystem and the P&L of the company taking those actions.

Processes exist to help organization ask themselves the right questions, define the actions and measure results. Like any business endeavor, it needs proper planning and leadership focus throughout the execution to provide the expected benefits.

Now moving to action, here is a simple yet efficient process help start the journey:

A.????Define what success is like: What is the vision that you want to empower? Both in term of sustainability goals (Climate, CO2 emissions, recycling, community support, etc…) and business benefits (Brand image, impact on P&L, etc…). A few examples (among many more) of questions to help with the step:

-???????What do your competitors do?

-???????Where is your footprint the biggest?

-???????How is your company perceived today with regards to those topics?

-???????What are your customers’ expectations?

B.????Analyze & Set Targets: Now that you have your vision, what are the roads to it?

It’s time to gather data on your processes & activities to see where room for improvement & potential opportunities lie. It goes through a paired bottom-up & top-down analysis that will lead to a roadmap for a set of actions with each a clear target.

It can also be the right time to leverage bodies, rating and reporting agencies’ services to help you measure your impact, assess room for improvement & give you clarity on your priorities.

C.?????Deploy: Set a team with people sensitive to the purpose and with clear executive sponsorship. Having a clear structure and the leadership team involved is the most important success.

When starting deployment, it can open perspectives and reduce risk to consider actions that are “out of the box”, involving partnerships, open innovation and other disruptive models.

Some initiatives may be intrinsically within your company, while some may be among your competitors or at other stages of the value chain. Each model requires a different recipe for success.

D.????Track & Improve: As the initiatives will get traction and move, you need to keep track of the benefits they bring you both as per your sustainability goals and for your business health.

Some initiatives will prove to have much more potential than initially anticipated and others less – it is just as important that you keep the right visibility, including it in your reporting and moving when possible those new behaviors into your “core” business.

On top of this process, it is important to keep in mind a few questions that help minimize risk and maximize results:

-???????What is the best footprint to drive these initiatives?

-???????What governance is needed?

-???????What specific profiles/skills fit best?

-???????How to ensure proper collaboration between different teams?

-???????How can we maximize the value created by the work done?

3.?????Action plans across the Video-Gaming value chain

After all this theory, let’s get to real business and dig into a few examples of business relevant and uncompromisingly sustainable ideas leaders in the Video-Gaming market could take to have a tangible impact.

I describe below a few ideas directly applied to Video-Gaming. The examples can be for some of them applied throughout the whole value chain or may be only applicable to a few players in it – but the process is the same and I would like this exercise to be seen more as a though provoking one than a by-the-book manual.

A very simplified Video-Game value chain chart

A.????Education through Gaming and Green Funding

Video games are not only for entertainment but are and will more and more be platforms for education. Well ahead of its time, Final Fantasy VII was already heavily themed on the environment and – although I was not even 10 back then – the messages on the environment went and sticked through my and my friends’ childhood. Ecco the Dolphin was also a pioneer with a strong environmental theme and it’s purchase leading to a 2$ donation to the marine wildlife conservation was what back then triggered my purchase.

I already see eyebrows raising and eyes rolling as many companies and industries have faced “The Elusive Green Consumer ” : making greener products does not guarantee they sell, particularly when a cheaper but less sustainable is available next.

But video games do contribute to the Sustainability Agenda. This turns true particularly in 2 cases:

1.?????Green Education video games challenge social norms and encourage better behaviors

2.?????Green themed &/or Green funding video games impact purchasing behavior & increase willingness to pay

Let dig into each of these points further:

As pointed out in the above very interesting article from HBR, Video Games, together with other art & cultural products can contribute to significant shifts in the social norms. Social influence (influencing social norms and group behaviors) helps break the glass for others to follow a showcased behavior.

With video game & their licenses being more and more about community creation and management, the potential positive impact the industry can have is significant. Pushing on the right buttons (Public commitments, sense of belonging, soft rewards, etc…) can help accelerate positive behaviors that are a starting point to wider society changes through spill-over or snow-ball effects.

This can be done with limited incurred cost while benefiting overall brand perception and image. If properly executed, identification & public image can be strongly associated to the license or brand and become a key marketing asset. Indeed, having a sustainable friendly positioning is becoming a competitive advantage, particularly in B2C.

A recent study from Deloitte in the UK indeed found out that 43% of consumer have chosen brands that are sustainable when comparable options existed. This has rocketed in the past 20 years across industries and is expected to continue growing in the coming years. And this is just the start. Brands are more than products. They represent values and a statement and consumer listen to those .

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B.????Giving back by helping Entrepreneurs and Students make their video-game career successful

With the rise of Mobile gaming and Indie Games on gaming platforms (Xbox, PS5, PC…), Studios can again work in more entrepreneurial ways vs the mammoth AAA investment and resources required.

This does not only mean that established publishers and studios can make more games and faster but also that the wider community of passionate entrepreneurs can work and ship their products in only a few weeks when seasoned. The means to build, test and sell those games are now widely available and we start seeing platforms such as Xbox reducing their fees to give them a boost.

However, just like any entrepreneurial adventure, the risk is very high, and mentorship and support are key for success. While a substantial number of ?funds & incubator exist , (sometimes even managed by countries ) fewer are led by some of the most prominent game publishers and platform owners, who tend to focus more on traditional startups and are not focused on Indie games who by nature have high volumes & cycles with high-risk high-return profile.

A variety of models exist and can be leveraged to help that specifically fast paced and highly reactive industry and the ecosystem has its role to play – as well as something to gain in it. It ranges from counselling (technical/financial/marketing) – support on development & most importantly support to ensure the game getting to meet its market and get proper visibility in exchange for equity or a share of the profits.

The entrepreneurs get to have some cash to kick-start their project & support from industry experts while publisher and platforms get to generate substantial returns with limited and controlled investments.

Another population that is often overlooked but could fit the exact same model through scalability is students. Engaging with universities is actually a great way to improve brand awareness, image and leads to other more tangible benefits such as talent scouting and innovation.

Publishers and platform owners would actually gain from engaging with this audience – while costs are minimal, benefits can even widely outpace them if a single gem is found.

While inclusive by nature, this can even be stronger & impactful by expanding this same model to emergent economies where the education quality & local ecosystems on video gaming are less developed. This helps create a local system and with it a local market and helps students test their skills and build career aspirations. Publishers in exchange can understand better those markets and come with low-cost, local solutions that fit the purchasing power of those consumers.

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C.????Building a Circular Economy for consoles & games to address low purchasing power markets

When talking about sustainability and environmental impact, semiconductors and plastic come at the top of the list among the most polluting and damaging elements.

Starting with Semiconductors, their impact is due both to their manufacturing, through the extensive resources they require (water, energy, rare earth minerals, etc.) and their disposal which leads to plastic & metal pollution when not properly recycled.

And recycling remains an issue: out of 44 million tons worth of electronics produced each year; only 20% is recycled sustainably as of today. With a cost of landfill that is still lower than the recycling cost 2 to 4-fold, the recycling efforts in the industry are still not at the level expected to reach the ambitions the public has.

One simple way to act is to ensure a longer life cycle of any electronic product and avoid any disposal of functional devices. The video-gaming industry can play its role here by maximizing the time it takes for electronic devices associated to gaming to reach those landfills. Increasing the lifetime of the devices we use is not only needed but can also turn into an opportunity to benefit some populations with lower purchasing power and open new business opportunities.

Many markets are still to be developed with Gaming. Namely, Africa, the Middle-East, South-East Asia, India, and many more are markets where a substantial portion of the population has limited access to computers, gaming platforms (outside of mobile), and video games due to purchasing power. According to Newzoo, South America and the Middle East count for less than respectively 4% and 3% of the global market – but that still totals a decent 12B$ market that can be further developed with an offering that is aligned to their purchasing power and based on already amortized investments.

Creating a circular stream where consoles and games from current gen and even gen N-1 are collected, refurbished and delivered to those markets for their middle class would allow for additional and healthy revenue.

Lastly, tapping into new markets with lower purchasing power while laying foundations for brand recognition & user conversion, can lead to more business as the markets and its consumer’s wallet develops, building a strong position for future growth.

This is however a totally different type of business model compared to standard ones and it important for the management to strongly consider it as such.

-???????But how to drive profitable growth through this new business model?

-???????How do we ensure brand image is, if not simply maintained, improved through this initiative?

-???????What are the best markets conditions to start?

Fortunately, answers to all those questions exist and have been tested.

D.????Social impact and Video-Games X EdTech

Video games are not only about entertainment but also about education, learning & developing a true spirit of competition. While all games do not necessarily have a huge potential for education, a fair amount actually has . The Ed-Tech segment is already alone representing half of the video-game market and booming (representing already 90B$ with a close to 20% CAGR ) – but games CAN be used for education.

The amount of research backing the benefits of video-games , including e-sport for learning and development when used right is becoming massive. Concentration, cognitive performance, brain plasticity and much more can be offered and be effortless for children as they only the fun and the challenge. Playing has always through evolution been the best way to learn and guess what? It still is.

Here comes the point – offering equal opportunity and access to video games actually does benefit society. There needs to be a choice in term of portfolio and some area ought to be prioritized over others, but here again, there is an opportunity to pair impact and profitable business. A model consisting of leasing fully serviced platforms and unlimited access to a catalog of certain games by age range can certainly please the target audience while remaining painless for the budget of whichever public or private actor that is trying to address those communities.

E.?????Merchandizing based on recycled goods

With AAA games costing hundreds of millions to develop, merchandizing has been a key focus for publishers to diversify revenue streams and leverage their IP into more revenue.

The video gaming community is already a very engaged one that enjoys seeing its heroes adopted in new formats : Movies (Sonic, Assassin’s Creed, …), Theme parks (Mario at the Universal Studio Japan), and of course the more traditional T-shirt, Mug, console or PC accessories and other more surprising goodies, like this Xbox fridge . (as wisely said – don’t let your memes remain dreams)

This business opportunity is also the moment where Video-Games remove themselves from a digital world and where a large variety of materials are used.

Here again, the challenge can be faced like an opportunity. Many FMCG industry players are starting the walk the talk by going in re-usable, recyclable packages or goods so ideas are plenty. Some companies are already very successfully making it a communication campaign that improves their brand equity and down the line their business and margins (it’s not because it’s green that it needs to be cheaper…).

Many study show that consumer are looking are sustainable goods as a purchase factor. While the willingness to pay for something “green” vs something that is not remains unclear but it still is a differentiating factor in purchasing decisions for comparable products and will grow in importance as explain earlier in this article.

With recycled plastic costing about 30% to 50% more than virgin plastic but plastic accounting for only 5% to 25% of final goods cost (& even less compared to its price) – this is a challenge the industry can take and even make an opportunity with marginal price adjustments if it decides to. Slightly higher volumes through this new positioning could also simply offset that extra cost.

Some players in the industry already understood it and are starting to position their products in a bold way that elevates their brand positioning : not one that offers green vs non-green – but one that clearly states that they maximize usage of recycled material to move to a circular economy. It’s not a “Can-be green”, “it’s Just Green”.

F.?????In-App “Green” purchases to offset carbon footprint

The massive growth of the mobile gaming industry (which also accelerated with Covid-19 and its related lockdowns) has also seen a surge in data consumption, which in turn caused an acceleration of datacenter & ICT infrastructure capacity construction. It came to a point where datacenters globally account today for as much power consumption as the full French economy and generate as much carbon as the full global airline industry.

While this is not an issue peculiar to the video-gaming industry (falling typically into Scope 3), the Video-Game industry has its take and can act on it.

Mobile gaming is soaring and with it the in-app purchase market. Freemium is now the norm and the whole game is about mass access, community building, customer retention and having them spend more time on the game to consume more advertisement. This directly impacts energy & data consumption since most of the games requiring to remain connected to transmit data and analytics that will be used for advertisers. Today, no one balances the carbon cost of this fast growing business.

In parallel, The global in-app purchase market size was valued at $76.43 billion in 2019 and is projected to reach $340.76 billion by 2027, growing at a CAGR of 19.8% from 2020 to 2027 – a significant range of it being directly linked to mobile gaming.

This is where a minimal & painless contribution on micro-transaction could represent a huge financing opportunity for sustainability related initiatives. Those initiatives could link back to the ones expressed above or simply be a mean for Datacenter providers to diversify their energy sources to more renewables ones. These new financing capabilities could also be used to finance any of the above mentioned initiatives or drives others that are more cash intensive such as funding associations or helping other parts of the value chain to get “greener”.

Showing these commitments as being part of the price structure could even improve willingness to pay, brand image and increase overall sales.

Showing how their purchase affected carbon footprint reduction or helped finance some sustainability related project can prove even more rewarding to consumers and nurture a “feel-good” effect that supports brand stickiness.

4.?????Words of conclusions

With opinions and consumers now more and more sensitive to sustainability related topics and pushing top polluters to review their business models, processes and product portfolios, the Video-Gaming industry has a unique opportunity to surf this wave and making it a business opportunity instead of swimming against it.

The industry still benefits from an overall positive image but is not perceived as one taking ownership on Sustainability and related topics. The timing is perfect for the industry to seriously explore this opportunity and make it an accelerator. A new age is opening.

While it takes a change of mindset and requires some adjustment to standard business models and operating procedures, companies who take the leap and take it seriously will lead tremendous benefits as they will answer lasting and growing expectations from consumer.

Kheradmand Sorouch

Email : [email protected]