The Global Digital Gaming Market: Reasons, Ecosystem and Top Performers

What are digital games to us as a society. I believe the most important question to answer when looking at an industry is how the society interact and utilize it. More specifically, how different groups in the society do. Looking at several dozens of iconic speeches, videos and discussion papers, I summarized them into 6 kinds:

Source of Joy: no doubt this is the most usage of a digital game, It is fun to play and makes people happy. Human beings cannot live without play, and games exist to satisfy this need.

Art Form: since the first video game exhibition in Museum of Moving Image in 1989; the characterization of games as art works has been controversial.The opponent states that games has no meaning but to entertain and they do not last long enough like art does; while the supporters argue that the medium of video games is potentially post-modern art and should be viewed through the same critical lens as any other form of art. And looking at how much digital game has changed since 60 years ago, it is likely it becomes an art form in the future.

Education Tools: again a contradicting topic, entertainment software association found 93% of the parents control what games their children play. No doubt that we learnt our first words though playing games; but as we grew up and start to apparel to more sophisticated and violate games, the role of games changed; 

Sport & Competition: yet another controversial point of debate; some have argued that "careful planning, precise timing, and skillful execution” ought to be what classifies an activity as sport, and that physical exertion and outdoor playing areas are not required by all traditional or non-traditional 'sports’. And the wide use of performance-enhanced drug (PEDs) further support this analogy.

Beliefs: I thought I was the first to think of game as a religion until I watched Andy Robertson’s talk on "Geek Sermon: Join The Church Of The Gamer”. Andy gave examples on how gaming rituals, artifacts, beliefs, society movements, sense of belonging, duty, hierarchy and families resemble those from different religions. It is hard to draw the line, similar to the argument around “Game as an art form”, only time can tell. There is for sure the concept of God in the game which is the designer of the story and rules. 

Ideal World: let me explain, it mean "this is the way my world should be", there is one thing that all games have, and the four fundamental concept of a game: 

1. Win v.s. Lose: in every competition/battle/task, somebody win and somebody lose;  
2. Minimum Effort v.s. Reward: users need to do very few things (shoot; switch; throw; turn left & right etc); but as long as you spend money and time, you will be rewarded (status; artifacts; respect)
3. Fairness: the rule is same for everybody, no matter where they are from;
4. Clear Purpose & Path: you know exact what to do, how far you are from next level;

Angry bird got its unprecedented success largely because of the perfect balance between effort & reward. FIFA, being one of the most successful games, succeed in the fairness and good effort v.s reward system. Pokemon Go, as innovative and engaging as it is, the basic movement are just walk and throw; while the reward of getting a new Pokemon give gamers great joy and fulfillment.

The four attempts reveal an interesting fact: game is associated with all the things we look forward to in our life. Thus it is just nature to see the digital gaming industry flourish and becomes one driving force of the technology development.

PwC estimated that global video gaming industry will grow from US$71.3 billion in 2015 to US$90.1 billion in 2020, a CAGR of 4.8%; revenue of mobile and mobile web based games is expected to grow from US$12.83 billion in 2015 to US$18.40 billion in 2020, a CAGR of 7.5%. 

Global Video Game Industry Growth (2012-2020, Unit: US$ Billion)

Source: PwC

North America and Asia Pacific are the two largest markets consuming video games, representing 46.79% and 25.5% of the market share. China and United States are the two single biggest market for games, representing 24.5% and 23.6% of the global market share.

The market revenue is evenly distributed among different devices: computer screens takes up 32.03% of the market while personal screen (mobile) and entertainment screen represents 29.12% and 27.21% of the market share. 

Forbes suggested 54.1% of the game units are sold to shooting, action and fighting game; 17.5% related to sports and the rest to role-play (11.6%), adventure (7.7%), strategy (3.8%), family entertainment (3.6%) etc. 

 Games Market Distribution by Area

Shooting and sports are the top evergreen topics for games. In all of the 3 years, they took over 50% of the seats on the Top 10 list. Minecraft has made the Top 10 list as the dominant role-play game for 2014, 2015 and 2016. Up to today it has sold 50 million copies across PC, Xbox 360, PS3 and other platforms and reached its US$ 100 million milestone. Microsoft showed there are over 40 million unique players each month. 

                         Top 10 Best Selling Games by Category (2014/2015/2016)

Source: Fortune

The third and fourth quarter of each year appears to be more popular for new game release. And it seems like the late release did not affect the annual sales of the games. For all 2014, 2015 and 2016, 9 out of 10 best selling games were released in Q3 and Q4 of the year.

Number of Games Published by Quarter (2014/2015/2016)

So how the different parties in the gaming industry ecosystem interact and related to each other and how do they make money, I dragged the following landscape diagram to illustrate this question.

Gaming Landscape and Ecosystem

The six most important groups in the gaming landscape are:

Game Developers: companies that develop and publish via publishers or directly to consumers. They design games using in-house or out-source team. Some famous companies include Rockstar North (Developer of Grand Theft Auto Series); Vlve (Developer of Half Life) etc.

Game Publishers: companies that bring the games to market. They are in charge of the packaging and marketing. Some famous companies include EA Games (Publisher of The Sims and FIFA); Activision Blizzard (Publisher of Call of Duty Series) etc. Game Distributors: companies that provide facilities for developers and publishers to sell games to end users. Some famous companies include iTune (Distributor of all iOS games); XBOX store (Distributors of all XBOX games) etc. Regulators & Facilitators: organizations that aim to bring order, transparency and growth to the industry. Some names include World eSports Association, Korea eSport Associations. Independent eSports Organizations (clubs): companies that participate in game competitions. Their revenue comes from sponsorship, ancillary product sales and selling video of their competitions. Some famous companies include Ninjas in Pyjamas (Compete in Counter Strike); Natus Vincere (Compete in Starcraft etc) etc Independent eSports Players: individuals that participant in the games, not associated with any club. Some famous companies include Pieter Bas Kwak; Park Se-jun etc. Leisure Players: general public who play games for fun and social. Leisure players generate most of the revenue for the ecosystem and create the most content for the ecosystem. Game industry resembles the characteristics of film industry from the provider side and sport from the consumer side: Games get developed and then pushed to the market via different channels; 

• Successful games are made into series;

• The revenue spike after launch and goes down quickly;

• Players are divided into professional and leisure;

• Professionals engage in various competition and make money on sponsorship;

• Professional players change club from time to time;

• Leisure group also play regularly;

With the unique characteristics of the game, what makes a good game company? Zynga made a fortune out of FarmVille but now it has mostly disappeared from the market; while EA Games, Nintendo has strived for decades. Social & Community Grow the Ecosystem: out of the 43 replies on the Gamegiant forum post asking why is Call on Duty popular, over 30 mention that it is “fun to play with friends” or “there is always a lot of people to play with day and night”. As we look at the most successful games (Call on Duty; Warcraft; Counter-strike et), all of them are very social, yes you can play single mode but you are never alone, your team and other non-player character (NPC) will constantly interact with you. Online community is also a critical part of a successful games, they produce videos, articles, post and answers that help the game go viral. Communities creates good aura and attract leisure players in. Diverse Digital Offering Across Platforms: Wedbush analyst Michael Pachter pointed out in a note to investors recently, it comes down to changing market trends. Players are moving to mobile, to social and to MMO. A company that embrace the trend can then harness the benefit.  Easy to Pickup yet Dynamic Games: The game is easy to pickup without any tuition and this is important, if a player has to constantly look into the manual to see what button to press, the game will lose its attractiveness soon. Nevertheless, something needs to continuously changing, and it has to be more than a different color, or a different shape. But just enough for then “? … !” to happen. Engaging Reward Experience: most of us who have played shooter games or sport games remember the excitement when we obtained new weapon, new players and new abilities. They look awesome, teach us something we don’t know before and they empower us to do better in the next battle. The ability for a game developer to come out with new perks that “WOW” the players is critical to its success. Clear Win/Loss: the games these companies handle (either develop or publish) mostly fit the above characteristics. One round (a battle; a game etc) lasts reasonably short, the players know immediately and clearly if they win or loss, they can then go on to the next step to try again or to go on and explore new stuff or to leave to carry out their life. It does not leave you think about it the whole day which is frustrating.  Habit Forming Gaming Pattern: in the book Hooked, Nir Eyal talked about the 4 stage model of creating habit; trigger - action - investment - variable rewards. And most best selling games follow this model: users understand the product from news, their digital news channel, social media etc; users are done to shoot-win or click-win model, the rewards are changing every time as the game goes on and finally, the application will leave a hook for users to keep return to it. Let’s have a look how “Call of Duty” fits this criteria:

It has an excellent online community. A search of “Call of Duty” revealed 46.9 million results in Youtube. Some views got more than 43 million views and the club’s official channel has millions of subscribers too. It hosts an official forum and has its discussion section on all major game discussion forum. The community is health and active and create positive “Word of Mouth” that generate sales into the bigger consumer group.

It is available on all platforms, Windows, OS X, Nintendo DS, GameCube, PayStation 2/3/4/Portalbe/Vita, Wii, Wii U, Nokia N-Gage, X Box, X Box 360, Xbox One, iOS, Android and Blackberry. Anybody that has a smart device can find their version of the “Call of Duty” and play on the device of their choice. The game is easy to pick up, basically you take a gun and shoot. The controls are very smooth and intuitive. et the experience is extremely dynamic, in every mission, you will be playing a different character with a different team; the requirements are different, you may be forced to lie in grass with a platoon of soldiers marching over a hill crest toward your direction; to kill powerful zombies with just postals; you can choose different modes that adjust the level of difficulty, some hidden tasks etc. There is infinite possibilities.

It is important to clearly define a win or loss visually. Win is a BIG celebration, together with your teammates. Your name shows up in the Hall of Fame, you get point to redeem for perks and unlock new skills and tools. While loss is a neutral but encouraging “Try Again”. It meets the emotional needs of the players. With all the above, Call-of-Duty has created a Habit Forming Model. Players and potential players pick up the information of the game from all channels they immerse in, social media, news, friends and families; at any time they so choose, they will find a version of the game they can download and play, it is the simplest action to take with a click of a button and then they can enjoy its engaging, cinematic single-player campaign and groundbreaking multi-player mode. And you are constantly rewarded with new abilities and tools that alone will blow your mind, it grant abilities such as being able to hold additional equipment, reload faster, or be invisible to radar. With each kill you made or point you obtained, challenges and accolades constantly popped up to reward experience, weapons, attachments and perks. Even using your favorite loadouts and using them consistently earned you bonuses, giving you better perks as you complete specific challenges. As a user, I am deeply satisfied both for the brilliant images and the thrill a new reward gives me. And last but not least, it keeps you coming back. The simple fact that “the game is not finished”, “there are still modes I have not challenged”, “my team is waiting for me”. It has deliberately left things “half done” and now that you have done a bit, you cannot resist but to come back and finish.  Top 10 Best Selling Call of Duty Series Games (Revenue: US$Billion; Units Sold: Million)

Call of duty has been credited as one of the best selling game series in the world. So far it has released 22 games; sold 242.82 million units on all platforms and made US$9.681 billion. The series will continue to bring more thrill and expand players imagination. Digital games are part life for many of us. The industry is well established and productions stable, as long as our brains keep to be stimulated in the same way, the industry from its core will not be challenged too much.  PwC expect the video gaming industry to reach US$90 billion in 2020, growing at a CAGR of 4.8%. To keep up and exceed the expectation, companies in the gaming industry needs to keep up with the technology and lead the imagination. In the next article, I will look at how the game developers pick up their inspiration and use technologies to manifest these inspirations and bring great games to the consumers.