🤖 Special Edition! Digging the Video Games Industry... The Seed #5
🎮 Welcome to our first special edition about video games!
🔍 Last week we sat down with the team and we thought it would be really cool to do special editions that decipher a particular subject.
🎯 Every 5 weeks, you’ll now receive a special edition like this one. Hope you will like it!
📆 The program of the Newsletter: Video game industry history, focus on NFTs, e-sports and other trends related to video games.
🖱 Scroll down to play.
💡 This week’s concepts
📖 A brief history of video games
The late 1950s: What is thought to be the first video game, Pong, is created by the Physicist William Higinbotham. It was a simple tennis game.
1970: Development of video games among the general public. The first video game consoles are released, and video games become an industry.
Today: The video game industry is the most profitable entertainment industry and one of the most popular (Estimated 2.7 billion gamers in 2020!).
🔢 Some figures
Revenues: The global gaming market revenues were $162 billion in 2020 and are expected to reach $295 billion by 2026.
Pac-Man (1980): Oldest game in the top 50 of best-selling video games in the world.
Best-selling video game: Minecraft with more than 200 million units sold since its release in 2011.
Latest trend: Among us, one of the most popular “lockdown” video games, has been downloaded more than 485 million times worldwide (Nov. 2020).
Mobile gaming: By the end of the year, it is expected to represent more than half of the revenues generated by the video games industry.
🕹️ Trends in the video games industry
Augmented Reality: A popular example is Pokémon Go by the Pokémon Company, which combines the real world with the virtual “Pokémon” world. It has been downloaded more than a billion times and has grossed more than $4 billion in 4 years.
Cloud gaming: Cloud gaming’s ambition is to run the games online for the users, that do not have to buy consoles and games. It’s like Netflix for video games! It is expected to generate more than $3 billion by 2023, the cloud gaming industry is growing fast.
Region: Asia-Pacific is the region with the largest market share, representing 48% of the global game market revenues in 2020.
Video game live streaming: Twitch is the major live video broadcasting service for video games, with over 140 million active users per month. Video game players can broadcast their games live and discuss at the same time with their audience. Currently, the most-streamed games are GTA V, Fortnite, and League of Legends!
📈 News and Trends
Some video game news
📖 Roblox IPO
Roblox, an online gaming platform that we’ve recently covered in The Seed #2, is now listed on the New York Stock Exchange. Its market value has reached $40 billion on Thursday. In one year, the platform has seen its turnover increase by 88% and has now over 33 million daily users.
🍾 No longer a "men only" industry
This week hosted a day of celebration for women's rights. Moreover, 2020 marked a turning point in the world of video games in France, where 51% of gamers are women. Will this encourage the industry giants to produce more games with a heroine as the main character?
The NFT Trend
🔮 NFTs break into video games
Since the beginning of the year, NFTs keep hitting the headlines. Actually, in the tech world, they are the big trend. Yet, NFTs aren't that new as the first one has been released in early 2017 by a crypto company called Larva Labs. Today, blockchain technology is used pretty everywhere and NFTs should become the main assets of tomorrow's video games industry.
👉 What is an NFT?
NFT stands for Non-Fungible Token. A token is basically a digital asset, stored on a blockchain, that can be transferred between two actors, via Internet, and without duplication. For example, the bitcoin is the first token ever created.
Now, a token that isn't fungible, is a thing that can't be consumed by use nor can be replaced by something of the same nature. Thus, a bitcoin isn't an NFT because one can own part of a bitcoin, for example, 1% of it, but an NFT can't be split into several pieces.
Therefore, an NFT is a unique digital asset that can freely be traded on the Internet without being duplicated.
🌐 How does it work?
The pillars that make NFTs work are scarcity and authenticity.
Once created, NFTs can be traded on marketplaces like OpenSea. There, investors can buy and re-sell them to make some profit. In the real world, this is similar to an investor buying a masterpiece and selling it to a wealthy collector. Once he bought it, the masterpiece fully belongs to him, no longer to the creator, until he decides to sell it back. By creating scarcity with blockchain, NFT owners can re-sell their unique pieces for more than they paid.
What makes also NFTs so attractive for the people who collect them is that they can get proof of their authenticity. Just like an auction house can certify a masterpiece before listing it to other buyers, regardless of how many copies have been made, NFTs can be verified before they’re sold.
🙀 Why is it so trendy?
If NFTs are so popular it may be due to both the speculation of Silicon Valley CEOs and its use in the video games industry.
Sorare recently raised €40M to conquer new markets and above all develop its offer. Sorare is a video game company that created a virtual platform where users can trade between them numeric cards of their favorite soccer players. Then, users can participate in virtual tournaments with the cards they have acquired.
But Sorare isn't alone. Recently, NBA TopShot introduced a platform that lets users buy and sell data and short highlight clips from their favorite players. Like a Sorare's trading card, each video is only reproduced a certain amount of times to create scarcity. This drives prices up and encourages users to buy their own.
❤️ Weekly Crush
Supercell
🇫🇮 A Finnish mobile game company…
Supercell is a Finnish video game company, known for its mobile games hits like Clash of Clans ($6.5+ billion grossed since its launch in 2012) or Hay Day. Its main competitors are King (Candy Crush), Zynga (FarmVille), and Rovio (Angry Birds).
Supercell is one of the major mobile game studios and currently works on 5 games. It has generated $1.3 billion in 2020 and has (only!) 330 employees in its 4 offices in Helsinki, San Francisco, Seoul, and Shanghai.
As a comparison, already in 2013, with only 2 games, Supercell had twice as much revenue as Electronic Arts mobile games (more than 900 apps at the time!).
🤑 Supercell’s success
2010: Supercell is co-founded (among others) by Mikko Kodisoja and Ilkka Paananen. Their vision? Create "Games that people will play for years", hire the "best teams" to make "the best games", and work in "independent cells".
Beg. 2011: Supercell releases Gunshine, a desktop game, that would be also developed for Facebook games and mobile/tablets. After its initial release, Accel Partners invested $8 million in the company.
Fall 2011: Supercell pivots. Despite gathering half a million players for Gunshine, Supercell decides to kill the project. They will now focus on mobile games exclusively.
2012: Supercell releases "Hay Day" and "Clash of Clans". Their two biggest games, with Clash of Clans alone grossing more than $6.5 billion. Fun fact: Supercell first releases its beta in Canada!
2015: With only three games, Supercell has made a net profit of $924 million ($2.3 billion in revenues). That’s more than $3 million of net profit per employee. Their best year to date.
2016: Supercell releases "Clash Royale", and a few months later Tencent acquires 81.4% of the company for $8.6 billion.
2020: Supercell grossed $1.48 billion. Although this is extremely impressive, its revenue has been declining for the past 4 years. This slight decrease can be explained by the lifespan of a mobile game which is often only a few months. It's now up to Supercell to release their new must-have mobile game.
💻 Their super (cells)
What makes Supercell unique is its work organization.
To develop a game, they create a "cell", a group of 5-17 developers, that is responsible for the entire project.
Although the CEO and other managers can help the team, share their opinion, and potential disagreements, only the team can decide whether to kill the game or release it. There is no central process.
One anecdote perfectly encapsulates this unique approach. Before releasing "Boom Beach" in 2014, the whole direction was skeptical. As a matter of fact, only the team leader working on the game wanted to release it, when all other leaders voted for stopping its development. However, since the team working on it believed in the game, it finally launched it. 6 years later, the game has generated more than $1 billion in revenues.
🔎 Focus
E-sports = video games + online sport competitions
Have you ever played Wii Sport and thought: "I did my daily sports routine!"? Well, today that's not our point. We are talking about real athletes, tournaments, and challenges!
⁉️ What is e-sports?
E-sports is an online sports competition using video games. Like in traditional sports there are athletes, clubs, and tournaments. But there, no need for the latest shoes. It'll be way better to get the most efficient joystick ever.
📈 Another niche?
With an audience of 500 million users in 2020, e-sports has taken advantage of the health crisis to develop in its most common form: streaming! But e-sports is not only about people filming themselves playing video games: it's about rankings, competitions, and a whole market of its own.
In 2020, this market represented $1.1 billion in revenues from sponsors, broadcasting rights, ticket sales, and other digital and streaming alternatives. Although fundraising in this sector has decreased between 2018 and 2019, projections for the sector's revenues point to a favorable investment environment!
🤵 What shape do e-sports players take?
Video game publishers are the ones who create events and ranking principles in their games. So they are at the center of the equation.
Structures, such as Cloud9 and TSM in the USA, or Vitality, Fnatic, and G2 in Europe. They are the equivalent to the traditional clubs or franchises in "regular" sports.
Startups that serve the e-sports ecosystem with other services: such as Powder's video service or the online betting service BetOnYou!
🛑 Limits
Although growing, e-sports only represents a very small portion of the gaming market, as it represented less than 1% of the gaming revenues in 2020. E-sports is actually only a niche of the entire industry.
The development of e-sports benefits but also suffers from its dependence on video game publishers. Indeed, they are the ones organizing e-sports tournaments for their game.
Last, many structures do not have a business model reliable enough to have a constant income, and eventually, only a small portion of these structures survive.
🌱 However, the market is maturing!
It is indeed possible to find positive signs concerning the maturity of the market.
Riot Games, the developer of League of Legends, has created the structure LoL Esports whose goal is the full management of e-sports for the game. is the first step for independent video game competitions.
Moreover, E-sports structures become more professional.
For example, in Korea, many companies subsidize teams such as South Korea Telecom SKT or Samsung!
Some traditional sports clubs develop their e-sports team, for example, PSG, Schalke 04, or the Lakers!
Game Over.
This is it for our first special edition! We’ve had a lot of fun writing it, and we hope you enjoyed it 😉
We’d be delighted to have your feedback, send us your thoughts here.
See you next week for our sixth edition 😃