Intro to the Gaming Industry
Intro to the Gaming Industry
Weekly updates on the innovation economy.
Introduction
This week’s newsletter discusses an introduction to the gaming industry: what is gaming, why we game, where the industry has been, and what the future of gaming could be. The reason we wanted to write about gaming is because it plays a large role in many people’s lives from childhood to adulthood and beyond. People play video games for various reasons and at various times of the day, and the demand continues to grow as games improve in experiences that excite people and make them happy.
The first thing to define is “what is a game?”. Games are structured forms of “play”, but defining “play” is a bit trickier. We could define it as “a complex set of behaviors that enable individuals to learn, explore, experiment, and interact with the world around them”. In many ways, “play” is all about activating the brain and acclimating it to the environmental situation.
History and Future
Video games have been around since the 1950’s, and, over time, have improved in various ways, such as graphics, customization, complexity, story telling, immersiveness, and more. Below is a table showing some key events in the history of gaming.
A few key generalizations we can make from history are that technology has pushed video gaming to become more convenient, immersive, realistic, and addictive for users over time. From black and white gaming on hardware-intensive systems to full high definition color gaming on a mobile phone that fits in your pocket, there is now more time to enjoy games than ever before.
Looking out into the future, we have a few ideas of what gaming could look like. Here’s a partial list of our top ideas based on trends in the gaming market:
Cloud gaming may replace most consoles
Virtual reality and the metaverse will be just as important as the physical universe
Cryptocurrencies may provide liquidity for in-game content and remove borders between video games and reality
Online friendships will be more spontaneous, transient, or pseudo-anonymous as people meet each other digitally before physically or have some friendships be digital-only
Graphics will be photo-realistic
Desire for Gaming
The following three charts below describe the user experience for gamers. This first chart shows the amount of time spent per week playing video games across different countries.
China and other Southeast Asian countries hold the highest record of average weekly hours, which would explain the high popularity of video games in this region. Now, let’s take a look at why people would spend this much time on gaming.
It appears that the main reasons for gaming are to unwind, relax, pass the time, and escape some sort of boredom or stress. This makes sense because video games are considered a “leisure activity” just like gardening, sports, and watching television. Additionally, many teens relied on gaming platforms like Roblox and Fortnite to connect with others during coronavirus-induced lockdown environments, thereby elevating gaming from just an individual sitting-behind-a-computer experience to a more socially immersive experience and getaway away from the physical world. Additionally, here’s an eye-opening chart from Statista showing how addicted people have gotten to video games.
54% of respondents missed sleep because of video games, while about 37% missed socializing or a meal. Funnily enough, 25% of people missed showering and 11% missed work!
And finally, the United States has been seeing steady growth of video game users annually since 2017 and saw a healthy uptick due to the pandemic as individuals stayed indoors and played more video games.
We believe that the pandemic has resulted in numerous behavioral changes that will increase demand for video games, such as the transition to remote work, the advent of cloud gaming as a cheaper alternative to consoles, and the growing convenience of gaming on smartphones. Also, key advancements in graphics processors (dominated by NVIDIA and AMD), along with hardware chip advancements in mobile graphics (compute & rendering power, bandwidth, lower latency, and more), provide a better gaming experience. Additionally, streaming services such as Twitch and YouTube Gaming provide more people with ways to make a living by playing video games and earning revenue from subscribers, sponsors, and donations.
ETFs
There are multiple methods of investing in the gaming sector. The chart below highlights five sample funds for informational purposes related to gaming and eSports.
Performance chart of the 5 ETFs, compared to the S&P 500:
As of March 13, 2022, and among these five ETFs, the top performing gaming ETFs were $HERO and $ESPO which, unsurprisingly, also manage the most AUM out of these 5 ETFs.
If you have any questions or feedback, please feel free to email us at invest@drawingcapital.com
References
Statista - The Statistics Portal for Market Data, Market Research and Market Studies, https://www.statista.com/
Video Game History - Timeline & Facts - HISTORY, https://www.history.com/topics/inventions/history-of-video-games
What Is Play? – Active Learning Space, https://activelearningspace.org/principles/what-is-play/
ESPO - VanEck Video Gaming and eSports ETF | Holdings | VanEck, https://www.vaneck.com/us/en/investments/video-gaming-esports-etf-espo/holdings/
Video Games & Esports ETF (HERO), https://www.globalxetfs.com/funds/hero/
BETZ | Sports Betting & iGaming ETF - Roundhill Investments, https://www.roundhillinvestments.com/etf/betz/
BJK - VanEck Gaming ETF | Holdings | VanEck, https://www.vaneck.com/us/en/investments/gaming-etf-bjk/holdings/
NERD | Esports & Digital Entertainment ETF | Roundhill Investments, https://www.roundhillinvestments.com/etf/nerd/
This letter is not an offer to sell securities of any investment fund or a solicitation of offers to buy any such securities. An investment in any strategy, including the strategy described herein, involves a high degree of risk. Past performance of these strategies is not necessarily indicative of future results. There is the possibility of loss and all investment involves risk including the loss of principal.
Any projections, forecasts and estimates contained in this document are necessarily speculative in nature and are based upon certain assumptions. In addition, matters they describe are subject to known (and unknown) risks, uncertainties and other unpredictable factors, many of which are beyond Drawing Capital’s control. No representations or warranties are made as to the accuracy of such forward-looking statements. It can be expected that some or all of such forward-looking assumptions will not materialize or will vary significantly from actual results. Drawing Capital has no obligation to update, modify or amend this letter or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.
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