Gaming Industry Nearly Twice as Large as Reported, at $336B

Areas such as esports, gaming-related adtech, and game streaming have ... Game Content & IP ($193.3B)³ is more than double the combined size ... 0 GamingIndustryNearlyTwiceasLargeasReported,at$336B Sep15 WrittenByNaavik ThisessaywaswrittencollaborativelybetweenNaavikwithBITKRAFTVentures.BITKRAFTisoneofgaming’stopventurefirms,investinginnotablecompanieslikeEpicGames,Manticore,&YieldGuildGames.MattDion,JimmyStoneandAbhimanyuKumarcontributedfromNaavik’sside. In2021,gaming—consistentlyreportedasaroughly$175Bindustry¹—standsasthelargestmediacategorybyrevenue.Havingrecentlyclaimedtheleadingpositionfromlong-termmediabehemothlineartelevision,gamingtodayislargerthantheglobalmusic,film,andon-demandentertainmentsectorscombined.Andtocomplementthisnewstanding,amongthesemediacategories,gamingisalsothefastest-growingataround10%,accordingtovariousindustryresearchfirmsincludingNewzooorWSJ/Activate.Nevertheless,andascounterintuitiveasitmaysound,tousatBITKRAFTandNaavik,webelieve$175Bremainsanincompleteunderestimationofgaming'spotentialmarketsize.Asaresult—andasthisreportbreaksitdown—wehavedevelopedwhatwebelievetobeamoreholisticmethodofmeasuringthesizeandscopeoftheglobalgamesindustry.Toprefaceourapproach,previousattemptstosizetheindustryhavebeensmallerinscope,limitingtheirmeasurementstorevenuesfromgamessoftwarealone(e.g.salesandin-apppurchasesfromPC,console,andmobiletitles).Othershaveapproachedthemarketsizingexercisebylookingonlyatpubliccompanyvaluations.Bothoftheseapproachesexcludeseveralimportantsectors,includingentireverticalsthatdependupongamesandgamersastheirprimarysourcesofrevenue.Areassuchasesports,gaming-relatedadtech,andgamestreaminghavepreviouslybeenignored.Sotoohavegaminghardwareandstreamingperipherals,thesalesofvideogameconsoles,aswellasemerginggamingplatforms,tosaynothingofthegrowingswathofblockchaingamesandplay-to-earnventures.Havinganaccuratepictureofthemarketisimportantwhendesigningnewgames,launchingnewproducts(orbusinesses),andjudginginvestmentopportunities.Justasthedefinitionofa“gamer”hasevolved,webelievesotoomustthedefinitionofthe“gamesindustry”.Segmentsthatwereonceignoredhavenowmaturedtosupportlegitimategrowthbusinesses.Gaminghardwarenolongerencompassesonlyconsoles,butalsoesportsperipheralsandstreamingequipment.RevenuenolongerendswithPC,console,andmobile,butalsoVRandblockchaingaming.Astwoorganizationsfocusedonthefutureofgamesandinteractiveentertainment,weatBITKRAFTandNaavikfeltitwascriticaltoundertakethisexerciseinordertoreframetheconversation.Asouranaloganddigitallivesconvergeevercloser,gamingandinteractiveentertainmentwilllikelybeubiquitousinournewSyntheticReality.Itismoreimportantthaneverthatentrepreneurs,businessleaders,andinvestorsunderstandthefullscopeofthegamingenvironmentinordertohavetheopportunitytosucceed. OurApproachtoSizingThemarketsizemostfrequentlycitedfortheglobalgamesindustrycomesfromNewzoo,whichputsitat$175.8Bin2021.²However,asmentioned,thissizingignoresseveralkeysegmentsoutsideofgamingcontentandvirtualgoodspurchases.ExcludedcategoriesincludeotherformsofcontentandIPsales,butmoreimportantlythesalesofanygaminghardwareandequipment(includingconsoles)aswellasgamingsoftwaresuchasstreamingservices(e.g.,Twitch),gamercommunication(e.g.,Discord),gameengines(e.g.,Unity),andotheritems.Afterincorporatinggaming-specifichardwareandsoftware(e.g.developmenttools,engines,etc.)aswellascomplementarymarkets(e.g.,streaming,esports,etc.),weprojectamorecompleteglobalmarketsizeof$335.5Bin2021—over90%ornearly$160BhigherthanNewzoo’sestimate. Inordertoderiveourestimateofthesizeoftheglobalgamesindustryin2021,weperformedabottom-upanalysisofindustrysegmentsinvolvedinproducing,monetizing,playing,and/orparticipatingingames.Whereverpossible,wehavebasedourestimatesonwhatwebelievetobetrustedanalysesand/ordirectearningsreports.Wealsoutilizedourowninternalestimatesandprojectionswherequalitydatawasmoredifficulttosource.Inallcases,wesoughttobeconservativewithourestimates,andhavecalledoutpotentialareasforfuturechange(whethergrowthorcontraction)intherelevantsectionsbelow.Youcanreadmoreaboutourmethodologyattheendofthispiece. KeyFindingsOurdetailedmarketanalysisuncoveredseveralinterestingfindings:GameContent&IP($193.3B)³ismorethandoublethecombinedsizeofGamingHardware⁴andGamingSoftware⁵($85.4B).WithinGameContent&IP,MobileGamingContent⁶($79.1B)isalmostaslargeasPC&ConsoleGamingContent⁷combined($82.5B).GreyMarketGameSales⁸($11.5B)—thetradeofvideogamesystems,games,orvirtualitemsthroughunintendedorunofficialmethods—areestimatedtobealmosttwiceaslargeasseveralmorehighlypublicizedsegments⁹(VRGamingContent=$3B;ARGamingContent=$0.5B;HTML5GamingContent=$2.6B).AllofBlockchainGaming10($1.5B)istoday"only"approximately10%ofthesizeofGreyMarketGameSales¹¹,albeitgrowingrapidly.TheintroductionofdigitalownershipviaNFTssuggestsblockchaingamescouldpotentiallyeatintothelargegreymarket.PCGamingHardware¹²($42.9B)issignificantlylargerthanConsoleHardware¹³($24.8B),despiterecentsuccessesofSonyPlaystation5,MicrosoftXboxOne,andNintendoSwitch.TheEsports¹⁴($1.1B)andGameEngine¹⁵($1.9B)marketsarestillrelativelysmallincomparisontotheoverallgamingindustry.GameContent&IPRevenuesfromGameContent&IParethetypicalstandardbywhichthegamingindustryhasbeenmeasuredinrecentyears.Here,weconsidergamesalesandmicrotransactionsacrossPC,console,andmobiledevices(aswellassoftwareservicesandadd-ons,whereavailable),whilelayeringonrevenuesfromesports,arcades,andlocation-basedgaming.Wehavealsotakenconservativeapproachestowhatwe’rereferringtoas“EmergingPlatforms”,inwhichweincludeVR,AR,Web-Based/HTML5,andblockchaingames.Finally,weattempttofactorinsalesandtradingingreymarkets,aswellasrevenuesfromthesaleofcheatingsoftware. CAGRsprovidedareestimatesbasedoninternaldataandsourcesasdiscussedherein. Itcomesasnosurprisetousthatthisdatarevealsrevenuesfrommobiledevicesasthedrivingforceinthissectionofthemarket.Mobilegamingiswell-establishedin2021,andPCandconsoleshaveevenmoreentrenchedaudiencestodrawfrom.However,wearebeginningtoseesizablemarketsinmixedreality,withVR&ARcontentcombiningfor$3.5B.¹⁶Itisworthnotingthathereweexcludedmobile-basedARcontentandinsteadreferredtogamessoldonhead-mounteddevicesonly,suchasthoseofferedbyTiltFive(oneofthefirstARgamingdevicesavailabletoconsumers).Thisalsoexcludesthe$5.4Bsalesofheadsets(e.g.,OculusQuest)themselves,whichweincludedintheirrespectivehardwaresegmentinstead.Additionally,weweresurprisedbytheestimatedsizeofgreymarketsales¹⁷($11.5B),which,whenconsideredintandemwiththeemergenceofplay-to-earnandotherblockchaingames,couldchangedrasticallyinthecomingyears.FutureOutlookGiventheever-changingtastesofconsumersinthegamesindustry,andthesometimeshits-drivennatureofthebusiness,wehaveidentifiedacoupleofareaswithintheGameContent&IPsegmentthatcouldpotentiallychangesignificantlyinthecomingyears. First,itisimportanttorecognizethatblockchaingamingisstillinitsrelativeinfancy.AccordingtoDappRadar,therearejustover1,000gamesonpublicblockchainscomparedtothetensofthousandsseenintheearlydaysofApple’sAppStore.Asmoregamesareintroducedandadoptionbarriersareloweredforusers,theblockchaingamemarkethasthepotentialtogrowmeaningfully.Ontheotherhand,thereisalwaysapossibilitythatblockchaingamingmayenterthe“TroughofDisillusionment”phaseoftheGartnerHypeCycle,failingtogaintractionamonggamersandresultinginapullbackofrevenues.Second,esportsrevenuesarestillrelativelysmallincomparisontothebroadergamingmarket.Aswe(hopefully)exitpandemiclockdowns,esportsviewership—andbyextension,revenues—couldaccelerate.ThisisalsolikelytobestronglycorrelatedwiththesuccessorfailureofnewgamingIPs.Asnewcompetitivegamesareintroducedtothemarket,furtheresportsecosystemscoulddeveloparoundthem,bringinginnewfans,newevents,andeventuallynewrevenuestreams.GamingHardwareOnekeypartofthegamingindustrythathashistoricallybeenexcludedfrommarketsizingreportsisthegaminghardwarevertical.Therearegoodreasonsforthis,ofcourse—afterall,whoistosaythatacellphoneisnotalsoamobilegamingdevice,orthataPCworkstationisnotalsoagamingrig?Withthatinmind,agoodplacetostartiswithgamingconsoles,wherewebeganourexplorationwiththeheavyweights:Microsoft’sXbox($6.7B),Sony’sPlaystation($10.4B),andNintendo’sSwitch($7.8B)¹⁸. ConsoleGamingHardwaremarketsizeestimatesaresourcedfromSony,AmpereAnalysis,andNintendo. WithregardstoPChardware,wehavedividedouranalysisintothreeareas:standalonegamingPCsandlaptops;gamingcomponents(inwhichweincludeGPUs);andgaming/streamingperipherals.GiventheincreasingpopularityofPCgamingandstreaming,aswellasthesuccessofcompaniesdedicatedtothespacesuchasCorsairandRazer,wefeltitcrucialtoincludetheserevenuestreamsintoouranalysis. PCGamingHardwaremarketsizeestimatesaresourcedfromJohnPeddieResearch. FutureOutlookOnepotentialareaforfuturechangesisVRhardware.AccordingtotheEntertainmentSoftwareAssociation,73%ofUSgamersownaconsolebutonly29%ownaVRheadset.WediscussedhowVRsalescouldpotentiallysurpassconsolesalesinthenextfewyearsonarecentpodcast.Additionally,meaningfulinvestmentisbeingmadeinthespacebytechgiantssuchasFacebook,Apple,andSony.Yettherearestillmajortechnologicalhurdlestoovercome,andanon-zeropossibilitythathead-mounteddevicesmaynevertrulybreakthroughtoamass-marketaudience.Anotherimportantgaminghardwaresegmenttoconsidergoingforwardismobilegamingdevices¹⁹($39.7B).Thisalready-largeverticalcouldexperienceevenfurthergrowthastheproliferationofmobilegaminglikelycontinuesworldwideanddevicemanufacturerscontinuetoseektoimprovetheirofferingstargeteddirectlytowardsmobilegamers.GamingSoftwareHere,wearemeasuringrevenuesfromavarietyofgames-relatedservices,bothB2B(includingB2Creator)andB2C.ThevastmajorityofB2Brevenuescomefrommobileadvertising,aswellasgameenginesanddevelopmenttools.B2Crevenuesaregeneratedprimarilyfromgamingvideos,($9.3B²º),whichincludesstreamingplatformssuchasTwitchandYouTubeGaming.Wealsoexpectnascent,butgrowingB2Cmarketsintheareasofgamecoachingandcommunicationsplatforms,suchasDiscordorTeamspeak. FutureOutlookGameenginerevenue($1.9B²¹)isasmallportionofin-gameadvertisingrevenue($20B²²).PopulargameengineslikeUnityandEpic’sUnrealEnginearecurrentlyprioritizingusergrowthovermonetization.Overtime,thesecompaniescouldtransitionmoretowardsmonetization,potentiallyresultinginthisindustryvertical’sgrowth.Ontheotherhand,newentrantsseekingtofurtherdemocratizegamecreationsuchasManticoreGamesmayendupapplyingdownwardpressureonindustrymarginsascompetitionfordevelopershareheatsup.Theseorganizationshavethusfarcompetedonthebasisofofferingever-smallerrevenuesplits,whichmayresultinaracetothebottom. Elsewhere,wemayseechangesinthegamecoaching($1B²³)vertical,asweprojecttheoverallinfluenceofesportstocontinuegrowing.WehavealreadyseenU.S.collegesinstitutescholarshipprograms,anditisnotfar-fetchedtoexpectthatcoachingwillfurtherpenetratetheamateur/hobbyistsegmentofgamers.ClosingThoughtsInsummary,weestimatethatthegamingindustry’scompletemarketsizeispotentiallysignificantlylargerthanwhathaspreviouslybeenreported.Webelievethatthisdifferenceisprimarilydrivenbygaminghardware,non-gamesoftware,andgreymarketsales.Astheindustryevolves,sowillourapproachtomeasuringitssizeandscope,especiallyasweexpectemerginggamecategories(e.g.blockchaingaming,VR/AR,etc.)toaddnewgrowthopportunitiesandpotentiallychipawayatexistingcategories. Wearehopefulthatourmarketsizingapproachiseducationalforinvestorsandindustryprofessionalsalikeastheyconsiderhowtoevaluatethepotentialofgamingandtheopportunitiesavailabletobusinesses.WhoWeAreBITKRAFTVentures BITKRAFTVenturesisaglobalearlyandmid-stageinvestmentplatformforgaming,esports,andinteractivemedia.FoundedbyesportsveteranJensHilgers,BITKRAFTservesaworldwidenetworkthatspanssomeoftheindustry’smostforward-thinkingstartupsandfoundersworkingtobuildandoperatethevirtualworldsandeconomiesofthefuture.BITKRAFToperatesfourfundswithatotalofover$500MUSDinassetsundermanagementandhasover50companiesinitsglobalportfolio.BITKRAFT’sexperiencedinternationalteamseekstocreatesubstantivevaluethroughearlycandidpartnerships,domainexperience,entrepreneurialhistory,andaglobalecosystemofstrategicpartners.Naavik Naavik,inHindi,representstheboatmenwhohelppassengersnavigateconvolutedwatersandreachtheirdesireddestinations.Weworksimilarly. Eversinceourfoundingin2019,we’vehelped50+companiesacrossthegamingindustryreachtheirdesireddestinationsofsuccess.Whetherit’smarketresearch,gamedesignassistance,useracquisitionexpertise,M&Aduediligence,orevenlong-termadvisoryrelationships,we’reheretohelpeveryonebettermasterthebusinessofgaming.In2020,NaavikmergedwithMastertheMetatoprovideoutstandingandinformativecontentthroughournewsletter,deepdives,andpodcast.YoucanlearnmoreabouttheNaavikteam,checkoutourwork,andgetintouchthroughourwebsite.OverviewofUnderlyingDatabySegment Sources&Notes1:Newzoo-GlobalGamesMarkettoGenerate$175.8Billionin2021;DespiteaSlightDecline,theMarketisonTracktoSurpass$200Billionin20232:Newzoo-GlobalGamesMarkettoGenerate$175.8Billionin2021;DespiteaSlightDecline,theMarketisonTracktoSurpass$200Billionin20233:GameContent&IPincludesseveralsubsegmentestimates.PC,Console,Mobile,Tablet,andWeb-based/HTML52021marketsizeestimatesaresourcedfromNewzoo.VRandAR2020marketsizeestimatesaresourcedfromDigi-Capital.Blockchaingaming2021marketsizeestimatesaresourcedfromNon-fungible.com,DelphiDigital,andBITKRAFT/Naavikinternalestimates.Retailsalesareforecastedbasedonarcadesandlocation-basedVRmarketsizeestimatessourcedfromAbsoluteReportsandFuturesourceConsultingVR.GreymarketsalesandtradingmarketsizeestimatesaresourcedfromDeutscheBorseGroupandassumedtogrowatasimilarrateastheGameContent&IPmarket.CheatingmarketsizeestimatesaresourcedfromtheSouthChinaMorningPostandincludeChinaonly.EsportsmarketsizeestimatesaresourcedfromNewzoo.4:GamingHardwareincludesseveralsubsegmentestimates.PCGamingHardware2020marketsizeestimatesaresourcedfromJohnPeddieResearch.ConsoleGamingHardwaremarketsizeestimatesaresourcedfromSony,AmpereAnalysis,andNintendo.VR/ARHardwaremarketsizeestimatesaresourcedfromCCSInsightsandStatista.MobileDevicemarketsizeestimatesaresourcedfromAccenture.5:GamingSoftwareincludesseveralsubsegmentestimates.StreamingPlatformsmarketsizeestimatesaresourcedfromAccenture.CommunicationToolsmarketsizeestimatesaresourcedfromBusinessofApps.CoachingmarketsizeestimatesaresourcedfromBloomberg.GameEnginesaresourcedfromUnityandBITKRAFT/Naavikinternalestimates.DeveloperToolsmarketsizeestimatesaresourcedfromResearchandMarketsandBITKRAFT/Naavikinternalestimates.AdsandAdtechmarketsizeestimatesaresourcedfromAccenture. 6:Mobile2021marketsizeestimatesaresourcedfromNewzoo.7:PCandConsole2021marketsizeestimatesaresourcedfromNewzoo8:Greymarketsalesandtrading2021marketsizeestimatesaresourcedfromDeutscheBorseGroup’s2015marketsizeestimate,whichisthenassumedtogrowatasimilarrateastheGameContent&IPmarket.9:VRandAR2020marketsizeestimatesaresourcedfromDigi-Capital.Web-based/HTML52021marketsizeestimatesaresourcedfromNewzoo.10:Blockchaingaming2021marketsizeestimatesaresourcedfromNon-fungible.com,DelphiDigital,andBITKRAFT/Naavikinternalestimates. 11:Greymarketsalesandtrading2021marketsizeestimatesaresourcedfromDeutscheBorseGroup’s2015marketsizeestimate,whichisthenassumedtogrowatasimilarrateastheGameContent&IPmarket.12:PCGamingHardware2020marketsizeestimatesaresourcedfromJohnPeddieResearch.13:ConsoleGamingHardwaremarketsizeestimatesaresourcedfromSony,AmpereAnalysis,andNintendo.14:EsportsmarketsizeestimatesaresourcedfromNewzoo.15:GameEnginesaresourcedfromUnityandBITKRAFT/Naavikinternalestimates.16:VRandAR2020marketsizeestimatesaresourcedfromDigi-Capital. 17:Greymarketsalesandtrading2021marketsizeestimatesaresourcedfromDeutscheBorseGroup’s2015marketsizeestimate,whichisthenassumedtogrowatasimilarrateastheGameContent&IPmarket.18:ConsoleGamingHardwaremarketsizeestimatesaresourcedfromSony,AmpereAnalysis,andNintendo.19:MobileDevicemarketsizeestimatesaresourcedfromAccenture.20:StreamingPlatformsmarketsizeestimatesaresourcedfromAccenture.21:GameEnginesaresourcedfromUnityandBITKRAFT/Naavikinternalestimates.22:AdsandAdtechmarketsizeestimatesaresourcedfromAccenture. 23:CoachingmarketsizeestimatesaresourcedfromBloomberg. 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