Gaming and eSports: Investing in the Future of Entertainment
By Michael Wang, Pawit Sethbhakdi, Maya Sundar (Analysts 2020–21)
For decades, video games have been a staple in the entertainment industry. From early consoles like the Atari 2600 and the NES to modern-day ones like the Xbox Series X and Playstation 5, video games are an integral component of millions of peoples’ childhoods. Today, as the video game industry expands beyond the traditional console experience, it is more popular than ever before, and stay-at-home restrictions due to COVID-19 have only inspired an explosion of growth in the video game consumer base. As expected for such an innovative, high-growth industry, both startup and VC activity in the gaming sector are high, so understanding the market trends and companies that define the gaming landscape will be crucial to driving successful VC investments in the future.
As of 2019, the global market for video games was valued at $151.06 billion, with countries like China ($40.85m), the United States ($36.92m), and Japan ($18.63m) dominating the market. By 2027, the global market size is expected to reach $291.16 billion, growing at a CAGR of about 8.2% from 2020 to 2027. Companies in the gaming industry include household names such as Microsoft, Sony, and Nintendo, and can generally be classified into one of four sectors: 1) game developers and publishers, 2) distribution platforms or hardware manufacturers, 3) eSports, and 4) streaming platforms. Within each of these sectors, while companies are constantly improving on existing technologies and ideas, they are also capitalizing on new growth opportunities and market trends. For instance, both Facebook and Microsoft have been pioneering virtual reality (VR) and augmented reality (AR) technology through their investments in the Oculus Headset and the Hololens, two successful companies that bring VR and AR to gaming. The markets for both VR and AR are projected to grow rapidly in the next five years with VR projected to reach $42.5 billion and AR projected to reach $3.6 billion by 2025.
To provide another example, gaming has been redefining the entertainment industry as the eSports scene rises in popularity. In 2019, the global eSports audience totaled 443 million individuals, with expectations to grow to 646 million by 2023, rivaling the viewership of many professional sports leagues. As of 2019, the industry’s market capitalization was about $1 billion, generating nearly $1.5 billion in revenue, and the industry’s popularity has fueled the growth of countless companies. These companies include game developers, team organizations, live streaming platforms (e.g. Twitch), and producers of various gaming tools.
In recent years, the gaming industry has witnessed an explosion of VC participation as investors seek to capitalize on these trends. Mainstream VCs like Sequoia, Khosla Ventures, and Accel have poured billions of dollars into the industry, with both Sequoia leading a $100m Series A round for Playco, a mobile gaming developer startup, and Khosla leading a $29m Series B round for Statespace, a platform that trains eSports players, in the past few months alone. Smaller VCs have even emerged that exclusively direct their investments towards the gaming ecosystem. London Venture Partners (led $7m seed round for Robin Games in March 2020), Play Ventures (participated in $6m seed round for Bigger Games in December 2020), and Makers Fund (led $7m series A round for Parsec in May 2020) are all examples of VCs with expansive portfolios focused solely on gaming/entertainment companies. As VC activity continues to grow in the gaming industry, we’re excited to see the impact of innovation within eSports and game development/distribution in the entertainment industry as a whole.
