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The global video game industry has been increasing in size spectacularly over the last few decades and is expected to reach $600 billion by 2030.
The ever-growing demand for interactive entertainment creates a lot of room for growth for video game developers both big and small. A highly decentralized industry, world-famous video games range from big-budget franchises to independent games (“indies”) made by small studios consisting of only a handful of developers and designers.
With this rapid growth and many different business models succeeding and failing, investors around the world have been pouring capital into the “next big thing” for years, as a truly successful project can bring billions of dollars in revenue for investors - whether it be from physical sales, licensing, or exclusive deals with publishers.
However, direct investments into the video game industry had long been locked away for venture capitalists and industry insiders. This trend has been reversing in recent years, with many equity crowdfunding platforms now offering stakes in video game studios, as well as various revenue-sharing agreements for individual game titles.
If you are interested in investing in video games, there are a few key factors you need to consider to decide whether it is the right investment for your financial objectives.
For private investors seeking to invest their cash in a singular video game project, the decision-making process can be rather complicated, as the video game industry operates very differently from the standard brick-and-mortar businesses, most investors have been accustomed to.
Some key features of video game financing, as well as important factors to consider for investors, include:
These are only a handful of issues that can arise during the development process and we have not even covered the many issues with leadership and project scope that can arise - all of which can have a noticeable impact on the post-release commercial performance of the project, as well as ongoing maintenance costs for servers and patch releases/updates.
This is why it is crucial for investors to get accustomed to the development team and process as closely as possible to make sure that they are on top of these processes and will be able to handle these issues as they arise during the development process.
The aforementioned reasons, coupled with an uneven distribution of publishing rights can make it exceedingly difficult for small developers to compete on the market and create a stable business.
For example, developers who wish to publish their games and make them playable on consoles, have a rather limited option of companies to choose from, namely Xbox, PlayStation, and Nintendo Switch, who together hold a lion's share of the global market. The policies of these companies determine the viability of the project to gain access to a global audience.
For developers targeting a PC release, the selection is somewhat broader, but Steam and Epic Games still hold the bulk of the global market. This puts a strain on the pricing of video games, as well as the expected revenue figures for development studios.
For this reason, investors have mostly been focused on investing in the stocks of publicly traded big-budget developers, such as Ubisoft, Activision Blizzard, Nintendo, Tencent, etc.
However, this is no longer the sole option for investors looking to get a piece of this high-risk, but lucrative industry.
Equity crowdfunding and private investments have turned a portion of the global video game industry into a lucrative alternative investment vehicle for industry professionals and those with sufficient knowledge of how it operates.
Some online platforms now offer direct access to crowdfunding and revenue-sharing opportunities for investors to put their capital in.
Fig.co, which is a member of the Republic investment platform, offers equity crowdfunding for individual video games and console manufacturers, along with memorabilia and collectibles, as well as diversified funds for various projects.
Launched in 2015, the platform is relatively new and the lineup of investment offerings is rather slim, but investors nonetheless have access to projects from well-known developers, such as Obsidian Entertainment.
Each project on the platform has a funding goal that must be reached within a specified time frame for the deal to be successful. If the project fails to meet the funding goal, invested capital is returned to the users and the listing is canceled.
Once a game is successfully funded and developed, it is released to the public. Revenue generated from game sales and other monetization channels is shared between the developer, investors, and Fig.co, according to the terms agreed upon during the campaign.
Forge Global is one of the largest private share markets that allow investors to buy and sell stocks in pre-IPO companies.
The platform includes hundreds of companies from various industries, which also includes the video game industry.
Users of Forge Global can buy and sell shares of Valve Corporation, which is a popular developer and entertainment media company behind the famous Steam marketplace, as well as renowned franchises, such as Half-Life, Counter-Strike, Portal, Team Fortress, and Left 4 Dead, among others.
Forge Global offers relatively high liquidity for the private share market. However, it must be noted that Valve has long dismissed rumors of going public in the near future, which means that investors may have to wait longer to see the company publicly listed on an exchange, if ever.
Conversely, the more traditional route to gaining exposure to the video game industry is by buying shares in publicly traded video game publishers.
These companies are present across multiple genres and platforms and are generally well-diversified. However, almost all of them have a number of big-budget titles and franchises that serve as revenue drivers for these companies, which adds a layer of risk in the case of underperformance.
Investing in video game stocks can help investors take advantage of the expected growth of the industry in the long run.
For those with limited stock trading experience, a virtual trading account might be the best place to practice.
Take Two Interactive is a popular video game publisher behind world-renowned franchises through Rockstar Entertainment and 2K Games, which are the developers behind titles, such as:
As of May 29, 2023, Take Two Interactive had a market capitalization of $23.5 billion, generating $1.45 billion in Q1 2023 revenues, ending the period with a $650 million loss.
Ubisoft is a French video game developer operating offices in France, Canada, and the United States. The company was founded in 1986 and has since become one of the largest and most influential players in the gaming industry.
Some notable IPs under the company’s name include:
As of May 29, 2023, Ubisoft had a market capitalization of EUR 3.3 billion, with EUR 541 million in revenues and a EUR 152 million loss as of Q1 2023. The company is listed on the Euronext Paris exchange.
Electronic Arts, commonly known as just EA, is one of the largest video game developers and publishers in the United States. Founded in 1982, the company is behind some notable titles, such as:
EA had a total market cap figure of $34.8 billion as of May 29, 2023. The company generated $1.87 billion in quarterly revenues in Q1 2023 - ending the period with a $12 million loss.
It should be noted that EA has had quite a bit of backlash in recent years due to the introduction of “loot boxes” to their games. This has led to several lawsuits and scorn from players, who view these actions as a way for the shareholders to get more out of their customer base while offering inferior products. Despite this, EA seems to be trying to get things back on track, and the stock seems stable.
Nintendo is a popular Japanese video game company that develops and publishes a number of highly successful game franchises, as well as the Nintendo Switch video game console, which is the third best-selling console in the world.
The company initially started out as a playing card manufacturer all the way back in 1889 and switched to producing video games hardware and software by the latter half of the 20th century.
Nintendo has developed a wide range of handheld and stationary consoles over the years, including the Nintendo Gamecube, Nintendo Entertainment System (NES), Nintendo Wii, Nintendo 3DS, and others.
Some of Nintendo’s most notable intellectual properties include:
These are only a few of the many franchises under Nintendo’s long list of intellectual property. As of May 29, 2023, the company had a market capitalization of JPY 7.8 trillion, or $55.38 billion.
Activision Blizzard is one of the largest video game publishers in the United States, which was formed after the merger of Activision and Vivendi in 2008.
The company has a wide range of popular franchises under its name, including:
Activision Blizzard has a large number of IPs under its name and the company had a market capitalization of over $61.8 billion and quarterly revenues of $2.38 billion and a net income of $740 million by Q1 2023.
It should also be mentioned that the company might be bought out by Microsoft who put in a $68.7 billion bid to purchase Activision Blizzard. While there are still a lot of regulatory hurdles that need to be overcome before the purchase will be finalized, this could be a good thing for investors who pick up some shares before the buyout.
Tencent is a Chinese multinational conglomerate company that operates in various industries, including technology, entertainment, and gaming. It is one of the world's largest video game companies and has made significant investments in numerous game developers and publishers. Some of Tencent's notable video game holdings include:
Tencent is one of the largest and most diversified video game holdings in the world, with a total market capitalization of over $395 billion as of May 29, 2023.
The Roblox Corporation is a gaming company that operates an online platform and game creation system called Roblox. Roblox is a user-generated content platform where players can create and play games created by other users.
The platform allows users to design their own games using the Roblox Studio tool, which provides an online social space for players to interact with each other.
Roblox offers a wide range of game modes, including obstacle courses, racing games, simulations, etc.
In addition to user-generated games, Roblox also offers an in-game economy where users can purchase the in-game currency Robux to buy items and collectibles.
The company was founded in 2004 and had a total market capitalization of over $24.5 billion as of May 29, 2023.
CD Projekt is a Polish video game company founded in 1994. The company has become renowned for its Witcher series, adapted from the book series of the same name.
The stock is traded on the Warsaw stock exchange and its notable products include:
CD Projekt is one of the fastest-growing video game publishers in Europe and the company’s market capitalization stood at PLN 12.5 billion (approx $3.2 billion) as of May 29, 2023.
The company’s revenue reached PLN 329 million, with profits of PLN 134.6 million as of Q4 2022.
The largest company engaged in the video game industry, Microsoft, is also one of the most influential. The company wholly owns and operates Xbox, which is the second largest-selling game console, and also runs an online marketplace.
A large number of studios under Microsoft’s control are owned and operated by Xbox Game Studios, which include:
While Microsoft owns a multi-billion dollar portfolio of video game companies, it is still only a small branch of the entire business, which added up to a combined market capitalization of over $2.48 trillion as of May 29, 2023.
Another major corporation engaged in the global video game industry is Sony. The company fully owns and operates PlayStation, which is the best-selling console in the world.
Sony also owns a large number of video game studios, such as:
While video games are only a fraction of Sony’s business, they still account for a significant amount of revenue. As of May 29, 2023, Sony had a total market capitalization of over $119.2 billion.
Investors can participate in equity crowdfunding rounds by video game developers or individual projects, or invest in a diversified fund.
Conversely, the most popular method of investing in the video game industry is by buying shares in major publishers.
Video game crowdfunding investments give developers the necessary capital to acquire talent and assets over the duration of the project. After the video game has been released, investors receive proceeds from the generated sales revenue.
Many major video game publishers are public companies and anyone can invest in them. Stocks, such as Ubisoft, CD Projekt, Activision Blizzard, and others, are all major companies with studios that work on various video game franchises.