Content Is Still King for Video Games
We expect it to drive growth despite new consumption methods and potential regulation.
Since their birth over 50 years ago, video games have evolved from the arcade to home consoles to mobile devices. Despite these changes, most people continue to acquire one game at a time, either in physical form or via download. Whether single- or multi-player, nearly all games are played using local hardware. This dependence on local hardware and single-game purchases stands in stark contrast to the all-you-can consume, streamed-from-the-cloud model that is taking over noninteractive media like video and music. Platforms like Netflix and Spotify have been widely adopted, but their video game counterparts have yet to gain the same level of popularity.
Despite the apparent lack of demand, we see a number of new and recent entrants attempting to build and sell the next subscription and cloud gaming service models. While these services are coming from deep-pocketed companies like Google, Microsoft, and Apple, we expect that the traditional methods of consumption, as represented by the ninth-generation consoles from Microsoft and Sony, will remain the most important drivers of growth and value for most game publishers. We believe that subscription and cloud gaming services will be additive for most gamers and publishers, instead of taking over, and that the impact of these services could affect how data is shared across the gaming ecosystem at the margin. We expect companies with high-quality franchises and development capabilities will continue to attract large audiences, and further fragmentation of distribution should generally prove positive for the economic moats of the four game publishers we cover: Activision Blizzard (ATVI), Electronic Arts (EA), Take-Two Interactive (TTWO), and Ubisoft (UBI).
Neil Macker does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.