Welcome to the New Morningstar.comSee what's new
US Videos

4 Narrow-Moat Video Game Publishers to Watch

Neil Macker, CFA

Neil Macker: We recently completed a deep dive into the video game landscape, looking at the evolution of the video game experience. Video games have shifted from having a largely participatory user base to one that is increasingly split between players and watchers over the last 10 years. We focused on three areas: the impact of watching games on YouTube and Twitch, the rise of e-sports, and the increasing use of microtransactions in PC and console games.

Although watching video games takes time away from those playing video games, we project that the shift is still a net positive to specific genres as well as video game publishers like Activision Blizzard, EA, Ubisoft, and Take-Two.

We believe these four publishers benefit from narrow moats derived from intangible assets, specifically brands and a combination of patents and proprietary technology. Due to these moat sources, all four have and will continue to benefit from Twitch's and YouTube's steaming of video games. Of the four firms, Activision Blizzard is best positioned to benefit from the growth in e-sports with EA also positioned to gain, albeit at a lower level.

Despite a recent backlash from gamers against microtransactions, we project that all four publishers to continue to reap the rewards of this higher margin revenue. We expect publishers to continue to add new modes supported by microtransactions to established franchises like the addition of Grand Theft Auto Online to Grand Theft Auto V. Additionally, many e-sports games use microtransactions either as the primary source of revenue or as an important secondary one, a trend we expect to continue.