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High score: How video games came to dominate the entertainment sector.

December 9, 2020

High score: How video games came to dominate the entertainment sector.

In just five short decades the video game industry has grown from a handful of coin-operated titles to become one of the most profitable entertainment sectors worldwide. The sector’s value is expected to hit $165 billion in 2020, a far-cry from its humble beginnings with early coin-operated games like 1971’s Galaxy Game, produced by Stanford graduate Bill Pitts and his high-school friend Hugh Tuck.

In just five short decades the video game industry has grown from a handful of coin-operated titles to become one of the most profitable entertainment sectors worldwide. The sector’s value is expected to hit $165 billion in 2020, a far-cry from its humble beginnings with early coin-operated games like 1971’s Galaxy Game, produced by Stanford graduate Bill Pitts and his high-school friend Hugh Tuck.

Galaxy Game cost around $20,000 to build, and Stanford University students could play one game for 10 cents (or three games for the discounted price of 25 cents) in a nearby coffee shop. While that game did not become a hit, subsequent titles like Pong, Space Invaders, and Pac-Man were financial success stories – with Pac-Man generating more than $1 billion in arcade sales in 1980 alone.

From here the industry continued to grow, and by 2018 its revenues of $43.8 billion outstripped Hollywood’s performance – with the box office only bringing in $41.7 billion. By 2019, that gap had widened significantly – with the sector’s $145 billion revenues eclipsing the film industry’s $42.5 billion (and the global music industry at only $20.2 billion).

By 1997, games had made their way to mobile phones with Nokia’s decision to include Snake, the first popular mobile game, on their phones. But it wasn’t until 10 years later when the Apple iPhone was released that the transition to mobile gaming began to solidify itself, as shown by this timeline from Visual Capitalist.

Image by Visual Capitalist (https://www.visualcapitalist.com/50-years-gaming-history-revenue-stream/

 

20 years of mobile growth

During their infancy, mobile games had “no real monetisation strategy”, according to PlaySide Studios CEO Gerry Sakkas.

 

“In fact when we started PlaySide [in 2011] it was just a straight premium model – where customers would pay $1 – $3 for an app and that was really where the buck stopped,” he said at Reach Markets’ “The Insider” webinar

 

“[The industry] has transformed multiple times since then to the point where it’s matured into what’s called a ‘freemium’ model which has also  been adopted now by large PC and console players,” he added.

 

This ‘freemium’ model allows users to download a game for free, but make in-app purchases to improve their game experience or unlock bonus content. This is supplemented through ad revenues, where advertisements are served to non-paying gamers or free-to-play to generate additional money.

“There’s a lot of tracking that goes into it,” Mr Sakkas said.

Mr Sakkas explored the growth of the gaming industry – and the evolution of mobile game monetisation – in his presentation for Reach Markets’ fortnightly ‘The Insider’ webinar last week.

You can watch a full recording below, or you can click here to book into our next session where we will be joined by Nickel Mines (ASX: NIC), Cann Group Limited (ASX: CAN) and PainCheck Limited (ASX: PCK).

‘The Insider’ is a great way to hear directly from fast growing Australian businesses. You will get valuable insights to their industries and companies future prospects. 

 

The Insider – Event Details: 

Date: Wednesday, 16th December
Time: 12 pm AEDT
Format: Online, 2 x 15 minute presentations

This is a free event. Click here to book your spot.

 

If you want to stay up to date on PlaySide Studios’ company activities you can register on their Investor Portal.

Reach Markets have been engaged by PlaySide Studios to assist with private investor management.

 

Sources:


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