Video gaming grew from a cottage industry to the largest entertainment market segment worldwide in just 50 years. Now its ascension to media dominance is reshaping the film and music industries.

Since first entering mainstream consciousness in the early 1970s with titles like Pong and Galaxy Game, the video game industry has quickly grown into an almost US $160 billion market.

This far out-strips the combined revenues of both the film and music industries, which brought in US $15.5 billion and US $23.1 billion respectively in 2020.

Admittedly, the film industry saw its revenues collapse as COVID-19 forcibly shut theatres worldwide, but even it’s record-breaking pre-COVID figures – US $45.1 billion in 2019 – pale in comparison to its interactive rival.

Forward-looking estimates only show the video game industry peeling further away from the pack. Gaming is eyeing revenues north of US $200 billion by 2023, while film revenues are tipped to slip further over the next five years.

Rather than throw in the towel, both the film and music industries are instead adapting to leverage the gaming industry’s infrastructure, to monetise the 2.7 billion players plugged in worldwide.

Lights, Camera, Press ‘A’ Button to Begin

Video games and Hollywood have a long and storied history, pockmarked by commercial flops like 1993’s Super Mario Brothers or 1994’s Street Fighter.

But recent success in adapting games for television (notably Netflix’s well-respected The Witcher series) have offered a glimmer of hope for future silver screen efforts.

Perhaps more importantly, video games represent an untapped well of intellectual properties, with in-built fan bases at a time when major movie studios are struggling to find new ideas.

At the same time, film studios are able to leverage their own IP to produce tie-in games and create new franchising and revenue opportunities, while simultaneously increasing their fan-bases’ engagement with their brands, beyond a film’s traditional 2-hour run time.

Vlad Panchenko – CEO of in-game item trading platform DMarket – told Observer it’s all part of a new trend to “make scenarios and products in many dimensions for multiple platforms”.

“It means that you can simultaneously launch a Netflix series, video game, Hollywood movie and more,” he said.

“The scriptwriters are creating huge multiverses with cross-platform IP rights,” he further added.

This cross-pollination of games, films, and other media tie-ins (such as TV series, comic books, toys and merchandise) creates a broader, increasingly-integrated ecosystem for fans of certain franchises to interact with and spend their money on. 

Gerry Sakkas, CEO of ASX listed game production house PlaySide Studios (ASX: PLY), has first-hand experience building out narratives and IP from film into video games.

In the nine years since its inception, PlaySide has produced numerous tie-in video game titles for the likes of Disney Pixar (such as Cars Lightning League) and Nickelodeon (The Spongebob Movie: Sponge out of Water).

And in recent years, the studio has begun producing games for television and YouTube series’ too – including AMC Studios’ Walking Dead franchise and the recently-released World of Pets, created for online sensations The Norris Nuts.

“I think we’re really starting to see video gaming move into the space that merchandising used to occupy,” Mr Sakkas said.

“Previously films, TV shows, and celebrities could only really capitalise on their brand through things like posters, books and collectibles.

“But in 2021 – when fans can interact directly with their heroes through social media – we’re seeing a transition towards more immersive ways of using that IP.”

Mr Sakkas doesn’t expect this trend to slow down.

“The potential here is huge, and I think after spending a year indoors more and more people – both film studios and fans – are beginning to understand that,” he said.

From MTV to XBox

The music industry was still able to grow its revenues through 2020’s pandemic, but only by 7% – noticeably less than the 11% growth rates recorded in 2018 and 2019.

Even so, music streaming services continue to erode the sector’s financials (with claims artists are receiving only 13% of the revenue their content generates) and the industry now faces an existential reckoning.

Over the past few years however, labels and artists have increasingly looked to the gaming industry as a new and profitable distribution channel.

Steve Schnur – worldwide Executive and President for game publisher EA’s music group – even likened games to MTV and commercial radio. 

“Video games have not only helped the music industry survive, but thrive on entirely new levels,” he told The Guardian in 2018.

Mr Schnur, and others, have pointed to game franchises like Tony Hawk’s Pro Skater, football tie-in FIFA, and the infamous Grand Theft Auto series as examples of games giving bands, artists, and songs a platform to reach new audiences,.

More recently, video games have provided new ways for artists to engage directly with their audiences too,.

In February 2019, almost 11 million people logged into the multiplayer game Fortnite to watch a guest performance by American DJ and producer Marshmello. The YouTube clip of the performance garnered roughly 50 million views in the subsequent year.

Meanwhile, rappers including Drake, Travis Scott, Lil Yachty and Tekashi 6ix9ine have all started streaming themselves playing games online for fans to tune in, watch, and occasionally interact with the artists,.

Live streaming platforms like Twitch even allow these artists to directly monetise their fan base, with Lil Yachty speaking in 2017 about making US $1500 in one night of streaming, by offering to ‘follow’ other gamers or critique fans’ music for a fee.

The opportunity to monetise fans through these channels is supported by gamers’ pre-existing willingness to spend on content. 

Studies show 13% of online multiplayer gamers buy physical music, compared to only 8% of music streaming service subscribers and 4% of average consumers.This represents a new opportunity for the music industry to commoditise fandom, rather than simply selling music, with some in the industry already looking to do exactly that.

Sony Music – one of the biggest record labels in the world – even began hiring for several specialist video game roles in 2020.

The company put out a call for a game level designer, a user interface designer, and an Unreal Engine generalist to help create new musical experiences using the label’s back-catalogue.

Console-idating into a new economy

The changes in the relationships between film, music, and video games have been underway for several years now, Mr Sakkas said, and the lines between the three will likely continue to blur as gaming becomes more popular.

“At PlaySide we’ve even produced tie-in games for advertising campaigns [referring to Public Transport Victoria’s viral Dumb Ways To Die ads] as people realise the kinds of reach gaming has,” he said.

“Gaming isn’t just something for teen boys to do on their weekends. Gaming is for everyone, which makes them a great channel to reach everyone through, too.”

And with the latest Mortal Kombat film – the third time the long-running ‘90s franchise has made it to the silver screen – already a financial success, maybe it’s finally ‘game over’ for the infamous Hollywood flop.

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Past performance is not a reliable indicator of future performance. 

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

Sources:

• Dazed, The music industry wants in on the capitalist dreamworld of video games
• Hypebot, Is It Time For Music Industry To Rethink Its Relationship With Gaming?
• IMDb, The Witcher
• Observer, Entertainment Industry Staring at $160B Loss Over 5 Years Due to COVID-19
• Observer, Video Games Will Soon Be Hollywood’s Next Great IP War
• Reach Markets, High score: How video games came to dominate the entertainment sector
• Metro Gaming, Mortal Kombat movie a massive money maker despite poor reviews
• Music Gateway, What Musicians Can Learn From The Video Game Industry
• Music Industry Blog, Recorded music revenues hit $23.1 billion in 2020, with artists direct the winners – again
• New Zoo, The World’s 2.7 Billion Gamers Will Spend $159.3 Billion on Games in 2020; The Market Will Surpass $200 Billion by 2023
• Norris Nuts Gaming, First Time Playing World of Pets
• Rolling Stone, Sony Music Is Hiring Some Serious Game Designers
• PlaySide Studio, PlaySide Studios
• Screen Rant, GTA Controversy Timeline: A History Of The Series’ Outrages
• Statista, Number of video gamers worldwide in 2020, by region
• The Music Network, The global recorded music business was up $1.5b in 2020
• The Guardian, ‘Bigger than MTV’: how video games are helping the music industry thrive
• The Guardian, ‘I punched him so hard he cried’: inside the Street Fighter movie
• The Hollywood Reporter, Global Cinema Revenue to Drop 66 Percent in 2020 Amid Pandemic: Forecast
• The Verge, Fortnite’s Marshmello concert was the game’s biggest event ever