- Revenue of the top 26 gaming companies grows only slightly at 5%, profit margin falls sharply by 5%
- Market capitalization of the top companies fell by an average of 29% year-on-year
- Top game publishers in terms of revenue come from China, followed by suppliers from the USA and Japan
- Of the total sales of the top companies, only 5% were generated by European game publishers
Zurich, 24 July 2023. During the pandemic period, the gaming industry benefited enormously economically, but it is now clear that the Corona boom has come to an end. Last year, the revenues of the top gaming companies worldwide only increased by just under 5%. In the previous year, growth of 12.5% had been achieved, and in the pandemic year 2020, sales had even soared by almost 28%.
Profitability has also suffered: After still achieving an average margin of 24.9% in 2020 and 23.5% in 2021, the margin shrank to just 18.1% in 2022 - below the pre-pandemic level of 19.7%.
These are the findings of a new analysis prepared for the first time by EY Parthenon, EY's strategy consultancy. The study looked at the financials of the 26 top-selling companies in the world's computer and video game industry.
The highest revenue-generating game platform providers and game publishers
The EY study breaks down between platform providers and game publishers. Among platform providers, Sony is ahead of Microsoft (14.8 billion Euros) and Nintendo (12.1 billion Euros) in the revenue rankings with over 23.5 billion Euros. The biggest pieces of the gaming pie are secured by publishers from China, the USA and Japan. Tencent, with sales of 41 billion Euros in its gaming division, leads by a wide margin ahead of NetEase Games (10.5 billion Euros), another Chinese game developer. Behind the two Chinese groups are three publishers from the USA, Activision Blizzard (7.1 billion Euros), Electronic Arts (7 billion Euros) and Take-Two Interactive (4.6 billion Euros).
European companies play only a minor role in a global comparison: Of the total revenue of just under 151 billion Euros generated by the top 26 gaming companies last year, just 7.5 billion Euros (5%) was generated by companies based in Europe.
David Holtmann, Head of Consumer Goods & Retail Strategy Switzerland at EY Parthenon, says: "Gaming is one of the industries that experienced a strong growth spurt during and due to the pandemic". He added that the returning normalization of buyer and user behavior is reflected in companies' sales figures. "Gaming companies need to respond with new products and services, while also looking at their costs." Holtmann says the relatively young industry, like others, needs to consolidate after an initial period of strong expansion.
But compared with other industries, the profitability of the leading companies remains very high. This is also true for European companies, whose margins in the ranking averaged 21.5% last year. The blockbuster games from publishers such as CD Project from Poland and Ubisoft from France play large sums into the coffers.
In-game purchases and mobile games as revenue drivers
But the gaming industry goes far beyond such large-scale productions. "Manufacturers now generate the majority of gaming revenue with in-game and in-app purchases, and European companies are also well positioned here," says Thomas Pyschny, Head of Global Product Lifecycle Management at EY in Switzerland. "In addition, over half of the gaming industry's revenue is generated by mobile games today. These games are also very lucrative for studios because the in-game advertising opportunities for companies are diverse and reach a wide range of users." That makes mobile games interesting for advertising companies and also for investors, Pyschny said.
Nevertheless, mobile games have also come under pressure: "Consumers have recently spent less money on mobile games than in previous years. In addition to the end of the Corona boom, rising inflation and the general macroeconomic environment are among the reasons for this," says Pyschny. That's why it's important for developers to include a monetization strategy tailored to the game in the early stages of a game's development, he says.
Leading providers are making strong acquisitions
At present, the gaming industry is still rather fragmented - in addition to the large companies analyzed for the EY study, numerous smaller providers occupy niches, some of which are lucrative. However, the trend is toward consolidation, and company acquisitions and mergers are shaping the industry. One of the most expensive acquisitions in gaming history - the planned takeover of Activision Blizzard by Microsoft - is currently making waves. In 2022, a total of 43 acquisitions were made by the top 26 companies alone - fewer than in the previous year (60 transactions), but significantly more than before the pandemic: in 2019, only 16 transactions were counted.
In the transaction market, Europe's game studios are very active: almost half of the transactions made in the past four years (45%) came from European companies. The Swedish Embracer Group proved to be by far the most active in M&A, with a total of 47 transactions - ahead of Tencent (19) and Sony (13).
Weak share price development despite promising prospects
Despite all the success stories and opportunities offered by the industry, a look at developments in 2022 also shows that investors are not always in the mood to celebrate - stock prices are tumbling. In 2020, the top 26 publishers cracked the one trillion euro mark in stock market value, and were even able to increase this slightly to 1.1 trillion Euros in the following year. In 2022, however, the market capitalization of the companies fell by an average of 29% to 789 billion Euros - and was thus only slightly above the pre-pandemic level. Since the beginning of 2023, stock market prices have recovered somewhat overall.
"The gaming industry is at the intersection of the tech and end-consumer service industries; macro-economic tensions have not left these companies unscathed," says Holtmann of EY Parthenon. Despite all the tensions, however, he says the gaming industry remains very dynamic and the pandemic boom has put a lot of money in companies' coffers. "Providers are also increasingly relying on trends such as subscription models and in-app or in-game purchases, which make them less dependent on the sale of individual games." In addition, the mobile games market still offers considerable growth potential - especially with regard to new groups of buyers that have not been reached so far. It is also apparent that consumers are becoming more diverse; while three to four years ago it was mostly 25 to 35 year-old men who were interested in gaming, the average age has now risen and the proportion of female gamers has increased.