Going up through the levels: what’s next for the UK video games industry?

17 December 2019

Video games are everywhere. And that’s not just because we’re in the run-up to Christmas. The global market for video games and e-sports is surging: it hit £91bn in revenues last year and is on course to reach £125bn by 2023.

With a healthy £4bn share of that total in 2018, UK consumers are clearly enjoying playing as well. However, this also somewhat under-plays the value of the UK in terms of its overall contribution to the video games industry (in terms of original content, game development, and technical talent). And there are some outstanding opportunities for the UK to go up through even more levels in 2020 and beyond. Our latest Entertainment & Media Outlook points to UK revenues of more than £5.4bn by 2023 – provided a few looming obstacles can be addressed, not least around regulation and consumption trends. 

It’s a massive multiplayer world

Driven by new digital platforms, mobile stores, and cloud-based distribution, games are being produced and played all over the world – by anyone, anytime, anywhere. That means we’ve got a highly competitive video games marketplace, with the UK competing against other international markets. And it’s driving the creation of new, exciting video content.

Alongside extraordinary breakthroughs in graphic fidelity, the whole pace of innovation is accelerating. Whether that’s new consoles/ devices, developments in AR/VR, it’s all helping to cut through the noise from other types of leisure activities competing for users’ attention.

Meanwhile, on the demand side, you’ve got a growing population eager to play. And it’s a long way from the old stereotypes. Look at gaming demographics, and the gender mix now isn’t far off 50/50. That’s a far broader target market to aim for.

The battleground for this new generation of gamers is set to be mobile app gaming. Mobile already accounts for much of the growth we’re seeing. And with the advent of 5G – in the UK, and worldwide – we’re on the brink of a real leap forward in the whole mobile gaming experience, in terms of the quality of streaming, interactions and more. 

Expect to see multiple games companies targeting these new opportunities. Growth in digital platforms means the whole process of developing and distributing games has been democratised. We now have a long tail of indie games catering to a whole range of niche interests. They’re coexisting with the “AAA” game franchises that are now almost like Hollywood production houses in terms of their development spend and marketing budgets. 

Destination UK

On top of these global trends, some home-grown supply and demand factors are contributing to exceptional growth in the UK. The country has an outstanding reputation for developing top-class video games, with strength in depth across the UK (in the North, Midlands, and the South all fostering strong developer ecosystems).

Companies are capitalising on that heritage to attract investment. We’ve seen Private Equity investment in the sector, and we’ve seen a number of successful IPOs, many delivering attractive returns. And that financial momentum shows few signs of slacking. In recent weeks, we’ve seen UK and US investors committing another £100 million in sell-downs and acquisition finance.

There are now over 2,200 gaming companies in the UK and, thanks to the UK’s strong gaming heritage, they’re attracting some of the best talent available anywhere in the world. And crucially for the sustainability of the UK industry, there’s more skilled talent coming on stream all the time, with over 230 games-related courses now on offer

And, of course, government support has played an important role too. Available to qualifying companies since 2014, Video Games Tax Relief (VGTR) has directly supported the funding / development of a number of video games, which may have otherwise been developed outside of the UK potentially.

Challenges ahead

So it’s a huge and growing global market and the UK remains a cornerstone of the industry. But what about challenges ahead? One of these – ‘loot boxes’ – is fast becoming a focus at the global level, with a likely trickle-down regulatory impact for the UK. 

It’s the gambling connotations accompanying loot boxes (and the microtransactions that go with them) that cause concern. We’ve already seen some markets introduce restrictions to limit their use and we may see UK regulators explore this further.

Another area, in the context of under-18s, is how long people should be playing these games. They’re very immersive experiences (rapidly becoming even more so) and we’re hearing more arguments in favour of controlling usage. Overseas, China has recently introduced curfews on under-18s to curb consumption. This is likely to be a theme which will continue to be debated globally and locally.

Looking ahead, continued growth for the UK industry seems assured. But with increasing regulatory scrutiny, that growth needs to be responsible. And the emphasis on responsibility will only increase as big new players (like Google and Apple) enter the market, adding to calls for greater oversight and user protection.

Navigating the future

It’s an incredibly fast-moving market and companies stand still at their peril. Along with responsibility, they need to be focused on agility, the impact of 5G and opportunities from new digital platforms. If you have any questions, I’d love to hear from you.  

 

Dan Bunyan |  Director, PwC Strategy&
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