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Top 10 trends in the video games industry and 2021 insights

2020 was a big year for the video games industry. It saw innovation, collaboration, industry-shaping decisions and a shifting mindset towards how games are made and how they’re played. Now that we’ve had some time to digest all that happened, here are my top ten trends in the video games industry in 2020 and my thoughts on what we could see in 2021.

1. To subscribe or not to subscribe…

Over the last several years, game subscription services have become an increasingly popular business model – providing subscribers with instant access to a library of games, rewards, features and discounts for a relatively low monthly/annual fee. 2020 saw a lot of movement on this front with the launch of Amazon Luna, Project xCloud coming to Xbox Game Pass and EA Access/EA Origins combining and rebranding to EA Play. In September, Microsoft announced that its Game Pass service had over 15 million subscribers, a number that is set to increase as Microsoft continue to bolster the service with new titles, such as those from the newly acquired ZeniMax Media or from the recently announced EA Play integration.

Looking forward, it’s clear that subscription models will grow into an increasingly important part of the ecosystem for the industry. The focus in 2021 will be on how these services differentiate themselves – we already have Xbox Game Pass, PlayStation Now, EA Play, Ubisoft+, Amazon Luna, Google Stadia Pro and Apple Arcade to name a few and Sony have hinted that they will be taking action to compete with Xbox Game Pass. There will be competition for market share as this space matures and this is where content will be crucial – to ensure a service has the best value proposition for consumers. However, there is also increased regulatory scrutiny in this area with the ongoing CMA consumer law investigation into online subscription models, the results of which may have a major impact on the viability of this business model.

2. Increased publisher M&A activity

Last year saw some mega acquisitions by video game publishers. In September, Microsoft announced it would be acquiring ZeniMax Media – the parent company of beloved development studios such as Bethesda Game Studios (The Elder Scrolls, Fallout) and id Software (Doom, Quake) amongst others – for $7.5bn. This is one of the highest value acquisitions in the industry’s history. In November, the Embracer Group, parent company of THQ Nordic (Darksiders), acquired 12 new development studios as well as a specialist games PR firm and just weeks ago Electronic Arts announced its acquisition of the simulation racing game specialist studio, Codemasters (Formula 1, Dirt, Grid), for $1.2bn.

In 2021, it’s likely that consolidation will continue. In an interview with Reuters, Sony Interactive Entertainment CEO, Jim Ryan, hinted at the possibility of bolstering PlayStation Studios with some new acquisitions and during a Twitch livestream the head of Microsoft’s Xbox division, Phil Spencer, said “…in terms of continuing to invest in new studios and new games and new content, absolutely we have to do that…”. Furthermore, the relatively new players like Google (Stadia) and Amazon (Luna) are two cash-rich, mega-corporations with new services. Building up first party game portfolios will be crucial moving forwards, so we might well see more major acquisitions in 2021. That said, the sector has caught the eye or competition regulators in recent years and increased M&A activity may cause concerns about the market becoming more monopolistic. In fact, we expect to hear the European Commission’s ruling on the ZeniMax acquisition in early March.

3. A look at loot boxes

The debate on the inclusion of loot boxes in video games has been ongoing for several years, particularly in relation to whether loot box style mechanics amount to gambling and subsequently whether they should be regulated under gambling legislation. 2020 saw increased scrutiny on the topic with a House of Lords report calling for the immediate regulation of loot boxes and the UK government launching a consultation to understand how to approach the regulation of loot boxes in the UK. Other jurisdictions have already made their position clear. For example, a Dutch court sided with the Dutch gambling authority and fined Electronic Arts €10m for violating the country’s gambling legislation with its inclusion of loot box style mechanics in FIFA Ultimate Team.

Looking to 2021, the regulatory landscape is likely to change when the UK Committee releases their findings and recommendations following the consultation early in the year. Video game companies will likely need to rethink both how their games are designed and marketed, particularly to children or other vulnerable groups, and how their business model for monetising their video games will need to adapt. The danger of course, is that new regulations are heavy-handed and negatively impact the free-to-play model (which often utilises loot box style mechanics as its only revenue stream) or do not account for the nuances of microtransactions in games which are a different issue entirely.

4. Covid-19

As we know, 2020 has been a difficult and unpredictable year for the world. Whole industries have had to adapt to the new restrictions, many have had to implement ‘work from home’ schemes and trade shows/conventions were either cancelled or had to be held virtually. The games industry was no different and has been equally affected. The effects of the pandemic have been profound - games have been delayed, manufacturing for the next generation of consoles was disrupted leading to shortages and many companies were affected financially by the cancellations of trade shows/conventions, such as E3, Gamescom and EGX.

Despite the year’s challenges, it’s fair to say that the industry pulled through and managed to deliver a great year of games. This success, despite the pandemic, demonstrates the industry’s capabilities and will affect the way games are made and marketed going forward. Publishers have seen success with virtual press conferences, allowing them to reach consumers directly without the marketing spend that comes with attendance at events like E3 or Gamescom – which may become the new normal in 2021. Working from home can make game development difficult as the process is a truly collaborative one, but some companies have found great success with remote working – for example, Square Enix will allow most of its employees to work from home permanently from 2021. This is a great step for the industry as it allows for a more diverse workforce and provides more flexibility. Other companies may follow but the challenge in 2021 will be ensuring productivity and collaboration are not negatively impacted.

5. Esports

More and more people have turned to gaming as a form of entertainment during the pandemic and with the cancellation of many live sporting events, many turned to esports to fill the gap. Engagement with esports has certainly increased in 2020 during the pandemic as it was one of few industries that was able to quickly and somewhat smoothly transition to operating in a remote working environment. However, it has also highlighted issues and areas for improvement. Esports content can usually be accessed for free through platforms like Twitch. With the loss of live events, where tickets, merchandise, apparel and more could be sold, the question of sustainable revenue streams has been raised again by industry analysts.

For 2021, the industry will need to address the revenue question. The increased engagement with the industry and growth in areas such as esports betting are great and have been used to attract venture capital investment. But the big question for 2021 remains - will esports organisations be able to retain this audience and subsequently monetise them to create a consistent revenue stream? One route that has been the subject of much debate is whether premium subscription models could be implemented to provide subscribers with more options, higher resolution feeds or rewards for subscribing. The challenge will be providing value and ensuring that premium content doesn’t become the subject of piracy.

6. Up in the cloud

As technology advances, late 2019 and 2020 saw the industry exploring new ways of distributing and delivering content to consumers – namely via cloud-based gaming platforms. These platforms allow consumers to access top tier gaming content, seamlessly across multiple devices via streaming technology - meaning there’s no need to own a games console or high-end gaming PC. It began with Google Stadia in late 2019 and in 2020 we have seen the public launch of Nvidia’s GeForce Now, Microsoft’s Project xCloud and Amazon’s Luna platform.

Whilst cloud gaming has not become mainstream by any means in 2020, the potential is undeniable. There have been a few teething problems related to data caps, bandwidth and latency, but as the industry evolves, these kinks are likely to work themselves out. Indeed, there are already reports that Google Stadia is the best way to enjoy one of 2020’s biggest releases, Cyberpunk 2077 (unless you happen to own a very high end gaming PC), the PlayStation 4, and Xbox One versions of which were received poorly due to various performance issues/bugs. However, it remains to be seen as to whether consumers are ready for this shift with many preferring to buy physical games on the basis that they can own (even though the software is still only technically licensed to end users) and access a game forever (as long as they own the required hardware).

7. Cross industry collaboration

During the pandemic, we have seen more people than ever before turn to video games to keep them entertained and to stay in touch with friends and family. Consumption of video games and gaming content has skyrocketed in 2020 and the rest of the world has noticed. We’ve seen more traditional sports organisations getting involved with esports, politicians streaming games on Twitch drawing in huge audiences, artists collaborating with publishers on adverts and more Hollywood actors appearing as characters in games (and even helping produce them).

Gaming is quickly overtaking other forms of media as the most popular form of entertainment. In 2019, statistics showed that the video games industry generated more revenue globally than the film and music industry combined. It’s not surprising that high profile individuals and companies are becoming more active in the space, given the ever-increasing reach and influence of the industry and this trend will likely continue during 2021.

8. Games are for everyone

As mentioned earlier, more and more people have turned to gaming over the last year and that has brought increased scrutiny on accessibility options and representation in games to ensure that ‘games are for everyone’. There has already been a lot of great work in the industry on making games more accessible, but 2020 was a seminal year – highlighted by the fact that last year’s Game Awards introduced a new award for “innovation in accessibility”. 2020 also pushed forward on the representation front with titles like Spider-Man: Miles Morales which featured an Afro-Latino protagonist and Hades which portrayed the Greek Gods being from all different backgrounds. Titles like The Last of Us Part II and Tell Me Why included LGBTQ+ representation and indie games represented different cultures not often seen in video games such as Raji: an Ancient Epic, set in ancient India (an example particularly close to my heart, being of Indian heritage).

Key voices in the industry have been speaking up, championing accessibility and representation in games and 2020 has certainly progressed the cause. There is, of course, much more that can be done, particularly on a global scale where certain jurisdictions pose unique challenges in this area. I look forward to seeing how 2021 continues to build upon this and move us forward.

9. Console gaming is not dead

Back in in 2012/2013 the rise of smartphones and mobile gaming led to some analysts predicting that the collapse of the traditional console gaming market was imminent. Fast forward to 2020 which saw the release of the latest generation of games consoles from Sony and Microsoft with the PlayStation 5 and the Xbox Series X|S respectively. It is clear to say that traditional console gaming is not dead…at least not yet. Demand for these consoles was sky high. Due to the pandemic, manufacturing was impacted, and game executives were forced to put out statements warning consumers that supply will likely not meet demand. This led to one of the worst cases of ‘scalping’ the video games industry has seen. Several organisations utilised automated bots to quickly snatch up supplies of the consoles from online retailers only to resell them at highly inflated prices. The outcry from consumers did not go unnoticed by politicians who quickly launched a motion to outlaw the use of automated bots and games console scalping

What this situation demonstrates is that demand for physical games consoles still exists and is stronger than ever. While it’s clear that cloud-based gaming platforms have the potential to disrupt the traditional model in the future, I expect sales of physical consoles to continue in 2021, especially once manufacturing can ramp up and meet consumer demand.

10. Legal wrap-up for 2020

2020 also contained several key legal events which deserve to be highlighted. Most recently, development studio CD Projekt have found themselves the subject of a class action lawsuit from its investors following the launch of the highly anticipated Cyberpunk 2077. The lawsuit claims that the studio made false and misleading claims about the quality of the product and is expected to commence in 2021. Another extremely high-profile legal dispute occurred between Epic Games and Apple in August with the former challenging Apple's restrictions on apps from having in-app purchasing methods outside of the one offered by the App Store. In September, Nintendo was the subject of a class action consumer lawsuit in relation to Joy-Con drift. In March, a federal court in the US gave a landmark judgement on IP licensing in relation to a person’s likeness and its use in video games. In January Activision Blizzard clashed with content creators after it changed its policy on custom game maps in Warcraft 3.

These are just some examples of legal issues in the video games industry in 2020. It’s hard to predict what we’ll see next in 2021 but there will certainly be legal challenges going forward in areas like IP, gambling, competition, consumer law, data and many others.

Summary

And there we have it – my top 10 trends in the videogames industry in 2020 and my 2021 insights. It’s going to be an exciting year both from a commercial perspective and as a gamer myself. The effects of the pandemic, increased engagement from consumers as well as other industries and increasing government/regulatory scrutiny will bring some interesting changes as the industry continues to adapt and evolve in all sorts of ways. Of course, if you find yourself with any legal questions or you just want to talk video games please do get in touch with me or any other member of the CMS team. 

Authors

Rahul Gandhi
Rahul Gandhi
Associate
London