Ahead of the game

Video gaming today is a hundred-billion-dollar industry. And Asia, home to almost half of the world's gamers, has taken the reins from the developed world and is set to reshape the industry's future.

05 Sep 2018

From Pong to League of Legends: The story of a hundred-billion-dollar industry

The video games of today are very different from those of the 80s. The Baby Boomers and Gen X probably remember the days of Pong and Atari, when 8-bit graphics had everyone glued to their television sets. Fast forward to today, and people have left the living room and are gaming on the go with their mobile phones or even through virtual reality headsets.

In fact, the recently held Asian Games, which takes place every four years and is the second-largest multi-sport event behind the Olympics, marked a unique milestone in the history of competitive sports: eSports’ (explained below) debut in an internationally recognized sporting event. At the next Asian Games, to be held in 2022 in Hangzhou, China, eSports will be an official medal sport.

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Features interviews with industry leaders from Tencent, Huya, and Sea.

Asia’s gaming leadership to expand

The video game market is now a hundred-billion-dollar revenue industry, and its growth trajectory continues to point sharply upwards – especially in Asia, which has been growing by double digits over the past few years. In fact, despite a late start, Asia will become the biggest market for games revenue worldwide this year, with its growth outstripping even the explosive pace seen in the West over the recent decades.

Looking ahead, CIO expects revenues from video games in Asia to grow from USD 61.1bn in 2017 (source: Newzoo) to USD 200bn in 2030, an average annual growth rate of 9.5%, with a third of the gains driven by user growth and the rest by increased monetization per user.

UBS estimates Asia Pacific's video gaming revenues to reach USD 200bn by 2030

Source: Newzoo and Bloomberg Intelligence (2017), UBS Estimates (2030 estimates), as of August 2018

 

The strong video gaming culture in Asia Pacific is driven by the popularity of online and social games as well as a robust gaming ecosystem. This reflects the region’s high gaming penetration (gaming revenues/GDP), which is close to 0.25%, versus the global average of 0.16% and many other developed markets like the US ( 0.15%), UK (0.11%) and Switzerland (0.6%).

Asia has a high gaming penetration rate compared to the rest of the world

Source: Newzoo, World Bank, Bloomberg, IMF, UBS

Another exciting development is the growing popularity of eSports, the professional competition of video games, and its influence on entertainment spending habits. Asia is currently home to around half of the world’s 395m eSports fans, 60m of whom tuned in to watch the League of Legends World Championship in 2017.

 

The life of a professional gamer (2020–2080)

With 1.2 billion active gamers in APAC alone (source: Newzoo and Razer), one can only hypothesize about how the intersection of gaming and society will evolve over the coming decades. We’ve had some fun with this topic and tried to visualize such a future, by following the life of a professional gamer from her childhood to her twilight years.

Click the arrow to view the story.

 

Snapshot of Asia's video game industry

Asia Pacific is today at the top of the leaderboard in the global gaming market. Here are some interesting figures about Asia's gaming landscape that reflect this lead. 

Source: Frost & Sullivan, Newzoo, Razer, Bloomberg Intelligence, UBS

 

How can investors participate in Asia's gaming industry

The future of Asia’s gaming landscape is bright, but it’s not without risks and challenges. China’s recent regulatory delays in new game approvals show how governments are seeking to strike the right balance between the need to regulate and a conducive environment for new entertainment forms to thrive. In spite of the industry's vulnerability to earnings volatility around product cycles and game launches, the increasing recurrent nature of gaming revenues should lead to steady growth in the long term.

A combined market cap of more than USD 1trn for gaming and related companies (in Internet, software, hardware and semiconductor space) offers a diversified way to participate in the booming Asian gaming industry through regional and global companies, in CIO's view. In particular, Chinese internet gaming companies and US-based software and semiconductor companies stand to benefit due to their superior margins, whereas we see limited opportunities in gaming hardware companies due to their lower margins.

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A combination of paying user growth and higher average revenue per user should drive growth in the future for the China gaming industry.

Excerpt from interview with Stella Lui,
Director of Investor Relations, Tencent

To read the full interview, turn to page 12 of the report.

Download the report

Features interviews with industry leaders from Tencent, Huya, and Sea.

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