The Serious Business Of Gaming
Rick Gibson, CEO of the BGI takes us through this dynamic and influential industry
When it comes to gaming, the numbers don’t lie. The global gaming audience is estimated to include more than two billion people from all over the world, with a software market that is expected to grow from $137.9bn in 2018 to $180.1bn by the end of 2021. As for the UK, consumer spend on games reached a record £5.1bn in 2017. Rick Gibson, CEO of the BGI, and one of the UK’s biggest gaming champions, spoke to D/SRUPTION about this exciting growth – and the big business of games.
The creative expression of technology – with business bite
Games exemplify the intersection between technology and the arts. The fusion of cutting edge technical developments with stimulating creative content has kept the gaming industry at the forefront of innovation for the past few decades. As Rick Gibson notes, it is the very nature of games which keeps consumers coming back for more.
“Games have been at the spearhead of every new technology that has launched over the last 40 years. And the reason is: games are sticky, they are fun, and they are a brilliant way of showing why a consumer should upgrade to a new product. 60 to 70 per cent of our populations play games, so there’s a lot of momentum behind this industry.”
High quality content and the latest technology, then, is a winning combination for the gaming industry. Importantly, though, these successes have always filtered out into other business sectors.
“One of the wonderful things about games is that over 40 years, the craft and the techniques around games design, around games marketing, and around games monetisation have started to ripple out from niches inside the games industry,” says Gibson. “They have begun to impact a whole range of other industries that are looking for innovative ways to produce new products.”
The business model revolution
Of these transferable benefits, perhaps the most notable has been the evolution of business models. First appearing around 20 years ago in games, the Freemium model is now a stalwart of many businesses who provide services in everything from music streaming to email.
“Freemium was really pioneered by games companies a long time before Silicon Valley and cloud based companies started to experiment with it,” says Gibson. “Free to play now represents 89 per cent of all revenues on mobile and PC, that was $82bn worth of revenue in 2017.”
“Another major business model is gamification,” Gibson notes. “This involves applying the principles of games design – creating structured systems to help a person progress, and learn and be challenged, and then to increase their capacity for challenges and rewards – to other industries.”
“There’s some absolutely fantastic examples of gamification in business. It might be used in the automobile industry for example, encouraging people to drive more fuel efficiently, or in organisations, encouraging employees to be innovative and to share ideas. The games industry has got a lot to teach other sectors about the sheer variety of ways you can design products to tap into the near-individual desires and requirements of a customer.”
A storm in a virtual teacup
This focus on business models as the gaming industry’s most impactful transformation over the past few years may come as a surprise – especially when we have witnessed the development of gaming technology from the basic arcade games of the 1970s to the sophisticated graphics we can experience today. So what of these technological advances in gaming? The powerful consoles, internet connectivity, and – dare we say it – VR capabilities..? As far as the impact of VR is concerned, Gibson remains thoroughly unconvinced.
“There have been a couple of false storms recently for disruptive new technologies and platforms in gaming,” he says. “The first and most obvious of these is VR. It was massively over hyped, an investment bubble occurred, and unfortunately consumers are still taking a very long time to catch up to the demand that was projected for VR even a couple of years ago. While we’re pretty certain that VR will remain a useful market for console and PC games to have as an optional extra, VR now has projections which don’t show it hitting a mass market any time soon – if ever.”
VR therefore still has a lot to prove. The same can be said for its sister technology, augmented reality, which has struggled to gain traction in the gaming market in a consistent way.
“In augmented reality, you’ve got one behemoth in Pokémon Go, but no one else is remotely able to replicate that success,” Gibson says. “It’s a billion dollar franchise, but others are struggling to reach even two orders of magnitude below this.”
That said, the wheels of AR continue to turn behind the scenes, with some of the world’s largest technology companies beginning to make advances into the field.
“If you look at where the investment in AR is going,” says Gibson, “you have companies such as Facebook, Google, Magic Leap, Samsung and Intel all making bets that augmented reality is going to be the next big thing. Apple has been quietly buying up companies that can actually deliver augmented vision to visors, but obviously they haven’t yet released a product.”
“We are also seeing the two big mobile manufacturers, Apple and Google, pushing hard at their AR platforms – building them in to an increasingly large number of the mobile phones in our pockets. That penetration will hit 70 per cent by 2020.”
Such an influential industry clearly needs proper representation. The BGI was founded by Gibson to tackle some of the endemic challenges faced by the games sector in the UK. Comparable to other arts organisations such as the British Film Institute, the BGI aims to address such issues as diversity in the games industry, access to finance and skills for games companies, and the recognition of gaming as a valued part of the UK’s culture and economy.
This last point is crucial, since a lack of understanding around the opportunities in the gaming industry has typically led to its failure to be valued by private investors and government alike.
“We do have an investment community that puts money into games,” says Gibson. “In any given year it might number somewhere between 20 and 30 institutional investors. But of those there’s only a very small number who are sophisticated, i.e. who really know what they’re looking at, and of those there’s an even smaller number that will invest in content rather than platforms.”
“In 2011,” Gibson adds, “the government’s economists found that there was a market failure in access to finance for the creative industries. This is particularly acute for games companies, because when a games company walks into a high street bank or into a VC that’s never invested in games before, the vast majority fail to raise their capital. Only two per cent of games companies in the last survey I was involved with had successfully raised institutional finance. This is a market failure. There’s a deficit in understanding about the opportunities and the predictability of games company revenues amongst most institutional investors. We need to widen the circle for private investment into games.”
Encouraging private investment in the games industry accompanies the BGI’s efforts to increase government and publicly funded support in gaming. This goes hand in hand with the celebration of gaming as a creative medium within the wider arts sector.
“The arts sector is starting to wake up to the potential of a medium that reaches 94 per cent of under 25 year olds,” Gibson says. “Games provide access to a millennial audience that traditional arts organisations are struggling to reach. The BGI is doing a lot of work catalysing collaborations between arts organisations and games companies in order to exploit what we believe is not only a new art form in its own right, but also a fantastic way of reaching that critical audience for the future of all these arts organisations.”
Levelling up to the pace of change
At the heart of this conversation is the undeniable pace of change within gaming. Whilst this means that the gaming industry is always at the forefront of technological developments – and is therefore a useful yardstick for disruption more generally – it is difficult for many games companies to keep up.
“In this globalised industry, games companies have to make sure they stay up to speed with the latest techniques that are coming out of Asia or North America or Eastern Europe, or even just down the road in another games cluster in the UK,” says Gibson. “This is really challenging, because they are also trying to create these wonderful creative pieces of technology and then get them into a very congested marketplace.”
On the positive side, this dynamism within the market has seen games become the fastest growing creative medium in the UK today. The challenge, as Gibson notes, is to ensure that all companies have equal access to investment, and an equal chance to flourish.
“We have a threat, which is that if we can’t enable small companies, the most disruptive ones, often the most innovative ones, to grow and raise high risk capital and build the successes of tomorrow, then there’s going to be a break in the supply chain. There will be an interruption to the flow of high quality young companies that later stage institutional investors can invest in.”
For young games companies looking to make their mark, for investors and for the UK gaming industry as a whole, this is something to be wary of. With gaming traditionally leading the way in disruptive trends, the industry could provide a useful acid test for other business sectors. If the lucrative growth of gaming wasn’t enough to draw investors’ attention to the industry, this last point certainly is.
For more insights from our industry experts sign up to our free weekly newsletter.