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State of Games: What happens to the industry when the pandemic is over?

Newzoo's Candice Mudrick explores the impact of COVID-19 on cloud gaming and other platforms, and forecasts what comes next

The myriad ways the coronavirus pandemic has affected the games industry has been well documented throughout the past few months. But less has been said about what happens when the world returns to whatever form of normality follows.

During our recent State of Games event, Newzoo's head of market analysis Candice Mudrick explored the implications of the spikes and changes seen in the games industry since the pandemic first spread.

First of all, she explained that the pandemic has "accelerated a lot of trends but not necessarily changed them," indicating that much of these shifts were already at play in the industry.

A look at rising games revenues

When Newzoo compared its 2020 revenue forecasts from January to revised predictions in June, there was a $2.2 billion increase -- much of which is expected from the mobile industry.

This is not just due to the low barrier of entry, but also changes in key markets across Asia. As PC and internet cafés closed in that part of the world, spending shifted to mobile.

Console and PC saw growth in revenue, although Mudrick said there have been "warning signs" in the console space with the delay of key titles like The Last of Us: Part 2 and -- since our State of Games event -- Halo Infinite.

Mudrick shared her company's latest estimations for the global games market valuation, which predicts the industry will be worth $159.7 billion in 2020 -- up 9.3% on last year.

Newzoo's Global Games Market Valuation 2020

Newzoo's Global Games Market Valuation 2020

Almost half of that is attributable to the mobile market, which is expected to grow to 2.5 billion players this year.

Newzoo predicts the total number of games players will grow to around three billion by 2023, thanks in no small part to the expected growth of emerging markets, such as the Middle East and Africa.

How "sticky" is gaming?

Mudrick spent a chunk of her talk discussing the "stickiness" of games as a hobby in relation to the pandemic. With a surge of new or more active players, how many are likely to continue gaming when life returns to normal?

Newzoo predicts that PC and console will prove to be the most sticky -- if only due to the upfront investment. People who picked up new devices ahead of or during lockdown are likely to keep them. In the PC space in particular, the growing awareness of the value in having a work setup at home will ensure they become a permanent fixture.

Mobile will be sticky in its own way; thanks to the lower barrier for entry and access, it's been easier for people to get into mobile games than any other form. Mudrick predicted that, since it could still be a year or so before things go back to normal, that's when people are more likely to reduce the amount of time spent on hobbies picked up during lockdown, including mobile games.

The hypercasual genre has been a particularly strong driver in player growth, but Mudrick noted these games have "notorious problems with retention," decreasing their stickiness and making them likely to be among the games dropped by people returning to work.

Cloud services are on the rise, but lack stickiness

candice

Candice Mudrick, Newzoo

Mudrick noted that all cloud gaming service providers Newzoo has spoken to reported increases in both engagement and interest during the lockdown period so far.

"This is not really surprising," she said. "I've personally been a big believer in cloud gaming being here for the long term, and what we've seen is that COVID has accelerated the awareness and interest in cloud gaming. If you don't necessarily have a few hundred dollars to invest in a console, or a few thousand to invest in a PC, lapsed gamers can see cloud as a way of getting back into the hobby without making that investment.

"But at the same time, it being a monthly subscription and the fact it's easy to enter also means it's easy to exit, so we do not expect the stickiness to be as strong for cloud once life resumes."

Murdick expects cloud to be a key pillar of the next console generation, noting that Microsoft's combination of Game Pass and xCloud is a "really strong proposition in terms of value."

Publishing will change

On a related note, Mudrick predicted the role of the publisher will go through drastic changes. This is more likely to be driven by the shift to cloud gaming and subscriptions than the pandemic, although lockdown has accelerated this shift.

"The publisher power in the traditional role has been weakened," she said. "They used to be focused on distribution, sales, marketing and PR, maybe investment and providing funds. But now everything is about content. Content is king, the IP is king."

"The fact it's easy to enter also means it's easy to exit, so we do not expect the stickiness to be as strong for cloud once life resumes.""

The publisher role, she said, is evolving. While the top-tier publishers will continue to be distributors and sometimes platforms in their own right, smaller and more localised publishers will need to "think about their business offering and the value they bring to developers."

"Without the direct relationship with the consumer in a world where that's handled through the subscription or cloud gaming service, there will be a change to how publishers operate," Mudrick said. "And potentially some publishers may disappear. The definition of what is a publisher is evolving."

Games have become social spaces

This, arguably, has already been seen with the rise of titles like Fortnite, but Mudrick notes the pandemic has accelerated the use of video games for socialising.

Following a rise in gaming activity, a Newzoo study in April asked players the main reasons they were playing more since lockdown began. The main reason was because an increase in free time, but the need to socialise was also high on the list
-- something Mudrick said goes "hand-in-hand with one of the biggest trends we've seen in games recently."

"Games have become the new social media and the new way for people to connect, especially among the younger generation," she said. "COVID accelerated this trend in many ways."

This can particularly be seen with the success of Animal Crossing: New Horizons, she added -- a game that has almost doubled the sales of the series' previous best-seller.

"There were numerous instances of people simulating real-life events in Animal Crossing, like people having weddings, funerals and graduations in the absence of physical events," she said. "While Animal Crossing is a popular franchise, it wouldn't have reached the same height without COVID."

Similarly, sports simulators have seen a boost in play time due to the absence of the real thing, with video games being the only way for people to enjoy that hobby.

You can watch the whole session here:

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