The Future of the Global Gaming Industry: Opportunities Amid Industry Challenges

New BCG Report Highlights Shift in Gaming Industry Growth as it Slows to Single Digits from the Rapid 13% Annual Growth Seen Between 2016 and 2021

BOSTON, Dec. 12, 2024 /PRNewswire/ -- The gaming industry, once synonymous with double-digit growth, now finds itself at a crossroads. Rising interest rates, the return of players to offices and classrooms post pandemic, and high-profile games failing to meet expectations have fundamentally reshaped the gaming landscape. The industry now faces a cascade of challenges: project delays, significant layoffs, and even shuttered studios have become all too common.

According to new research by Boston Consulting Group (BCG), gaming industry revenue surged from $131 billion to $211 billion between 2017 and 2021, reflecting a compound annual growth rate (CAGR) of 13%. The report, titled Leveling Up: The 2024 Gaming Report, is based on interviews with industry executives and experts, as well as BCG's 2024 gaming survey. It reveals that the industry's momentum has since slowed significantly, with the CAGR dropping to just 1% between 2021 and 2023.

Single-digit growth is expected to persist, with industry revenues projected to reach $221 billion in 2024 and $266 billion by 2028, representing a CAGR of 5%. Revenue from advertising and mobile consumer spending will continue to grow faster than PC gaming and console revenues, which are expected to increase 2% and 3% respectively, over the same period. While slowing growth is concerning, the rapid rise in game development budgets is even more so. Costs are now outpacing revenues, with budgets for PC and console AAA games growing at a 6% CAGR from 2017 to 2022 and projected to accelerate to 8% CAGR from 2022 to 2028. Nearly all publishers interviewed expect budgets to rise in the foreseeable future.

"The gaming industry is at a pivotal moment, with everyone asking the same question, 'How do we regain momentum?'" said Ernesto Pagano, a BCG managing director and partner, the global leader of the firm's media work, and coauthor of the report. "While a groundbreaking innovation may shape the long-term future, the near-term path to growth lies in embracing new monetization strategies and reaching untapped markets and demographics. Although returning to pre-pandemic growth rates may be challenging, gaming remains the most immersive and enduring entertainment medium."

Costs Outpacing Revenue Is an Unsustainable Dynamic

The current gaming landscape highlights an industry where growth is slowing but which remains more vital than ever. To capitalize on new trends and drivers—and increase growth—the report recommends that developers consider the following steps:

• Embrace AI and automation for efficiency. Along with accelerating the creation of game assets, including level designs and character dialogue, GenAI can automate many of the repetitive tasks involved in game development such as playtesting, quality assurance, and localization. However, in interviews and surveys, many publishers said they don't expect to leverage GenAI efficiencies to lower the cost curve but rather to raise the revenue curve by steering the savings into more immersive and more differentiating games.
• Develop a subscription strategy. The beauty of subscription models is their emphasis on recurring revenue. Games as a service—whether for a single game or a portfolio of titles—can provide steady income beyond initial sales.
• Take a nuanced approach to price increases. Revenue growth through price increases can be tricky and controversial but may be inevitable. The goal should be to implement price increases gradually by offering premium versions, in-game add-ons such as battle passes and skins, and microtransactions (implemented in a transparent and trust-building way).
• Explore advertising. BCG's survey findings on ad perception support making ads a larger portion of the revenue mix, with developers introducing ad-supported models in traditionally ad-free game environments. The research projects that ad revenue can bring PC and console games $2 billion to $3 billion in incremental growth by 2028.
• Go direct-to-consumer. The research anticipates that more developers will seek ways to reduce their platform fees, which typically amount to 30% of a game's selling price. Emerging laws and regulations, such as the EU's Digital Markets Act, may provide support for direct-to-consumer distribution and payment methods.
• Monetizing emerging markets. According to the survey, 43% of gamers in emerging economies planned to increase their playing time in the future, compared with 19% of gamers in developed economies. To better monetize large but emerging economies such as China and Latin America, publishers need to expand payment options, align pricing with willingness to pay, and partner with alternative payment providers.
• Focus on untapped demographics. Older adults and young children are two promising segments for growth. These generations often play together so while publishers can find value by appealing to specific demographics, they can also spark growth by focusing on the intersection points.

"The gaming industry is navigating a new playing field with shifting rules. Double-digit growth is no longer guaranteed, and bigger bets now come with bigger risks," said Giorgo Paizanis, a BCG partner and coauthor of the report. "The levers for growth are still there but they've evolved. Companies that think creatively and move swiftly will discover that success remains achievable."

Download the publication here:
https://www.bcg.com/publications/2024/leveling-up-new-reality

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SOURCE Boston Consulting Group (BCG)