[This ETF Industry Perspective is sponsored by MVIS.]
Upon the release in 1970 of the very first home video game console, the Magnavox Odyssey, few would have guessed that its arrival heralded the birth of an entirely new multibillion-dollar industry. And yet, humble and crude though its technology seems by today’s standards—it could only render three dots and a line—the Odyssey was nothing short of revolutionary. It presaged the introduction of Atari’s smash-hit Pong in 1973, which laid the foundation for increasingly advanced, user-friendly and powerful video games.
Today the video game and eSports (competitive video gaming) industry is an economic powerhouse. In 2017, video game industry revenues grew 10.7%—even faster than expected—reaching a staggering $116 billion. eSports, a still-nascent entertainment category, has been registering explosive growth—averaging 40% revenue growth per year since 2015—and is estimated to reach an audience of 380 million people worldwide in 2018.
A Rapid Rise
But what exactly are eSports, and what does their growth portend for the video game industry overall? Collectively, the term “eSports” refers to professional competitive gaming. Players can participate in contests for prize money (Kuro Takhasomi, the world’s highest-earning player, has already earned $3.5 million) and, increasingly, viewers are tuning in to follow their favorite gamers.
Although some of the first video game tournaments took place in the ’80s and ’90s, many consider the dawn of modern eSports to have been the 1997 Red Annihilation tournament for the first person shooter (FPS) “Quake,” where 2,000 participants competed for a Ferrari previously owned by the lead developer. Major League Gaming (MLG) launched in 2002, was the first gaming network to be broadcast on American television (a Halo II tournament, in 2006), and today is the largest and most successful gaming league in the world. A 2013 MLG tournament awarded gamers more than $170,000 in prizes.
Incredibly, the League of Legends 2014 world finals attracted more viewers than the deciding games of the MLB World Series, and NBA Finals. eSports received a further credibility boost in June 2018, with the International Olympic Committee’s announcement that it would host an eSports forum to examine whether or not the category might find a place in future Olympic games.
Clearly eSports are here to stay. Though still in its infancy, the eSports industry is growing at a breakneck pace, and it’s likely the sector will take in approximately $900 million in revenue in 2018, an astonishing 38% increase over 2017’s $655 million. By 2021, revenues could range as high as $1.65 billion. In the context of all of this growth, the future certainly looks bright for the video game and eSports markets, which are projected to reach as high as $143.5 billion in revenue by 2020, with mobile gaming accounting for $72.3 billion of the total.
Capturing The Space
Investors looking to measure this important, growing sector of the entertainment industry have limited choices. The MVIS Global Video Gaming and eSports Index (MVESPO) is based on MVIS’ unique pure-play concept, and as such, will only include companies generating 50% or more of revenues from video gaming and eSports, ensuring exposure to the target sector.
Although companies like Microsoft (Xbox) and Amazon (Twitch.tv) are both heavily involved in video games and eSports, they do not derive 50% or more of their revenue from these sources, and so would not be included. By using a modified market-cap weighting, the index also ensures that no single video game company dominates the index. The result is a portfolio of at least 25 companies, selected from a global universe of equity securities, representing companies with substantial exposure to the growing video game industry.
Although by some standards the video game and eSports industries remain in their nascent stages, it is clear that their momentum is likely to continue on an upward trajectory in the years to come. With strong demographics featuring a relatively young and affluent audience, eye-popping revenue growth, and growing acceptance and recognition beyond a niche audience, the future certainly looks bright for video games and eSports.
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