EY Survey Finds Video Gaming Industry at Tipping Point as New Competitive Pressures Intensify

While global video gaming revenues have almost doubled in the last five years, 70% of video game senior executives believe the next five years will be more challenging than the last, according to a new global EY survey.

The study indicates that the rapid growth and now mainstream appeal of video gaming heralds a new era of opportunities and challenges. Key among them, 68% of respondents say slower growth of new gamers will drive video gaming companies to seek alternative revenue streams. Meanwhile, new entrants continue to flood the market and 77% say an influx of new games and titles are increasing competitive pressures.

As businesses look to differentiate themselves in this highly competitive landscape, 45% of video gaming executive respondents say sales and marketing costs will rise by at least 10% over the next five years.

"While video game executives are optimistic about future industry revenues and the broadening popularity of video gaming, companies are now faced with unique market forces that they may not be prepared for,” says John Harrison, EY Global Media & Entertainment Sector Leader. “Following a decade of jackpot earnings, growth is set to be slower at a time when companies face rising risk, escalating content costs and new, disruptive business models. Executives are therefore feeling the pressure to evolve and find game-changing opportunities that will set them apart from the competition."

Overall, companies are becoming increasingly challenged to protect margins. Seventy-nine percent of executives believe that the costs of developing a great game experience are growing, and 42% anticipate that overall development costs will grow by at least 10% over the next five years.

The study finds that companies also face escalating personnel costs, as competition extends to the war for talent. Forty-two percent indicate that the cost of technical and creative talent is set to increase, while more than half (52%) say a shortage of development and technical talent will accelerate over the next five years. To offset this shortfall, 67% of executives expect the number of mergers and acquisitions to increase as they look to ease the talent shortage.

In an environment where maintaining trust is an imperative, video game executives further expect the costs of enhancing cybersecurity and regulatory compliance to grow. Following recent reports of cyber-related issues across the industry, 43% expect cybersecurity costs to grow by at least 10%.

The study unearths key trends and technologies that will define the future of video gaming. Sixty-three percent of executives agree that if major game companies do not offer consumers cloud-based games, they will be at a disadvantage in five years. Meanwhile, 70% believe video gaming companies will distribute most Triple-A games wirelessly through the cloud within five-to-ten years.

"As competition continues to intensify, cloud-based streaming is poised to be the next major video gaming disruptor,” says Scott Porter, Partner – Advisory Services, Ernst & Young LLP. “The advent of cloud gaming, especially when combined with the rollout of technologies such as 5G, represents more than just an opportunity for the industry – it's a strategic imperative. By seizing the opportunities to adopt the latest technologies, leading companies can prevail and potentially reverse the trend of slower growth."

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