Four themes that affect you, no matter what kind of games company you are

Even without the disruptive events of the Covid-19 pandemic, Russia’s invasion of Ukraine, and the cost-of-living crisis, navigating the constantly evolving business dynamics in the games industry has never been easy. The macro, socioeconomic, and geopolitical turmoil of recent years has catalysed disruption and change further. Piling the implications of each extenuating event on top of the already complicated, pre-existing consumer and value chain challenges creates a hard to navigate strategic jungle for publishers and developers.

Every new event seems to require a review of impacts on business models and a quick adaption to whatever ‘new normal’ we are being confronted with. A cynic could say that the only certainty for business executives in recent years has been living in a sense of constant uncertainty. The resulting necessary and ongoing short-term strategic deliberations and re-evaluations required risk diluting the long-term focus of games companies at the cost of fighting short-term fires.

The more that real-world issues develop, the more difficult it becomes for games and entertainment companies to cut through the noise and identify which trends to actually pay attention to, which to ignore, and which to prioritise in terms of product, marketing, and sales strategy.

The good thing is that one of MIDiA’s key mantras is to ‘be helpful’. So, to help cut through the clutter, here are four themes that games companies need to pay attention to regardless of their size or the type of games they make.

Of course, the way to think about each of those themes and the way to action them will be unique to each company. MIDiA Research has been and will continue to focus on these themes in 2023. Understanding them is crucial to the long-term success of games companies, as and when the short-term socio and macroeconomic dust settles.

1.     The cost-of-living crisis and the saturated attention economy

The cost-of-living crisis will inevitably see the growth of games spending slow down. However, not all parts of the industry are affected equally. On one side, inflation, high interest rates, and the cost of living make it harder for consumers to part with large sums of money at once - not so good for sales of traditional premium games. On the other hand, the rise of games subscription services is acting as a value booster for consumers who were traditionally accustomed to high per-unit price points. If they used to spend 150 dollars per year to access two or three AAA games, the fact that they can now access more than a hundred games for the same price might convince consumers about the improving value exchange. Free-to-play games with in-game purchases may feel the shocks of the cost-of-living crisis less drastically. However, that side of the industry has its own problem to deal with – being increasingly commercially dependent on time spent – a metric that is increasingly difficult to grow in the saturated attention economy. The dynamics regarding time spent and cost of living are detailed in the following MIDiA reports.

Attention inflation – How multitasking is reshaping the attention economy

Games consumption – Time spent takes centre stage

Entertainment and the Recession – How it will be impacted and how it should respond

Attention Economy – Reasons, not ways to spend attention

2.     The generational bifurcation of gamers

Understanding why consumers want something can often be more valuable than understanding what they want. Henry Ford supposedly once said, “If I had asked people what they wanted, they would have said faster horses.”

 Intuitively, the games industry knows that not all gamers are equal – but often the distinction and analysis between gamer segments is based on the degree of gamers’ engagement, spending, expertise, and enthusiasm. (e.g., ‘casual’ versus ‘hardcore’ gamers). However, there is now arguably an even more important way to look at gamers.  It is not necessarily only about how much they play or what games they play, but most importantly why they play. While the intuitive answer is ‘to have fun’, MIDiA has been diving further into this. Indeed, we are seeing a branching of gamers into two fundamentally different routes largely correlating to age brackets (and the technologies with which these segments grew up with). Older gamers are more likely to play to satisfy escapism, relaxation, and ‘me time’ needs. On the other hand, younger gamers’ key reasons for playing are the stark opposite –socialising and meeting new people being key reasons. This trend will dictate a significant amount of consumer, product and business dynamics in the games industry of today. We have detailed this in a report titled: Profiling single-player versus multiplayer gamers – A generational changing of the guard

3.     The growing need for self-expression in digital

Consumers are spending an increasing share of their lives in the digital environment. With that, their need to self-express and define their image in digital is growing stronger than ever before. This consumer need is the core driving force behind the growth of cosmetic in-game spending and increasing time spent in games.

The only two places in the digital world, where defining image and identity is currently possible, are games and social media. This is because of the interactive nature of both environments.

MIDiA’s Games cultural relevance in the 2020s report dives into the battle for cultural relevance which is about to unfold between games and social media.

Though parts of the games industry still stigmatise in-game purchasing, it is a fundamental part of a successful and sustainable growth formula for games companies. Not just from the commercial point of view but also for the sake of satisfying expectations of next-gen gamers in the mid to long-term.

As the in-game spending pendulum swings from progress-related to cosmetics, it will no longer be something that alienates consumers. Rather, it is something that consumers are becoming proud of spending on as part of their identity – similarly to how consumers perceived clothes or car brands in the 90s. In the future, it is likely that if a game does not offer premium cosmetic items, it will run the risk of falling short of gamers’ expectations rather than alienating them. This report, titled, Tipping point: How in-game spending will eat the games world details the why’s and how’s on the topic.

4.     The tectonic shifts in the distribution landscape

Crudely speaking, a key consumer problem to solve for generations before digital natives was how to ‘own more to enjoy more.’ That problem was solved for the digital natives in the form of turning on the all-you-can-eat approach to content propositions (streaming, subscription models, etc.). With the ‘ownership problem’ solved, a new problem arose for the digitally native generations: now that you can own (or access) everything, how do you navigate through the content overload to make the right decisions and choices efficiently?

That is a completely different consumption (and therefore distribution) problem than the one which traditional distributors were originally set up to solve. The key added value of distributors is no longer to provide consumers with access to games, it is to help them find the games they will love the most without having to spend too much of their increasingly precious time . The winners of the distribution wars will be those who can address this problem and help consumers with their increasing need for ‘digital decluttering.’ MIDiA’s upcoming April report, ‘Profiling Steam’s weekly active users’, will shine greater light on this topic.

If you would like to discuss the impact of these themes on your business case and explore the opportunities and pitfalls that stem from all this for you, let us know.

We are here to help!