Quick Take: Regulation and war are leading the global games industry's trajectory to diverge

Over the last few years, the traditional unit sales-based model in games has been increasingly moving towards engagement-led models. In other words, we are moving away from costly price points to buy complete games – instead the industry is turning towards a set-up, where access to games is more commoditised, with engagement and fandom becoming the key ways to monetise (e.g., Fortnite).

Games (with their own nuances and caveats) have been going through a similar shift towards engagement monetisation to what video and music went through with streaming.

The engagement-led model certainly provides new opportunities to capitalise on key global consumption trends (e.g., consumers spending more of their life in digital environments, strengthening their need to express via digital engagement and purchasing decisions). It can provide more longevity and lifetime value for games titles.

However, geopolitical developments in some key markets in the eastern hemisphere are putting a stall on this transition.

China has been tightening its regulation through directly curbing engagement of users (Minors can only game on weekends and for only one hour per day). This type of limitation fundamentally hinders the potential of engagement-led business models because there is a legally imposed limit on the growth of the KPI in one of the largest games markets in the world.

Meanwhile, after Russia invaded Ukraine, key games companies have started leaving its $3.4 billion market. This includes, but is not limited to, Supercell, Microsoft, Take-Two Interactive, Ubisoft, Electronic Arts, Activision Blizzard, Nintendo, and Twitch – all in one way or another curbing their activities in Russia.

The efforts by games companies to do the right thing are commendable. One of many implications, however, is that all of these moves (be it not accepting payment in Rubles by Nintendo, or Twitch streamers no longer able to receive payments) go directly against the growth of the engagement-led business model in Russia. While some of these companies are going full steam ahead towards engagement-led business models globally (e.g. Xbox or EA), they will now need to stall the progress of this transition in the eastern hemisphere. 

As regulation in China intensifies and western companies increasingly pull out of Russia, the games industry’s once globally intended transition towards engagement-led business models will likely split into two parallel approaches: A more engagement-led approach in the West, and a more unit sales led approach in the East.