The gaming space has been a relatively safe place for investors over the past few weeks. Since Feb. 24th, the Nasdaq is down 15.7%; in that same time period, the three major game publishers (Activision Blizzard, Electronic Arts, and Take-Two Interactive) are down an average of 3%.
With people largely confined to their homes, entertainment spending will shift towards services in the living room, including gaming, streaming services, and digital movie rentals. Game publishers are poised to benefit in a few different ways:
1. A temporary increase in time spent and consumer spending on gaming.
With consumers spending more time at home, we anticipate a transition in entertainment spending towards games and in-app purchases. We expect the increase in time spent on games along with the relatively low cost that they carry to drive spend on gaming and related services. Take, for example, Call of Duty Warzone, a free-to-play battle royale game published by Activision and released on March 10th. The game reached 6 million players in its first 24 hours, 15 million players by day 4, and 30 million players by day 10. By comparison, it took Apex Legends (Electronic Arts) 3 days to reach 10 million players and Fortnite took two weeks to reach 10 million players. According to Comcast, gaming downloads are up 50% generally and 80% during new releases since March 1st.
2. Accelerating the transition from physical game sales to digital downloads.
We estimate that about half of all AAA titles are sold as physical copies and half are sold as digital downloads. With gamers staying at home and avoiding trips to the store, the share of digital downloads is likely increasing. For consumers, the convenience of downloading games should accelerate the transition to nearly 100% digital downloads. This is good news for game publishers, as they earn higher margins on digital downloads, but bad news for retailers like GameStop, Walmart, Target, and Best Buy.
3. Esports is stealing the spotlight.
Most esports leagues have found ways to continue operating over the last few weeks, a benefit over other sports leagues that have suspended their seasons.
- League of Legends’ NA LCS and LEC temporarily suspended its season before resuming play online.
- The Call of Duty League shifted all scheduled events to online competitions.
- The Overwatch League canceled all March and April in-person events and moved matches online.
- The NBA 2K League postponed the start of the season but continued preseason competitions remotely.
Online competitions represent a rare opportunity for esports to steal the spotlight. Consider NBA 2K games replacing the NBA’s canceled games (and the associated telecasts), providing some relief for starved basketball fans.
While it’s still too early to tell the viewership impact, esports leagues are poised to benefit from less competition and more downtime for gamers. Esports is a massive growth opportunity for all three major publishers and the broader gaming ecosystem. The next few weeks should give the franchise leagues a boost in popularity.