Today is a good time to be in business if you are a games developer or publisher. Electronic Arts, the company behind popular titles like Madden and FIFA, has seen its stock price rise by 25% between January 2020 and the end of June 2020. Enjoying similar growth, Take Two Interactive, the company that publishes Grand Theft Auto, saw its share price rise by 18% in the same period.
The share prices of these companies reflect the current state of the market, as they’ve enjoyed huge sales growth both in the first half of 2020 and in the preceding few years. Some sectors of the video games industry have seen downloads of their titles increase by 30% in the first few months of 2020, while the market as a whole grew by 17%.
This growth is not a fluke or a short term spike. In the whole of 2019, video game downloads increased by 150%, while revenues grew by 18% between 2017 and 2018 in the United States alone.
The industry is strong right across the board. The console market is set for a huge boon when the PlayStation 5 and Xbox One Series X are released in Q4, while the mobile gaming market is seeing record numbers of downloads thanks to popular free-to-play titles like Call of Duty: Mobile. The online casino market is also going from strength to strength with games like online roulette and blackjack proving popular. It’s expected to reach €20 billion of revenue in Europe alone this year.
So, it’s clear the video games industry is enjoying a rosy trading environment, even while other areas of the economy are suffering from slowdowns. Is this sustainable though? Are we likely to see another video game crash?
The First Video Game Crash
The video games industry has enjoyed strong growth before. In the 1970s and 1980s, video games were a relatively new concept, with many describing the period before 1982 as the “golden age of video gaming”.
A report from Goldman Sachs in 1983 claimed that demand for video games had increased by 100% in that year, a figure that’s similar to what we see today.
To meet this growing demand, existing companies like Atari, Activision, Vectrex, and Intellivision all began pumping out more and more consoles and games. At the same time, home computers were becoming accessible to the general public, providing another platform for people to play video games on at home.
Despite huge demand, the market became flooded with both high and poor-quality games, with most consumers being put off by the hit and miss nature of titles released at the time. The market contracted heavily and still hasn’t reached the same level of inflation-adjusted sales when compared to 1982.
Are We Witnessing Another Video Game Crash?
With growth above 100% in 2019 and similar download figures expected in 2020, are we in another video game bubble? Well, there’s no way of knowing for certain until after the event, but it seems a lot less likely than it did in the early ’80s.
The market is much more mature, and the quality of games is much higher than it was in the 1980s. There’s no saturation of hardware; in fact, most console manufacturers usually struggle to meet demand, or intentionally restrict supply for their devices when they first launch, creating the perception that they’re in much more demand than they actually are.
Free-to-play games are also driving a lot of the most recent growth. These have appealed to a new segment of the market, known in the industry as casual gamers. These are people who enjoy playing games for shorter periods of time, often from their smartphone, and don’t usually want to pay for games upfront.
There is a flood of lower-quality games available to download in both the Apple App Store and the Google Play Store, but these can be ignored by consumers and the rating and review systems help to distinguish the good from the bad.
Many lessons have been learned since the crash of 1983, so we are unlikely to see a direct repeat of that. If there is to be a decline in the market, it likely won’t be as severe, but predicting if and when a crash will occur is near impossible.