The gaming industry is a quickly developing entertainment segment which was able to gain a revenue of $184 billion in 2022. This high revenue shows the profitability of the industry and the rising demand of the different games. The PESTLE analysis of Gaming Industry determines the impact external environment factors on the industry and the subsequent effect of its growth and profits.
Background and Introduction
The gaming industry refers to the development, production, and distribution of video games. It is a multibillion-dollar industry that has experienced tremendous growth over the past few decades.
The origins of the gaming industry can be traced back to the 1970s when the first video games were created. These games were simple and consisted of basic graphics and gameplay. They were primarily played in arcades or on home consoles like the Atari 2600.
As technology improved, so did the video game industry. The 1980s saw the rise of home computer gaming and the development of classic games like Super Mario Bros. and The Legend of Zelda. In the 1990s, video game consoles like the Nintendo 64 and the PlayStation were introduced, leading to a new era of 3D gaming.
The 2000s brought about the rise of online gaming, with the introduction of games like World of Warcraft and the emergence of mobile gaming with the advent of smartphones.
Today, the gaming industry is a massive global phenomenon with billions of players around the world. It encompasses a wide range of platforms, including consoles, PCs, mobile devices, and virtual reality, and offers a vast array of genres, from action and adventure to sports and simulation.
The industry has also become a significant contributor to the global economy, generating billions of dollars in revenue and providing employment opportunities to millions of people worldwide.
Gaming Industry Information
| egory | Information |
|---|---|
| Global Gaming Market Size | $152.1 billion in 2019, projected to reach $196.0 billion by 2022 |
| Largest Gaming Market | Asia Pacific |
| Top Game Genres | Action, Sports, Shooter, Role-playing, Adventure |
| Popular Gaming Platforms | PC, Mobile, Console |
| Major Gaming Companies | Tencent, Sony, Microsoft, Apple, Google |
| Esports Market Size | $1.1 billion in 2019, projected to reach $1.8 billion by 2022 |
| Most Popular Esports Games | League of Legends, Dota 2, CS:GO, Fortnite, Overwatch |
| Number of Gamers Worldwide | 2.7 billion in 2020 |
| Gender Distribution of Gamers | 41% female, 59% male |
| Average Age of Gamers | 35 years old |
Major Players in Gaming Industry
The gaming industry has many major players, ranging from large corporations to independent developers. Here are some of the most significant players:
- Microsoft: Microsoft is the developer of the Xbox gaming console, which is a major competitor to Sony’s PlayStation.
- Sony: Sony is the developer of the PlayStation gaming console, which has been very successful in the gaming industry.
- Nintendo: Nintendo is the developer of the Nintendo Switch, which is a popular hybrid console that can be used both as a portable device and a home console.
- Electronic Arts (EA): EA is one of the largest video game companies in the world and is responsible for developing many popular game franchises, including Madden NFL, FIFA, and The Sims.
- Activision Blizzard: Activision Blizzard is another major video game company that is responsible for developing popular franchises such as Call of Duty, World of Warcraft, and Candy Crush.
- Ubisoft: Ubisoft is a French video game company that is responsible for developing popular franchises such as Assassin’s Creed, Far Cry, and Tom Clancy’s Rainbow Six.
- Epic Games: Epic Games is the developer of the popular game Fortnite, which has become a cultural phenomenon and one of the most played games in the world.
- Valve: Valve is the developer of the popular PC gaming platform, Steam, which is used by millions of gamers around the world.
- Tencent: Tencent is a Chinese conglomerate that has invested heavily in the gaming industry and owns stakes in many major game companies, including Epic Games, Riot Games, and Activision Blizzard.
- Google: Google is the developer of Stadia, a cloud gaming platform that allows players to play games on any device with an internet connection.
Political Factors
The political factors affect the gaming industry different than the other product based segments. Some of the games that are closely linked to geo-political conflict themes have come under intense criticism. Six Days in Fallujah was one such game that was inspired out of a real life war scenario and the opponents were pushing the authorities to impose ban on the game.
The troubled trading relations between US-China have negatively affected the console segment as the US government was considering to apply a tariff of 25% on the gaming products. The high tariff would inevitably add up to the cost of the product which is likely to result in a higher price of PS5 and Xbox (Hall, 2020).
Political crisis can create a high risk situation for the people employed in the gaming industry and the sales drop as well. People are more focused on survival and entertainment becomes a secondary preference. Management also refrains from marketing of the gaming products under such crisis. Russian invasion of Ukraine has resulted in significant decline in the mobile games.
Economic Factors
The economic factors are likely to effect the buying power of the people. Inflation and income are two of the main components that are analyzed by the consumers before making a decision to spend on entertainment. However, there are different points of view about the way inflation influences the gaming sector.
One perspective suggests that the gaming industry will not be effected by inflation. Since the industry includes low cost mobile games to the high cost gaming consoles, people would continue to invest in the products that are in accordance to their financial constraints. There is a low probability of the industry facing significant decline.
Another point of view indicates that economic slowdown and inflation would create a decrease in consumer spending. Browne (2023) has stated that the domain of discretionary purchases is effected when the financial situation is turbulent. The mobile game segment has observed 5% lower consumer spending, which is linked with increased prices and inflation.
Social Factors
The gaming industry has taken over the world as an alternate source of entertainment, as people have shifted from movies as a source of entertainment to games. From the early version of consoles to the advanced Xbox and PS and online games, the industry has developed over the years as the demand increased.
COVID has significantly contributed to the users engaged in mobile, console and PC games. Due to pandemic government has imposed restrictions on the social interaction and the social isolation increased. In order to deal with the effect of pandemic induced isolation, people sought different entertainment sources, games being one of them.
The domain of live stream gaming had benefited from the lockdown as there was more than 80% hike in the viewership. The gaming industry also experienced a boom within the academic arena as instructors incorporated game based teaching for increasing the student engagement and attention during the online classes (Skwarczek, 2021).
Technological Factors
Technology have driven the fast growth of the gaming industry, as the games evolved from entertainment devices to consoles and online gaming options. Artificial Intelligence is at the core of the evolution of the industry. Tools like ChatGPT offer multiple uses as it would allow the developers to understand the dynamics of the gamers and improve the user experience (Connor, 2023).
3D graphics has also helped the gaming industry to move forward. The quality of graphics in the recent games has tremendously improved due to the technology development. Technology has also revolutionized the concept of gaming with the addition of Virtual Reality (VR). The VR sector is expected to reach $53.44 billion in 2028 from $7.92 billion in 2021.
Furthermore, cloud technology has allowed the companies in the sector to utilize the digital space and reduced the need of physical storage systems. The players can access the games from portable devices which adds to the ease of the consumers, this encouraging them to consider games as a favorable source of entertainment.
Legal Factors
The intellectual property and copyright laws are applicable in the gaming industry. The games developed are protected under these laws on the basis of software, sound and game content as a reflection of artistic expression. The developers can’t copy these themes from their rival companies as it would be a violation of IP laws.
Rating needs to be displayed on the games that have violent theme such as games based on war, under the guidance issued from The Entertainment Software Rating Board. The retailers and distributors of gadgets used in gaming refrain from supporting those companies that are not displaying rating.
Consumer rights are also an important area of consideration for the legal factors of the gaming industry. When a retailer sells a game that has some defect, the consumer has the right to ask for a replacement or a refund. The seller is liable to follow with the refund demand if there is a defect in the game.
Environmental Factors
The gaming companies that are involved in the manufacturing of gadgets for the games have to focus on reducing their emissions and environmental harm. The mobile games have a lower impact on the environment though as compared to the gadget based games. The gadgets manufacturing causes emissions and the used gadgets add to the wastage.
Gaming industry can play a positive role in environment protection by engaging in the recycling of used consoles, headsets and other devices. Moreover, through the games, companies can create awareness among the people about the hazards of climate change and the ways they can contribute in environmental protection.
Conclusion
The gaming industry is operating in a favorable environment which is supported by technological advancements. The rising trend of games as a source of entertainment has also supported the industry to grow, along with the pandemic resulting in higher consumer demand.
References
- Browne, R. (2023). Global spending on mobile games falls 5% as high inflation causes market to cool. CNBC. Retrieved from: https://www.cnbc.com/2023/01/11/mobile-game-spending-drops-5percent-as-inflation-causes-market-to-cool.htmlConnor, J. (2023). Gaming companies rush to invest in AI that will change gaming forever. Tweak Town. Retrieved from: https://www.tweaktown.com/news/90771/gaming-companies-rush-to-invest-in-ai-that-will-change-forever/index.html
- Hall, C. (2020). US-China trade agreement lowers the cost of next-gen consoles, but not board games. Polygon. Retrieved from: https://www.polygon.com/2020/1/27/21083595/china-tariffs-next-gen-console-price-board-games
- Skwarczek, B. (2021). How The Gaming Industry Has Leveled Up During The Pandemic. Forbes. Retrieved from: https://www.forbes.com/sites/forbestechcouncil/2021/06/17/how-the-gaming-industry-has-leveled-up-during-the-pandemic/?sh=53864073297c