Cover Story: The business of gaming will reshape marketing, technology

Within three days of its release date on October 28 this year, Call of Duty Modern Warfare II generated US$800 million in sales. Don’t blink, you read that correctly; three days.

Not a bad 72-hour return for Activision, the game’s developer, and part of Activision Blizzard which Microsoft bought (subject to regulatory approval) earlier this year for $68 billion. 

But the most extraordinary thing about that extraordinary number is that it’s not even the best three-day revenue performance in the world of gaming.

That honour falls to Grand Theft Auto 5, launched on September 17, 2013, which cracked a billion dollars in sales by its third day, and $815 million in the first 24 hours.

With over three billion consumers around the world and revenues of $184 billion, the global gaming industry dwarfs traditional forms of entertainment. By contrast, in 2021 the recorded music industry generated $28.8 billion while the movie business pulled in a parsimonious $21.3 billion last year.

After two years of extraordinary growth, the global gaming sector actually cooled a little this year, drawing breath after a pandemic-powered surge in 2020 and 2021.

According to Newzoo, the leading researcher in the gaming industry, growth is expected to resume in 2023.

About half of the industry’s revenue comes from mobile gaming (thank you Apple and Android). Console-based games generate about 28 percent of the sector’s revenue with PCs pulling in the balance at 22 percent. While it might be the smallest of the three segments it was the one category to grow year-on-year. 

According to Newzoo’s Ben Wijman, “The games market had been growing quite rapidly before the pandemic as well and was on a path to keep growing for the coming years. What happened during 2020 and 2021 due to the lockdown, gaming was one of the very few entertainment media that was still available to you. Growth was boosted in-organically. This year is what we call a corrective here. It's important to mention that that is only temporarily … and next year we'll see it grow up again.”

The games market is also very dynamic he said, and as such, it tends to operate in cycles, console games in particular drive cyclicality. 

“It typically happens around four to five years into the generation and then tapers off. It goes down because people need to buy new hardware. Then it picks up again, it's not a steady line. But if you were to connect the dots, then yes, you would see consistent growth [across the sector]," Wijman added. 

Land grab

While spending may have eased this year, investment in the sector ploughed on with Microsoft and Chinese tech giant Tencent leading the way.

According to Clayton Larcombe, chief investment officer for PAC Capital, “Microsoft is the fourth biggest company in the world. That's a $68 billion US acquisition, it's their biggest acquisition to date. Tencent is in the top 10 biggest companies in the world. Forty-one percent of Tencent’s revenue comes from gaming, for Microsoft that’s up to 21 percent (post-Activision Blizzard) now.”

Larcombe said it is noteworthy that at a time when the tech sector, in particular, is under pressure these two tech giants are still growing their gaming revenue in an industry that's expanding, despite the blip of 2022.

“These are the two conglomerates who own the space and are massive companies. But there are a lot of smaller players that are coming up in the industry. You've got so many facets of gaming, you've got the marketing, you've got the teams, and you've got the game producers like Riot Games that Tencent owns."

He told Digital Nation, “Nintendo is probably a company I look at more. It's been a part of the PAC esports fund for a while. They actually are a pure esports [gaming] play. When you compare Tencent and Microsoft it's only a portion of their revenue.”

"Nintendo is a pure play, then you've got the actual tech producers like NVidia. There's an opportunity even in Turtle Beach or Corsair Gaming or even the different sorts of hardware providers. Then you've got teams listed, you know, FaZe Clan (one of the leading competitive esports organisations in the world) is listed on the stock exchange.)"

Eyeballs, advertising, you know the drill

The popularity of the sector has also caught the attention of marketers and the technical infrastructure needed to monetise the human consumer base has started to materialise in recent years for an advertising sector already believed to be worth about $US17 billion.

According to Gary Fung, regional gaming director APAC, Totally Awesome, “Gaming’s rise and dominance represents a transformative shift in consumer attention, especially for the under-24s age group.”

Fung said APAC has the majority of the world’s gamers and notes that even Australia has a healthy audience with approximately 17 million gamers, a significant proportion of whom are under the age of 24.

“It is no longer relevant to ask which advertisers are most attracted to gaming. The fact is, all advertisers should be on gaming if they want to effectively engage with the next generation of youths. Advertisers ignoring both the demographic diversity and engagement levels of gaming are going to continue to fall behind," Fung said.

"We have already seen major brands like Unilever, Nestle, Gucci and more invest heavily in gaming. Those that disregard this new era risk losing ground to competitors that are unquestionably playing to win.”

But advertisers need to think about the types of advertisements they can deliver in game, he said.
 
“Unlike the transactional value exchange seen in advertisements of the past, today’s youth-driven advertising is intrinsically linked to play experiences in the digital world. Brands have the chance to enter and be part of a highly personalised world where they can have both a meaningful relationship with their target audience and one with greater utility," Fung explained. 
 
Fung told Digital Nation Australia, “This means things like custom branded layers that help players cultivate their identities or in-game purchases such as avatars and skins. These tactics will build stronger relationships with audiences than simply using banners to flog products.”

Return on ad spend

It also means that traditional digital metrics like click-through rates are no longer effective in assessing ROAS (return of ad spend) in gaming environments, Fung said.
 
“Instead, the real value lies in reach, engagement and attention-based metrics that allow advertisers to understand the impact of their ad exposure and measure key dimensions of player engagement with advertising, scrolling, user touches," Fung explained.

"These granular metrics can provide marketers with insights into their overall ad campaign – and creative – performance, as well as insights into gaming environments.”
 
The approach Totally Awesome takes is to provide quantitative custom research from a curated panel audience pre and post-campaign to survey them across various categories like fandom & advocacy, awareness, consumption and engagement.

“On top of that, Lumen, an eye tracking and heat mapping technology, is also used to measure and predict the reality of visual engagement.”

 
However, Fung’s view about the efficacy of traditional metrics is not universally shared. 

Metrics

When advertising in games – particularly on mobile apps – brands can leverage key attention and engagement media metrics to assess the impact of their campaigns, according to Richard O’Sullivan, vice president and general manager for InMobi, AUNZ, a business that helps brands with in-game advertising,

He noted, “These include measuring impressions, reach and frequency, clickthrough rate, video views and completes, and even dwell times for playable ads.”
 
O'Sullivan said InMobi works with leading third-party measurement providers to capture some of these attention metrics such as in-view time, passthrough rate, and completion rate. He said these are almost 20-30 percent higher on the InMobi Exchange than industry benchmarks for in-app. 

“We have seen a diverse set of brands adopt gaming advertising since gaming’s permanence as bite-sized entertainment in the daily lives of connected consumers. These include digital native brands from e-commerce, hyperlocal delivery, to the conventional CPG, QSR, and insurance verticals. Gaming itself would be another obvious user of gaming advertising," he added.

Hardware

While marketers are increasingly pumping cash into the sector, for some traditional hardware providers, gaming is already a target-rich environment.

Systems manufacturer Lenovo for instance has a dedicated team in Australia led by Ben Williams, working across different segments of its business to maximise the opportunities of gaming.

According to Williams, gaming as a sector has been bigger than other forms of visual entertainment for a number of years, “There's so much money going into it.”

He also noted the scale of work required to bring blockbuster games to market.

“[It’s a] three-year production on triple-A games with thousands of people working on these things. Most people have grown out of the stigma that it's a subculture only for people in their basements. It has definitely become mainstream," he said,

"The kids who were playing 20 to 30 years ago are parents themselves and so they're creating a different culture, which is quite exciting for us."

Esports

One of the emerging areas, garnering a lot of enthusiasm is virtual reality and that's now blending with another fast road gaming segment, esports.

Alex Vasec is the COO of EXO Clan, an esports organisation that competes in Australia and internationally across a range of games. He said VR games are adding a new dimension to the world of competitive gameplay.

“We have an ECO VR team, think of it as like zero gravity Rocket League. You have two sides, and you're throwing disks trying to get into a goal. It's absolutely mind-blowing implications of it. And the future of esports, I think it does have a very high chance of being successful because I think people are always looking for the newest and freshest thing," Vasec said. 

"Gaming has been a tiny bit stale, nothing has really advanced. But the only thing that is steadily advancing and getting better and more immersive, is the VR space. It's getting to the point where people can really engage with each other almost on a physical level. You can fist bump the person, we can high five, we can talk like it's a lot more engaging.”

“People underestimate the scale of esports,” Vasek said. “I can see it trending especially since Covid because everyone had to be at home so a lot of people had to be creative. A lot of people went online.”

He said it not only drove the growth of competitive play but also fuelled the content creation space, which is a big generator of revenue for many esports organisations. Twitter and YouTube are both key to this, and lately, a third platform has emerged.

“TikTok, almost quadrupled in its views as well when COVID came along, so there's a lot more TikTok creators that popped up as well. The online market is massive and I don't think it's been fully tapped into yet.”

Omnichannel

While esports offline audiences are impressive – tens of thousands of fans will attend live events to watch their favourite players – esports online audiences are orders of magnitude larger. 

It's this combination of online and offline customer engagement that is proving attractive to brands according to Graeme Du Toit, head of sales and marketing in Australia for ESL Gaming, a company at the nexus of these channels. Its importance to the sector was confirmed earlier this year when Saudi-backed Savvy Gaming Group acquired it for a billion dollars

Du Toit said an event such as the Intel Extreme Masters will attract upwards of 10,000 people a day to an arena across two or three days. And he noted, exponentially more will watch these events online.

"For example, an Intel Extreme Masters might have a couple of 100,000 people watching at any one point in time, concurrent viewers, and millions and millions of total viewers.”

But even these numbers pale when compared to the overseas experience.

“We recently did we did a CS-GO event in Rio de Janeiro, the Rio Major, that had a peak use of 1.5 million on Twitch. 1.5 million live viewers. A tournament was like five days long, six days long. We're talking hundreds of millions of viewers for a tournament like that," he ended.