Online gaming – from the margins to a global giant

3 October 2018

Online gaming – from the margins to a global giant

In 2017, China, the world's leading gaming market produced a revenue of US$32.5 billion.1

A global phenomenon under the radar

Online gaming could once have been dismissed as a niche market for investors, but the explosive trend is now impossible to ignore.

Recent hits like Pokémon Go and Fortnite have pulled in massive global audiences – the latter ballooning to 125 million players in less than a year.

Emerging markets are at the forefront of this boom. Asia dominates several markets, including that of massively multiplayer (MMO) games (with hit titles such as Honor of Kings, and League of Legends). In China, the world’s leading gaming market (accounting for US$32.5 billion in revenue in 2017)1, gaming accounts for an incredible 15% of leisure time.2

Going mobile

The driver for this boom has been the smartphone. Lower-cost mobile devices and more sophisticated hardware has enabled audiences to access better graphics and higher-quality gameplay, without the need to invest in pricey consoles or PCs. 

Mobile-gaming app revenue is expected to reach US$74.6 billion by 2020, doubling from that of 20153. By then, an estimated 40% of global online gaming market revenue will come from smartphones4 .

Growth is being propelled by the Chinese model of ‘freemium’ content (free to download, with in-app purchases). In Asia alone, free-to-play MMO games generated an estimated US$11.2 billion of revenue in 2016 (compared with US$1.4 billion for pay-to-play games).5

Greater technological advances are also just around the corner. Semiconductor companies, such as Korean chipmaker SK Hynix are now looking at the next generation of hardware, capable of supporting gaming-specific smartphones. The next step in hardware is the development of augmented or virtual reality, with a focus on accessibility from handsets and mobile devices not just PCs and consoles.

Watching as important as playing

Crucially, gaming is no longer just about the players, it is a spectator sport. Platforms such as YouTube, Amazon’s Twitch and, in China, the Tencent-owned Douyu, have raised the profile of eSports (competitive professional gaming) to never-before seen levels. The 2017 League of Legends championship finals, hosted at Beijing’s Birds Nest stadium, was watched by a staggering 57.6 million people worldwide6 .

In 2018, viewing numbers for gaming video content is expected to top 700 million – that’s more than five times Netflix’s worldwide subscribers.7 And the audience is poised to grow even further, eSports will be a feature of the Asian Games this year and serious discussions are also underway for a demonstration event at the Paris Olympics in 2024.

Show me the money

Sponsorship of eSports is still in its infancy, but could mushroom in the same way that we have seen in other global sports – Samsung already has its name attached to last year’s League of Legends winners.

Meanwhile, Alibaba, China’s e-commerce giant, is driving the growth of eSports partnering with the Olympic Council of Asia (through subsidiary Alisports). Perhaps the most interesting – and lucrative means of accessing the market is from Alibaba’s rival Tencent.

China’s Tencent is by far the biggest global gaming company and owns the largest number of mobile eSports titles, including Fortnite (through its 48% holding in the US-based firm Epic).

But its exposure to gaming doesn’t stop there: the company has its own eSport tournaments, successful channel distribution through the reach of its messaging services Wechat and QQ, and the live streaming platforms, such as Douyu. Gaming revenue has risen steadily in the last few years, up 18.1% in the 2017 financial year.8

Investing ahead of the curve

The boom in online gaming demonstrates how quickly emerging markets are taking centre-stage in so many tech-driven, ‘new-economy’ industries.

Martin Currie’s Emerging Markets team has a strong track record of identifying the high-conviction opportunities that have arisen from these growth themes. Our robust, differentiated and highly-successful approach to Emerging Markets investing, based on the collaborative focus of a highly experienced team enables us to build concentrated portfolios of our strongest investment insights. Together, these capabilities form a powerful investment approach for our clients, one which we believe they can be confident will deliver exceptional long-term returns.

Past performance is not a guide to future returns. Please be aware that the information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the securities discussed here were, or will prove to be, profitable.

1Statista, Newzoo. 2Statista, Nielsen. 3Statista, App Annie, Venture Beat. 4Statista, Newzoo. 5Statista, SuperData Research, 6Statista, Riot Games, Rift Herald. 7Statista, SuperData Research, Netflix. 8 Statista, Newzoo.