Analysts discuss the innovations and developments they expect will shape the coming year in games.
2021 was a record-breaking year for the games industry in numerous ways. Mobile analyst firm Sensor Tower said revenue in the mobile space grew 14% compared to 2020. The NPD Group’s annual report showed total sales in the industry reached a new high at just over $60 billion, and, as the Drake Star Partners global gaming report showed, deals and investments climbed to a record-breaking high of $85 billion.
The new year has already seen two massive deals in the span of a week, as Take-Two Interactive acquired mobile developer Zynga for $12.7 billion, and Microsoft announced it will buy Activision Blizzard for $68.7 billion. Barclays spoke with several industry analysts to find out whether they expect this momentum to continue for the rest of 2022 and what factors they believe will influence growth and innovation in games.
“The convergence of games and other media is a key topic,” said Louise Shorthouse, senior games analyst at Ampere Analysis. “Lots of major games franchises have transitioned to the film or video-on-demand space, and vice versa, and this is something we expect to continue.”
Analysts believe this trend will also continue fueling mergers and acquisitions in 2022, though the factors they cite behind the deals vary. Midia Research co-founder Karol Severin believes advances in technology, particularly in cloud gaming, will influence both investments and mergers.
“More investment is going to flow towards content for infrastructure innovations to distinguish against competitors,” Severin said. “We are already seeing this with the monster-size Microsoft-Activision deal.”
This deal and Take-Two’s acquisition of mobile developer Zynga are built around presenting existing IP in new formats or on additional platforms, such as Take-Two and its desire to put legacy IP on mobile devices, including Grand Theft Auto.
However, Ampere’s Shorthouse said she expects the quest for new IP, especially for entities formerly adjacent to the games industry, to play a key role.
“Original IP has always been a key differentiator and sales/engagement driver, and it is particularly pivotal for content subscription services, which are proliferating,” Shorthouse said. “We are also increasingly seeing adjacent media industries becoming directly involved in games through developing their own games services or content. Take Amazon or Netflix as examples. The range of companies demanding gaming talent is widening, and original IP can be a huge boon for a fledgling offering.”
IDC gaming research director Lewis Ward believes another significant factor driving mergers comes from other sectors attempting to break into games by removing barriers between gaming and other entertainment forms.
“Since gaming has exploded in the wake of pandemic, a lot of players inside the market and in adjacent markets have made acquisitions to take advantage of this growth,” Ward said. “I think the M&A deals will continue in 2022, and it’s partly about finally breaking down the walls that have separated gaming, linear video programming, and music.”
Analyst firm Niko Partners agreed in its forecast for the year, anticipating multiple partnerships between game IP holders and other media, such as movies and TV series, along with brands and musicians seeking potential avenues for growth in live service games. The potential for expansion is significant as well. For example, Billboard estimated 27 million unique players viewed the Ariana Grande Rift tour inside Fortnite in 2021.
While one expects marquee events featuring internationally famous pop stars to draw substantial crowds, digitally or otherwise, Midia’s Severin said the important lesson is figuring out how to engage fans and encourage creativity of any kind.
“Engagement is becoming increasingly important for games companies’ business models, so investment in anything that can improve time spent and fandom will be of focus in 2022, be it enabling gamers to socialise, express themselves, or create,” he said. “The games industry has an opportunity to turn video from a marketing tool into a monetization tool. Solutions that enable games companies to nurture creator and streamer communities in-house, will become of increased interest.”
2021 already saw at least one company begin exploring these options. Genvid Technologies, developers of the interactive Facebook series Rival Peak, unveiled Pac-Man Community in December. It’s an online version of Bandai’s classic arcade game, one that connects streamers and their audiences and changes based on how both groups interact with the game. Genvid has plans for similar interactive games based on established IP, and Severin said he anticipates even more games and media companies to embrace creation-centric software to help generate engagement and positive sentiments in audiences.
He also predicts a rise in virtual reality and augmented reality spurred by growing interest in the metaverse. While the concept of the metaverse might intrigue investors, Ampere’s Shorthouse said the rollout of new hardware is what will likely pique consumer interest.
“We may see the arrival of the PSVR 2 or a Quest 3 by the end of the year, [though] component supply chain conditions may push this back into 2023,” she said. “However, this is likely to reignite broader consumer interest in VR, and it will provide strong competition for Meta's Quest series of headsets. The Quest 3 is likely also on the horizon, and the two could be offered at similar price points.”
IDC’s Ward also predicts increased demand for VR entertainment software in particular.
“Although those titles only generated about $950 million worldwide last year – a relative drop in the almost $260 billion PC, console and mobile gaming industry – I think there will be a special focus on VR games,” he said.
The general consensus is that VR and AR are likely to be the closest to a proper metaverse the games industry gets in 2022 – due in part to how games and technology companies understand the space’s potential.
“Metaverse became a hot word in 2021 with numerous tech and gaming companies embracing the concept,” Niko Partners said in their forecast. “We expect game focused companies to see the initial benefits of the metaverse trend while tech first companies will struggle to offer value to users. However, we don’t expect to see a true metaverse experience in 2022 based on the currently accepted definitions.”
Analysts also believe 2022 will be a year of experimentation for blockchain technology and non-fungible tokens (NFTs) in games, though uncertainty about the technology’s use and the threat of audience backlash remains.
Severin said NFTs have strong potential but remain too niche and untested at the moment. Ward agreed with the sentiment and added current high levels of interest – and investment – might work against widespread adoption of the technology initially. Should one or two high-profile projects fail or deliver less-than-expected results, momentum behind the technology’s use in games could fade rapidly. Niko Partners also cited lack of regulation and high entry barriers as additional problems. However, Shorthouse believes the sector will eventually stabilize itself, and failures will help lead to greater regulation.
“I think we can expect to see a greater number of games – especially in the first half of 2022 – using [blockchain] technology to support things like in-game cryptocurrency and the play-to-earn model,” she said. “As a result of this great wave of interest and subsequent influx of games, there will undoubtedly be many titles which underperform and fade out. This, in turn, should ease the frenzy. By H2 2022, funding and valuations in this space will begin to settle, and increasing regulation will prove a key dampener.”
Shorthouse has similar predictions for the rise of the play-to-earn model and cites its potential for disruption by changing the role of gaming in users’ lives as important factors behind its growth. Ward and Severin remain skeptical of any rapid expansion for play-to-earn and believe the free-to-play and subscription models will play more significant roles.
“Though play-to-earn will be talked about a lot this year, I don’t think we will see it truly take off in 2022,” Severin said. “Similarly to NFTs, there will be a slowdown in the hyped growth, before we arrive at a balanced rate of growth in the mid-term, while free-to-play will continue spreading on consoles and PC.”
Microsoft and 343 Industries’ Halo Infinite made headlines for being one of the first premium titles from a major developer to include a free-to-play component, and Ward believes it won’t be the last. He expects more premium games to offer seasonal pass features, while Game Pass continues leading in subscriptions.
Shorthouse also believes the subscription sector will grow, though in a more sophisticated fashion. Rather than seeing a flood of new subscription services, she anticipates companies will plan their strategies more efficiently, especially Sony.
“There is the case of Sony potentially overhauling its subscription strategy in 2022 and folding its two services – PS Plus and PS Now – into a single offering,” she said. “We don't expect this to be positioned as a Game Pass competitor, [as] Sony has yet to display the commercial appetite for this and likely won't be including first-party content day-one. However, consolidation would combat the lack of exposure for PlayStation Now, and address brand confusion around the two services, offering greater clarity.”
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