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The gaming industry is one of the biggest successes of the last few decades. It began back in the 1970s but suffered a major setback in the early 1980s when a rush to gain market share and cash in on the excitement for this new medium caused a huge bubble that eventually burst.
All of that is now well behind it and there is a thriving industry that, for the most part, is making huge profits.
Analysts are expecting it to grow further as more people take up the hobby and existing players spend more money. But that growth won’t be spread evenly across all of the operators in the sector, so it’s important for investors to look for companies that have the attributes necessary to outperform their rivals. Here are some of those factors.
A Moat
Investors often talk about finding businesses with a moat. In medieval times, moats were used to create a buffer zone of deep water between a castle and any attacking forces. In investing, a moat refers to a sustainable competitive advantage that a business has over its rivals.
These can come from perceivably high switching costs that discourage customers from going elsewhere, a strong brand that people like to be associated with, a network effect that makes using your product/service better because it has a larger userbase, or a cost advantage that allows you to sell products for less.
Clearly, there are some publishers that have moats that are bigger than others. The behemoth publishers like Electronic Arts and Activision have some of the biggest catalogues of IP on the market, potentially making them more attractive.
The Ability to Keep Up With New Trends
Gaming is always changing. The titles that are popular today may not be fashionable in a few years as player tastes change in line with the new offerings. At the same time, new technologies make it possible for gaming companies to do things that hadn’t previously been possible.
Nintendo is a great example of this. The company is the only surviving console manufacturer from the 1980s, with most of its rivals either going bankrupt or exiting the hardware market altogether. Its longevity is thanks to its ability to implement new technologies and keep up with trends, as evidenced by its Wii, DS, and Switch consoles, all of which were revolutionary when they were released.
Similarly, the iGaming industry is incredibly competitive with most brands offering free online games to entice new customers. But while most brands will have a similar selection of video slots and table games for their players to choose from, the companies that will be most attractive to investors will be the ones with a proven track record of innovation and the resources to embrace trends like VR and more interactive forms of live games.
A Focus on Quality
Gamers are often a loyal bunch. They’ll stick with a franchise for years or even decades, provided the games remain enjoyable and they’ll even pay to buy a game again to play it with upgraded graphics and modern controls.
However, this loyalty can be ruined by churning out bad titles and glitchy games. Players can also be turned off by what they see as aggressive uses of microtransactions that lead to a “pay-to-win” mentality.
Both Rockstar Games and CD Projekt Red were on the receiving end of strong criticism from fans when they released the Grand Theft Auto Trilogy Definitive Edition and CyberPunk 2077 in unfinished states.
Companies can recover from a one off in this regard, but if they’ve developed a reputation for delivering poor content, they’re likely to turn off potential investors.
