Big Tech in Video Gaming

The COVID-19 pandemic increases demand

for home entertainment systems

MarketLine Analyst
Insight

Report Code: MLAI0005-032

Published: May 2020
Big Tech in Video Gaming: The COVID-19 pandemic inreases demand for home entertainment
Published: May 2020 Analyst Insights

1. Overview

1.1. Catalyst
The COVID-19 pandemic has disrupted global industry and markets, while forcing businesses to close and consumers to stay
locked within their homes in an attempt to slow the spread of the disease. Where the pandemic has had a negative impact on
the global economy and caused financial distress across most industries, it has also created market opportunities for the more
fortunate markets. Consumers are continuing to search for ways to entertain themselves during lock down, creating
opportunities in the home entertainment markets. Demand for video games, home sports equipment and streaming services
have increased significantly in response to lockdown. Companies that are quick to adjust their strategies during lock down will
be able to minimize the negative impact the pandemic inflicts on their business and in some cases profit under Covid-19 market
conditions.

1.2. Summary

Big Tech companies, including digital advertising duopoly Google and Facebook, have accelerated their push into the global
video gaming market as they look to capitalize on the market opportunities caused by the COVID-19 pandemic. The timely
promotion of their cloud gaming and live game streaming platforms will help both companies increase their presence in the
gaming industry and close the gap between themselves and competitors.
The COVID-19 pandemic has caused a surge in demand for video games as consumers look for ways to entertain themselves
during lockdown. As a result, many gaming companies have thrived over the duration of the pandemic as sales, particularly
for in game-purchases, have helped developers surpass their financial expectations. Some of the companies that have
benefited from lockdown restrictions during the first half of 2020 include the likes of Call of Duty developer, Activision
Blizzard; leading eSports company, Electronic Arts, as well as China’s internet-based platform company, Tencent and
Japanese gaming titans Nintendo.
Video gaming stocks have remained resilient during lockdown, Stocks started to fall during the first half of March but
rebounded later in the month and continued to growth through April and May. Some companies may experience share price
declines after lockdown restrictions are alleviated as gaming activity drops and new game releases are delayed. However,
next generation consoles expected to launch at the end of the year will help share prices remain high.

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Big Tech in Video Gaming: The COVID-19 pandemic inreases demand for home entertainment
Published: May 2020 Analyst Insights

Table of Contents
1. OVERVIEW 1

1.1. Catalyst 1

1.2. Summary 1

2. BIG TECH COMPANIES ACCELERATE GAMING BUSINESS DURING LOCKDOWN. 1

2.1. Technology companies capitalize on gaming opportunity during lockdown.

1

2.2. Demand for video gaming has grown since governments imposed lockdown
restrictions 2

2.3. Video Game stocks show resilience during pandemic 3

3. APPENDIX 5

3.1. Abbreviations and acronyms 5

3.2. Sources 5

3.3. Further reading 5

4. ASK THE ANALYST 5

5. ABOUT MARKETLINE 5

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Big Tech in Video Gaming: The COVID-19 pandemic inreases demand for home entertainment
Published: May 2020 Analyst Insights

List of Figures

Figure 1: Google’s Stadia logo 2

Figure 2: Nintendo Switch 3

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Big Tech in Video Gaming: The COVID-19 pandemic inreases demand for home entertainment
Published: May 2020 Analyst Insights

List of Tables
Table 1: YoY Growth (%) of game streaming views (million) , April 2019 – April
2020 1

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Big Tech in Video Gaming: The COVID-19 pandemic inreases demand for home entertainment
Published: May 2020 Analyst Insights

2. Big Tech companies accelerate gaming business during

lockdown
During the first half of 2020, many consumers across the globe have been confined to their homes, as governments rightfully
implement lockdown restrictions to prevent the spread of COVID-19; a virus that was declared a pandemic by the World
Health Organization during March 2020. The pandemic has caused disruptions to trade, industry and businesses across the
globe. However, lockdown has also presented opportunities within home entertainment markets. Demand for video games
has surged as consumers find ways to entertain themselves at home, causing large technology companies to respond by
accelerating the release of their own digital gaming businesses to capitalize on this market trend.

2.1. Technology companies capitalize on gaming

opportunity during lockdown
Big Tech companies have a strong history in the video gaming industry. Multinational technology and consumer electronic
companies Microsoft and Sony are the industry’s leading players, dominating with the release of Xbox and Sony PlayStation
games consoles over the past two decades. However, the gaming industry has attracted additional technology companies in
recent years.
Facebook took a leap into gaming in 2014 after it acquired virtual reality (VR) company Oculus in a deal worth $2bn, but has
since grown its involvement in the gaming industry through the development of its live game streaming services. Facebook
joins competitors including; Twitch, bought by Amazon in 2014 for $970m; Google’s YouTube; and Microsoft live streaming
platform, Mixer, which was acquired by the company in 2016. According to Facebook, around 700 million of its 2.5 billion
monthly users already engaged with gaming content, but during the COVID-19 pandemic, the social media looked to capitalize
on an increased demand for gaming and live game streaming by launching the Facebook Gaming mobile app ahead of its
previously planned launch date in June. In terms of live game streaming, Facebook currently ranks third in terms of total hours
watched, behind YouTube and Twitch. The early release of its gaming app hopes to take advantage of a surge in demand during
lockdown and propel the company into a market leading position. Facebook is expected to experience the strongest growth
in users during lock down as a consequence of the early release of its Facebook Gaming application, closing the gap between
itself and market leaders Twitch and YouTube.

Table 1: YoY Growth (%) of game streaming views (million) , April 2019 – April 2020

Platform Hours viewed - April 2019 Hours viewed – April 2020 Growth YoY (%)
Twitch 750 1,491 98
YouTube Gaming 279 461 65
Facebook Gaming 86 291 238
Mixer 37 37.1 0.2
Industry total 1,971 3,934 99

Source: STREAMELEMENTS, ARSENAL © MarketLine

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Big Tech in Video Gaming: The COVID-19 pandemic inreases demand for home entertainment
Published: May 2020 Analyst Insights

2.1.1. Google increase cloud gaming market share during lockdown

Google is also using the lockdown as an opportunity to promote its cloud gaming platform, Stadia, which was released
November 2019. In response to the Pandemic, Google announced it will offer Stadia Pro for free for 2 months, removing a
$130 entry fee, allowing totally free access to the cloud streaming platform. Google is relatively new to the video gaming
industry, its free tier strategy with allow the company to take advantage of an increased demand for gaming services during
lockdown, helping Google increase its number of users and extend its leadership in cloud gaming beyond competitors Apple,
Microsoft and Sony who also launched cloud gaming platforms in 2019. The lockdown could also delay the release or
consumer’s ability to purchase next generation games consoles, which could provide further opportunities for cloud gaming
platforms like Stadia to acquire larger user volumes and improve its services.

Figure 1: Google’s Stadia logo

© MarketLine
Source: MarketLine

2.2. Demand for video gaming has grown since

governments imposed lockdown restrictions
In response to the global COVID-19 pandemic, governments have enforced lockdowns causing consumers to search for ways
to entertain themselves in the confinement of their own homes. This has caused a dramatic increase in video game activity
and demand for gaming services over the duration of the lockdown. Even the World Health Organization has advised staying
home and playing video games with its ‘Play Apart Together’ campaign, aimed at producing special events exclusives,
activities, rewards, and inspiration across major gaming platforms.
The surge in gaming activity has resulted in gaming companies experiencing a boost to profits during the first half of the year.
Activision Blizzard’s Call of Duty and Electronic Arts’ (EA) FIFA, have increased in popularity since lockdown restrictions were
put in place. During Q1 2020, Activision exceeded its first quarter outlook generating $184m in operating income, with an
operating margin up 12 percentage points higher to 35%. Sales were driven by Call of Duty: Modern Warfare and Warzone
in-game revenues. Activision Blizzard’s free-to-download “Call of Duty: Warzone,” saw 15 million players in just four days
following its launch on 10th March 2020. With more people staying at home, EA experienced, and is continuing to experience,

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Big Tech in Video Gaming: The COVID-19 pandemic inreases demand for home entertainment
Published: May 2020 Analyst Insights

heightened levels of engagement. The esports developer doubled its net income to $418bn in three months ending March
31st 2020

2.2.1. Big Tech boost gaming sales during pandemic

Large technology companies such as China’s Tencent – owner of smart phone games such as Peacekeeper Elite and Honor of
Kings, as well as titles including PUBG Mobile and Clash of Clans, reported robust growth during Q1 2020. The company’s
online gaming revenues increased 31% YoY to RMB37.3bn ($6.02bn), driven by elevated demand during the COVID-19
pandemic.
Demand for the Nintendo Switch has also surged during lockdown. The Japanese game developer tripled its operating profits
to JPY89.5bn ($842m) in the final quarter ending 31st March 2020. The company has stated that it expects to produce
approximately 10% more units of the Switch series in 2020, up from around 20 million the previous year. Complimentary
games releases such as Nintendo exclusive Animal Crossing: New Horizons has undoubtedly bolstered sales with over 13.5
copies sold since its release late March. In the US, Sales of gaming hardware, software and accessories grew 35% to $1.6bn in
March. Sales of gaming consoles including Xbox One, PlayStation 4 and Nintendo Switch rose 63% year-on-year to $461m in
during the same month.

Figure 2: Nintendo Switch

© MarketLine
Source: Nintendo

2.3. Video Game stocks show resilience during

pandemic
Despite video game developers thriving under COVID-19 market conditions, stocks experienced a decline during the first half
of march. Concerns with the ability for developers to maintain servers and operations during lockdown. EA stocks fell stock
declined by about 18% between 8th March 2020 and 16th March 2020 but rebounded later in the month and continued to
grow in April and May with Activision Blizzard following a similar pattern. Nintendo enjoyed a 40% rally in share price after

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Big Tech in Video Gaming: The COVID-19 pandemic inreases demand for home entertainment
Published: May 2020 Analyst Insights

the company experienced a drop in shares during march after the company forecasted a 15% decline in operating profit,
weaker switch sales and a drop in software sales as a consequence of the pandemic. Global home confinement helped shares
rebound as Nintendo’s sales surge red in response to demand.
Video gaming stocks could fall later in the year as the long-term effects of the pandemic cause game releases to delay. In
addition, once alleviated from lockdown restrictions, consumers are expected to reduce their video gaming activity, resulting
in less in game purchases. However, the anticipated release of next generation consoles including Sony’s PlayStation 5 and
the Xbox series X towards the end of the year will help maintain strong share prices towards the end of the 2020 fiscal year.

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Big Tech in Video Gaming: The COVID-19 pandemic inreases demand for home entertainment
Published: May 2020 Analyst Insights

3. Appendix

3.1. Abbreviations and acronyms

VR – Virtual reality

3.2. Sources
Activision Blizzard: Q1 financial report
Electronic Art’s: Q1 financial report
Nintendo: Q1 financial report
Tencent: Q1 financial report
Streamelements

3.3. Further reading

Technology Economy & Hype: Four instances of "tech-washing"show the extent of the technology bubble - Thematic Analysis
published by MarketLine on 29 Apr 2020
Sharing Economy: Uber will be a survivor after COVID-19 - Analyst Insights published by MarketLine on 04 May 2020

4. Ask the analyst

We hope that the data and analysis in this case study will help you make informed and imaginative business decisions. If you
have any questions or further requirements, MarketLine's research team may be able to help you. The MarketLine Research
team can be contacted at ReachUs@MarketLine.com.

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Big Tech in Video Gaming: The COVID-19 pandemic inreases demand for home entertainment
Published: May 2020 Analyst Insights

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