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Konvoy Ventures is a thesis driven venture capital firm focused on the video gaming industry. We invest in infrastructure technology, tools, and platforms.

$0.80 Per Hour of Entertainment

Consumer spending on gaming, console games unable to raise prices

Consumer Spending: The Cost Per Hour of Entertainment

Video gaming is an immersive and interactive form of entertainment. Today, the industry generates over $152B (~9% CAGR over the last decade) and is projected to be >$160B by the end of 2020. This is more than twice the size of Music ($20B) and Film ($42B) combined, yet video gaming is still under monetized.

In video gaming, the consumer spends ~$0.80 per hour of entertainment. This form of interactive entertainment more closely resembles that of experiential entertainment (concerts, movies) than it does passive entertainment (Netflix, YouTube, Spotify). Yet on a cost per hour of entertainment, consumers spend 47X more on concerts and 6.7X more on going to the movies than they do on video gaming.

Takeaway: the video gaming industry is under monetized. There is an argument to be made that the industry should increase 2-3 fold over the coming decade before it approaches the same level of monetization as going to the movie theatre (much less concerts at 47X).

Console Games Have Been Unable to Raise Their Prices

In 2006, the price for a AAA console game was lifted from $50 to $60 during the transition from generation 6 (Xbox, PS2) to generation 7 (Xbox 360, PS3). It has remained unchanged since then.

The inflation-adjusted retail price of a AAA console game dropped from $60 in 2006 to $47 in 2020, representing a 22% drop in inflation-adjusted pricing. Console publishers have actively chosen to pursue in-game monetization strategy over raising the cost of their core product, which is how they have chosen to try and cope in an ever increasing free-to-play world.  

The fear of frustrating their customers and losing the potential of their enhanced in-game purchasing revenue is the core reason why the console giants have avoided raising the price of their AAA games.  With the new console generation around the corner, we believe we will see many franchises use this opportunity to bump from a $60 to a $70 price point, just as NBA 2K21 has announced they will do.

Takeaway: we do not believe that this price increase will cause publishers to tone down their in-game monetization tactics (a current debate), nor will it drive away many purchasers; therefore, console publishers will be able to enjoy the 16.7% price bump without severe consequences.

Video Gaming in the United States

This week, the Esports Insider published a piece quoting Konvoy’s views on the potential investment returns in esports. To put esports into context, it is worth ~$1B, which is less than 1% of the video gaming market at >$152B. While esports is an exciting growth area within video gaming, the biggest investment opportunities are in video gaming in general. This is where we focus our investment efforts.

To that point, video gaming plays a prominent role in the United States, as evidenced by Fornite’s regular appearance in this time lapse video of trending Google searches by state between 2018 and 2020. Additionally, the Entertainment Software Association’s new 2020 report shows that 75% of U.S. households have at least one gamer. The annual video game industry report found that 70% (51M) of kids under 18 and 64% (163M) of people 18 and older play games.

Other interesting stats in the report:

  • Adults spend 6.6 hours per week playing with others online and 4.3 hours per week playing with others in-person.
  • 40% of gamers have met someone through gaming they wouldn't have normally
  • 45% of ESRB rated games are E, with 14% E10+, 28% T, and 13% M
  • 55% of parents play video games with their children
  • 61% play on a smartphone, 52% on a console, 49% on a PC
  • 79% of gamers say games provide relaxation and stress relief

Takeaway: video gaming is prolific across all age groups and is a social connector for hundreds of millions of people in the United States (and globally).