The video game and e-sports industry is, at least in my view, one of the most exciting industries in the world today. Not many people realise that annual global video game revenue is over $180bn, making it bigger than the global movie and North American sport industries combined.
There is little doubt that the Covid-19 pandemic will have helped this industry grow even bigger over the last year. Most people could not leave home, there were no sports to watch, TV viewership is down around 9% – so how did people spend their time? Twitch, the market leader in the streaming space, saw the hours streamed double in the second and third quarter of last year. Activision Blizzard reported that hours played were up 70% compared with the same period a year earlier. In fact, demand for video games and video game-related content is at historic highs, and honestly, if you think in terms of decades, it’s only getting started.
Our focus today though, is the Nasdaq-listed Electronic Arts (EA). Historically, EA’s success has come from its two flagship games: soccer video game, FIFA and NFL football video game, Madden. These are, of course, still titans in the video game industry. During the second quarter of 2020, the number of Madden games played, increased by 20% year over year, while FIFA games more than doubled compared with the prior year.
Let’s look at how EA makes money though. Traditionally, and still a large revenue driver, is the once-off sales of stand-alone video games. Every year EA releases a new $60 version of each of its “flagship” game titles. Consumers keep buying the latest version of each of these games, since the composition and team rosters of their favourite soccer or NFL team changes every year, and these changes are reflected in the latest release of the respective game title. Also, the only way to really get the most up-to-date rosters is to buy the annual release.
In football, EA has an exclusive deal with the NFL until the end of 2026, meaning that only EA has the license to duplicate the team compositions and rosters in their video game. Similarly, EA has signed hundreds of deals, allowing the FIFA franchise to use the leagues, players and teams from across the globe in its video games.
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