Emerging Trends in Gaming

Even before COVID, gaming and virtual entertainment was a rapidly growing and innovative industry. Today, gaming is a $150B industry globally with mobile games representing $70B of the market. The global lockdowns and work from home for many has served to pour rocket fuel on the industry and accelerate a number of trends in gaming and interactive media that I am following:

A Person’s Community is in Game: The next wave of social media, networking, and community is being built in and around games as seen by Roblox, Fortnite (millions of people watch their virtual concerts), and Animal Crossing. COVID has just served to accelerate this trend of game communities becoming people’s Third Place. Epic Games realized this trend early on and pivoted from the legacy gaming business model of selling the actual game, to offering the full featured game for free and monetizing based on virtual goods within the game itself. This insight has made them wildly successful with most not realizing that Fortnite’s revenue per user ($96) is double that of Google, Facebook, Twitter, and Snapchat’s revenue per user combined.

Dramatic Shifts in Advertising Spend: Viewership of traditional sports is aging dramatically (the average age today of a baseball fan is 57) and younger generations tend to watch eSports in lieu of traditional sports while spending more more time in games. Expect to see new monetization methods in games based purely around advertising as advertisers desperately seek to reach that coveted younger demographic. Advertising dollars have already started entering the space and will grow rapidly in the coming years.

Cloud Gaming’s Rise: Cloud gaming is initially facing a host of challenges, with the technology just not being good enough yet, and the business model not figured out (a lot of publishers push against the subscription business model since you cap your whale customers). Google’s Stadia offering has publicly had a very rocky start as Google wrestles with these challenges. Over the coming years these challenges will be ironed out with 5G adoption strengthening the case for cloud gaming as it goes mainstream. Cloud gaming enables greater scale, turns games into ever-changing live entertainment platforms, and enables infinite complexity in games while removing the hardware constraints.

Apple as a Catalyst: The leaks from Apple are that their first VR/AR headset will be out in ~2022. I expect this will act as a catalyst for VR and AR gaming, and bring these games to a mass-market consumer, just as Occulus brought VR games to the hardcore gamer demographic. Mobile games existed before the iPhone, but it acted as the primary catalyst for mobile game adoption by the mainstream.

Game Infrastructure & Tools: Roblox and others have shown that by providing tools and an environment for creators to create games, amazing things happen. I am very excited at the new wave of startups providing game makers infrastructure and tools for everything from enabling competitive multiplayer to in game economies with unique virtual goods built around blockchain technology.

Emerging Trends: EMG, the Upcoming Human-Machine Interface

One of the coolest areas of frontier tech that is starting to emerge is Electromyography (EMG).  It’s part of what some firms are coining neurotechnology which is a set of technologies designed to digitize nerve and brain activity. 

EMG is hardware that uses sensors to record electrical activity from muscles.  A more thorough explanation of the science can be found here.  The technology was initially invented for medical applications but lately has been used in computer technologies by using nerve signals from muscle and hand gestures to interact with computers.  On the consumer side this type of technology is being coined intention capture because it interprets electrical impulses from nerves in a user’s muscles. The user doesn’t even need to make the motion but simply think it for their intention to be captured. Seeing is believing as the videos show. 

Two startups that are leading in this space are Thalmic Labs and CTRL-Labs.  The Myo armband from Canadian startup Thalmic labs was on the market for $130 per unit before the startup pivoted and discontinued the product. Reports from users were a lack of use cases and accuracy.  CTRL-Labs technology is still in R&D mode but seems to be able to interpret finer muscle impulses allowing users to type by capturing their intention rather than an actual movement.  They are releasing an SDK and hardware soon. So far the interface is via some sort of control armband, like a big watch band.  However, as the technology evolves its easy to see this shrinking in size and locations available to place it.

Challenges of course remain here, with one of the big ones being humans who have more body fat don’t give accurate reading to the sensors. Another is picking up signals precisely among the muscles in your body.

Most neurotech is to early for any sort of commercial application, but EMG is much closer to mainstream commercialization than the others such as direct brain-computer interfaces. This is because there is no need to break the skin-barrier or insert any sort of chip to create the interface.  I expect to see it talked about in the press and by average people in the next ~5 years.  The market and number of applications for this type of application will also be huge.

I will be watching this area develop closely and am extremely curious as to the applications that are created. 

Emerging Trend: The Rise of eSports

Probably one of the most prescient acquisitions of the last several years was Amazon's purchase of Twitch, the online video game streaming site, for what now looks like a bargain of $970M.  At the time many analysts were puzzled by what was then Amazon's largest acquisition.  By all reports, today Twitch is booming on every metric and is perfectly positioned to ride the eSports wave.

eSports (electronic sports) or competitive video game playing in front of spectators, has become one of the most engaging and watched forms of entertainment for the Millennial generation and Generation Z, not just in the US but globally.  Some of the biggest followed eSports include games such as Fortnite, League of Legends, Dota, and Overwatch.  eSports is a trend I've been following for the last 4-5 years and one that is rapidly growing but currently under-reported in the tech, entertainment, and mainstream media.  This is likely due to the fact that it initially really started catching on in Asia, most notably South Korea and has since become a global phenomenon.

More than a dozen countries now show eSports on regular cable television with large consumer brands such as Nike and Adidas giving eSport teams and players large endorsement deals.  Brands spent more than $500M on eSport advertising, media rights, and sponsorships in 2017 with consumers shelling out another $60M on tickets and merchandise.  Each year fans pack stadiums with more than 50,000 people to see tournaments live.  Professional leagues and teams have arisen along with full time players whose training regimes are as grueling as any pro athlete with as rabid of fanbases. 

Some fun facts about the eSports industry:

• More viewers watched the world finals for League of Legends than any game of the NBA Finals for the last 2 years.

• Analysts forecast a CAGR of 35% over the next 5 years with the expectation of eSports becoming a billion dollar industry in the next year - a high growth market indeed.

• Gaming and eSports is rapidly becoming pop culture with A list celebrities broadcasting their video game playing live to fans, furthering interest.

• There are currently estimated to be 400M eSports fans globally, almost exclusively under the age of 35.

• There is a huge amount of monetization opportunity here compared to traditional sports with the average basketball fan spending $15 a year while eSport fans spend less than $3 a year.

Little known is that most traditional live sports are actually seeing a declining fanbase with many Millennials/Generation Z not interested in watching the sports their parents did.  Even the once untouchable American pastime of football has seen declining ratings.  The theory behind this trend goes that shorter attention spans and cord cutting by younger generations means they are just not that interested in the format of traditional physical sports.  Some interesting facts about traditional sports:

• The average age of a Major League Baseball viewer is 57 with less than 50M fans in the US.

• The average age of a National Football league viewer is 50 with about 250M fans globally.

• ESPN in the last 5 years has watched viewership drop from 100M to 85M and it continues to plummet.

Am I predicting the imminent demise of traditional sports - certainly not!  But I do foresee traditional sports becoming a much smaller percent of the entertainment market in the coming decade as eSports rises as a global mainstream form of entertainment.  eSports as an industry has exponential growth ahead of it and is likely to remain a ripe area for investors and founders for years to come.  A second order effect the growing mainstream visibility of eSports will have is to boost the growth of the $100B global video game industry.

Crypton Future Media

Overview

Crypton Future Media is a startup that does sound and music related software including sound synthesizers and music library manipulation.  The company licences its software to large and small companies across a number of industries including everyone from small music stores to Nintendo, Apple, government organizations, traditional media companies, etc.  In addition the company has an eCommerce business for mobile devices including ringtones.

Most noteworthy of their products is Hatsune Miku a software singing voice synthesizer that has morphed into a community constructed digital persona and cyber celebrity throwing sold out live concerts everywhere from Los Angeles to Tokyo.  To really grasp the concept see this amazing video of a packed concert as a piece of voice software attracts cheering legions of fans.  Hatsune Miku has over 100,000 unique songs, millions of social media fans, and hundreds of thousands of music videos all created by a global creative fanbase.  With the smashing success of turning a piece of software into a celebrity persona,  Crypton has created more cyber celebrities around their other voicebank products and software with similar results and fanbases being created.  Amazingly this allows Crypton to monetize not just by selling their software, but also through concert ticket sales and character licensing of their products.

The team is based in Sapporo, Japan.

Why I like Them

I like Crypton because they have a fascinating, almost science fiction like business by giving charaterization to software that has inadvertently become the first ever cyber celebrity.  The company has even gone as far as assigning a gender (female), an age (a perpetual 16), height, weight and blood type to make "her" more relatable to fans.  The idea of making a software product into a humanoid figure (a celebrity no less) with human traits boggles my mind every time I think about it.  The fact that it worked beyond their wildest expectations further blows my mind.  This humanization of a product (an intangible product like software no less) is brilliant and could very well be the next generation of marketing.  You aren't buying a product, you are buying a piece of and interaction with a celebrity.

The iPhone is the most successful consumer product in history and even it is not given a persona or celebrityhood status by its fans.  Crypton has broken innovative new ground on what could very much be a new type of product and marketing strategy - digital celebrities wholly owned by corporations but with their content created by a global fan community.  I can't wait to see what happens when this concept meets more traditional AI technologies!

Disclosure:  All information is from publicly available sources, I have not had any contact with a member of the company or its investors.

Hatsune Miku, Crypto Future Media's most successful product and the world's first digital celebrity.