One of the great perks of working at Visa, in my experience, is that I get to work on diverse industries and across different products. And since payments form a part of virtually every ecosystem, there is no dearth of learning opportunity here.
Recently I have been exploring the video gaming industry as a use case for the product that I work for - Visa Direct. In order to understand this industry better, I spent a large amount of time reading research, articles and speaking to friends who are avid gamers.
And as I have done with a few other topics — this is my attempt to summarise what I have learnt in a blog post. Just so that I remember what I learnt.
Video games are all around us. Some of the names we are familiar with, and some not so much. And like any community or concept, there are people in the know, the users who know it well and are super excited about any development in this space and there are others who have no idea what this is and do not understand what the excitement is all about.
Well, I found it fascinating and I’m going to try and explain why it is so.
The Industry
According to Newzoo, a research company specialising in this sector, the global video game industry size was at a staggering US$182bn in 2022. This enormous amount includes revenue from consumer spending on physical and digital games, in-game spending and subscription services.
While this number is a enormous by any standard, it does not:
- include in-game advertising
- Digital goods marketplaces - where you can buy the Swords, Costumes, Skins that you can use in your respective games
- Creator economy centred-around making content around gameplays, creating downloadable content and modifications for games, Live video game streaming
- Esports - where gamers from all over the world, compete, individually or in teams, for massive amounts of prize money for different games
And the industry is expected to grow with a CAGR (compounded annual growth rate) of ~3%. For reference, the global GDP is expected to grow at ~4%. So evidently, this sector even though being massive already, is still expected to grow enormously as new business models and revenue streams emerge in the rapidly changing ecosystem.
In a survey conducted by Newzoo on consumer habits on Video Gaming, all age groups are playing or engaging with video games. 80% of GenZ and Millennials are playing video games and are spending almost an hour everyday, on average. This kind of loyal engagement with playing games, is a great health indicator for any industry.
To understand this industry better, we need to look at the value chain of this industry and what are the different players in the ecosystem.
The Ecosystem
The ecosystem broadly comprises of 4 verticals. However, with new business models emerging, and each player in those verticals trying to diversify, the lines have become increasingly blurry.
Developer (Studios):
- The developer or studio (as they are sometimes referenced) are the ones making the game. They are the ones coding / programming the game, testing, work on the story line, create the artwork, music etc.
- To give a movie analogy - they are the equivalent of the directors. They take the concept and turn into a playable game.
- There are different kinds of developers:
- Independent Studios (Indie): They work independently, create games, and either sell the game to a publisher or publish directly for consumer use on online distribution channels such as Steam, EPIC Store or their own website or communities
- Third-party: These studios, are subcontracted by big-name publishers to develop games. This contract could be for 1 game or multiple. But they are not tied to a particular publisher.
- Large Scale developers: These are big name developers who are known to make global blockbuster games. Example: Rockstar is the studio that made GTA (Grand Theft Auto) or Riot Games, the studio which made League of Legends. Because they are so big and have had success, they can afford to publish themselves widely
- Publisher owned: As mentioned, the lines get blurry quickly. Publishers want to vertically integrate and want to develop their own games. So they go and create thier studio or easier still, go and purchase a game studio. Like Insomniac Studios, owned by Sony and the maker of the popular Ratchet and Clank series, or the Marvel’s SpiderMan series.
Publisher:
- I will extend the movie analogy here. The publisher is the equivalent of the movie producer. The publisher is responsible for funding the game development, along with managing timelines and budget. Once game dev is complete, they are also responsible for marketing, PR and distribution.
- The platform where the game will be played is also something a Publisher is a key stakeholder for. Choice of consoles platforms (Xbox, Playstation, Nintendo), computer and mobile is made by the publisher (and the developers), and more the number of platforms, more dev costs, higher marketing budgets, higher costs of distribution etc exist. So publisher decides on how to commercialise the game.
- As mentioned above, the big publishers have become integrated where they have their own studios as well
- Types of publishers
- First party publishers: The likes of Sony, Microsoft and Nintendo, each have their own platforms where games can be played. And they also own publishing of games on those platforms. And as mentioned above they also own some of the development of the games
- Third-party: These companies are not tied to any platform. The likes of Electronic Arts (the developers and publishers of FIFA) or Activision Blizzard or Ubisoft.
- Disruptors: I call them disruptors because companies like Steam and EPIC have upended and lot of traditional business models in this industry. They develop, publish and distribute games. They have extremely engaged communities and they wield a lot of influence in the industry. case in point - EPIC vs Apple law suit.
Distributor
- As the name suggests, this vertical is responsible for distribution i.e getting the game to the gamer / players
- Traditionally, the games were sold in physical, brick and mortar stores. While that still happens, most of the gaming world has now moved online. And so has the distribution
- Types of distribution channels
- Console: If you have an Xbox, you can buy games from the Xbox store. Same for Playstation and Nintendo. These console companies distribute their games through the online stores as well as through CDs which are compatible with their consoles.
- PC: Earlier you could buy a game CD for your computer and play it. But with online you can buy games through the popular distribution channels like Steam and Epic Store. These games can be played on any PC (which is powerful enough)
- Mobile: And then you have mobile games which are distributed through the Apple App Store, or the Google Play Store.
- Retail distribution: Through physical stores or buying games through ecommerce websites like Amazon etc. (Not applicable for Mobile games)
Gamers / Consumers who engage with games
- Traditionally, gamers were just consumers who would purchase and play the games. But now with the evolution of the industry, the gamers are not just consumers but active participants in the whole ecosystem.
- Online game streaming has become an enormous community, centred around the gamers. Gamers stream as they are playing live (against a computer or another competitors). And people are paying to watch other gamers play or engage with their content on online streaming platforms such as Twitch (now owned by Amazon) and several other such platforms
- Creators: Gamers who create content related to video games such as gameplays, secret techniques (speed-running a game), walk throughs etc. have huge following on social media and content platforms. Gamers also create mods (which are modifications of the game to make the gameplay more interesting).
- Esports: Gamers from all around the world competing against each other for crazy prize money across different games
- Game marketplaces: with in-game items becoming more popular than ever, you can buy your favourite swords, skins, guns, tools from other players who have them. Games allow you to have collectibles in-game which can be traded or sold for actual money.
Now where do payments sit in this ecosystem?
Payments fit here, broadly in 3 different ways:
- Consumer to Business (C2B)
- These types of payments are:
- Purchases: Buying the game itself, in-game or marketplace purchases
- Subscription fees
- Donation or tipping (to watch live streamers and compensate for their content) - this is C2B payment and not C2C payment because the business is the facilitator so they keep a commission
- Adding money to wallets (Steam wallets, Playstation store wallet etc.)
- Business to Business (B2B)
- All business are paying their suppliers and meeting their financial obligations
- Some examples of B2B payments are Merchant / Supplier settlements, Developer pay-outs, In-game advertising payouts, License fees etc
- Business to Consumer (B2C)
- With games also being played professionally as a career, we see a new stream of money movement
- This includes creator payouts - money being made by game players by live streaming, or making content on video games
- Esports prize money is another example of money moving from business to consumer
The interesting thing, which I got to know only recently, is that each type of payment is classified and categorised separately, and needs implementation considerations depending on the use case. Different currencies, payment methods, and speed of delivery are some key components any good payment service provider aims to include in the experience. What also is important is % of successful transactions (transactions can fail due to multiple reasons), fraud rates and data security of the sensitive financial data. Payment Service Providers and Acquirers are the key partners in this endeavour and are responsible for working with businesses to implement different use cases.
