Game On: The UK Gaming market hits a record valuation

April 7, 2022

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3 min read

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What's going on here?

The UK gaming mania continued its impressive ascent in 2021 with the market for video games reaching a record ÂŁ7.16bn valuation.

What does this mean?

Fuelled by lockdowns and significant changes in working patterns, the UK gaming market has grown phenomenally. Gamers spent ÂŁ7bn on games, consoles, and related devices in 2020, representing an almost 30% increase from the amount spent in 2019. With loosened coronavirus restrictions, reopened workplaces, and a growing desire for in-person socialising, 2021 saw only a 2% growth in revenue. However, the gaming desire remains with a record ÂŁ7.16bn spent on gaming last year.

Much of this revenue came from sales of popular titles like FIFA 22, Call of Duty: Vanguard and Grand Theft Auto V. Although overall sales of titles reduced by 6% from their 2020 highs, consumers spent ÂŁ4.28bn on such software. Sales of consoles, including the highly sought-after PlayStation 5 and Xbox Series X/S, continued their upward trend and contributed ÂŁ1.13bn of the overall market value. Rounding off the record valuation was a 42% increase in sales of virtual reality hardware, a 34% growth in merchandise sales, and an unchanged level of revenue from mobile games.

What's the big picture effect?

As the UK gaming market continues its impressive pandemic-fuelled growth, several critical factors could see these numbers plateau or fall. Chief among these are global supply chains shortages and concerns over availability. Due to global semiconductor chip shortages, demand for the latest consoles outstrips the strained supply. These chips, found in everything from microwaves to cars and most electronic devices, are vital pieces of technology for consoles. Nintendo slashed its sales projections for its Switch console by about 6% in November 2021. The manufacturer expects to sell 24 million units by the end of the 2021-2022 fiscal year, a 1.5m reduction. As gamers face extended delays to receive hardware, their interest could wane.

Another factor that could spell problems for the UK gaming industry is the current cost-of-living crisis gripping British households. British wallets face record fuel prices, a 54% rise in the energy price cap, increases in taxation and wages failing to keep up with rampant inflation. The consumer confidence index plunged to minus 26 in February, its lowest since January 2021, with people signalling strained finances and less disposable income. Faced with massive pressure to heat homes, fuel cars, and pay bills, Britons may not demonstrate the same enthusiasm to splash the cash on popular gaming titles or software.

This may spell bad news for UK gaming manufacturers as waning demand and depressed company valuations could leave fledgling companies desperate for cash injections. However, established companies in this space could be in for a bargain. David Braben, the founder of Frontier Developments, called for greater investment into UK gaming companies to avoid an exodus of homegrown talent. Such concerns are valid when considering recent moves by big players in the gaming space. Deals for UK video game makers rose 63% in 2021, with the £1bn acquisition for Playdemic by Electronic Arts and the £850m acquisition of Sumo Group by the Chinese tech group Tencent signalling the popularity of UK companies and the desire to do deals at a cheap cost. Even Braben’s Frontier has become an acquisition target, partly driven by its 52% share price plunge in 2021.

As shocks in other “pandemic stocks” such as Netflix and Peloton show, consumer behaviour is hard to predict. The UK gaming sector has thus far shown its ability to grow and maintain its growth over the pandemic. Whether this growth is sustained as economies reopen and COVID-19 retreats into the rear-view remains to be seen.

Report written by Jude Folorunso

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