The most important video game industry theme for the next year is simple. The incredible amount of upcoming game releases. The video game industry had an unprecedented number of game release delays in 2020, 2021, and 2022. In the PC and console markets, game developers have mitigated delays with “Early Access” releases through various digital distribution services such as Steam, GOG, Xbox, PlayStation, Google Play, etc. Early access games are playable versions of unfinished products that may be monetized. These are also known as “First to Play” on Android.
What Are Early Access Games?
Gamers are often willing to invest both time and money to support game development, even if that includes tolerating incomplete content, bugs, or crashes. Early access offers advantages for both developers and gamers as the final product can be improved because of an increased number of testers, who can provide feedback and request particular features. Player feedback benefits the development team because it can provide valuable insight into what elements of the game are successful and which ones need to be improved. Developers also have the option to monetize and receive “pre-sale” revenue before the official release.
What was once referred to as a “beta-version,” early release games now include pre-alpha, alpha, beta, and “final release”. While this might be a bit confusing to novice gamers, the naming conventions help identify where a game is in the development cycle. Whatever phase the incomplete game is called, according to gg.deals, a website for tracking and finding discounts on video games, there are currently 2,027 early-access games on PC, with 543 of them expecting to reach official release in the upcoming year. Additional early-access titles are available on Xbox, PlayStation, Android, and Apple. Plus, there will be traditionally-released games that have undergone private beta testing.
Outlook for the Video Game Tech Industry
The potential influx of new releases could have both a positive and negative effect on video game industry sales. On one hand, there could be an adverse impact on prices and accelerate discount schedules for niche titles. On the other hand, cheaper access may encourage gamers to experiment with different types of games such as first-person shooters (FPS), real-time strategies, role-playings, and simulations.
Our observations suggest that gamers who engage with multiple genres are likely to have a higher total expenditure compared to those restricted to one particular genre, e.g. a gamer who exclusively plays FPS titles such as Call of Duty and Battlefield.
The additional positive benefits of this phenomenon can lead to growth in the video game industry. Gamers sharing experiences on social media has been known to inspire new gamers to join the hobby. As we have seen, those excited about new titles will share gameplay videos and discuss them with friends. This could potentially lead to an increase in the global population of gamers, further increasing revenue through sales of games, platforms, and accessories. The EEFund Video Game Tech Index is designed to include both software and hardware companies and could benefit from this user growth.
Beyond new games, extended reality (XR) and virtual reality (VR) just won’t go away. It gets better and better and has the potential to command double-digit percentages of game industry revenue someday. The newly released PlayStation VR2 headset from Sony deserves a mention. The new headset is expected to improve visuals, sound, and comfort. It is also important to note that the PlayStation VR2 headset will be compatible with older games and will use the same accessories as the legacy headset. This could help boost sales of headsets even further due to potentially lower prices compared to its predecessor.
In conclusion, the landscape of the video game industry is constantly changing with new titles, platforms, and accessories. Early access games, XR and VR technologies, as well as private beta testing, are helping shape the industry in a variety of ways. While these developments may be complex, they ultimately benefit developers and gamers alike by offering new experiences that can potentially lead to user growth and increased revenue for the industry.
EE Fund Video Game Tech Index Performance Commentary
As we accurately forecasted in our last update, industry growth was muted in 2022 and the index return reflected it. Widely covered in the media, there have been declines in video game industry sales. However, many of these reported declines were year-over-year comparisons against 2021, which was an anomalous and unprecedented period of industry growth.
Source: Prime/Level ETF. Holdings are subject to change without notice. For the most recent holdings and standardized fund performance, visit etfmg.com/gamr. Past Performance Does Not Guarantee Future Results.
We believe the industry is now poised for healthy sales due to pent-up demand and gamer population growth, as long as global economies behave. And even if there are temporary blips in global economic health, for dedicated players, gaming remains one of the most cost-effective “stay at home” electronic entertainment choices. Long term, we believe game tech represents one of the most exciting potential growth opportunities out there.
For informational purposes only, the specific investments shown represent only the top contributors and detractors for the relevant performance time period. The selection criteria used to determine the top contributors and detractors remain the same across performance measurement periods.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by calling 1-844-ETF-MGRS (1-800-889-1438), or by visiting www.etfmg.com/GAMR. Read the prospectus carefully before investing. Securities mentioned may or may not be held in the Fund and are subject to change without notice.
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility. Video Game Tech Companies face intense competition, both domestically and internationally, may have limited product lines, markets, financial resources or personnel, may have products that face rapid obsolescence, and are heavily dependent on the protection of patent and intellectual property rights. Video Game Tech Companies are also subject to increasing regulatory constraints, particularly with respect to cybersecurity and privacy. Such factors may adversely affect the profitability and value of such companies. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price volatility than large-capitalization companies. The Fund’s return may not match or achieve a high degree of correlation with the return of the EEFund Video Game Tech Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market.
ETF Managers Group LLC is the investment adviser to the Fund.
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