Bush stock market video game industry
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TTWO , and Activision Blizzard NASDAQ: ATVI stock prices have soared in recent years, driven by the shift to digital distribution of games and content. The growth of mobile gaming, the emergence of e-sports, and digital distribution of games are allowing game companies to expand margins and expand the global audience for gaming.
Faster internet connections and online-enabled consoles have been game-changers for video game publishers. Physical sales of games in retail stores are dwindling as gamers choose to download games directly to their console.
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This new business model of selling digital games and content is performing wonders for game companies' bottom line.
As a result, game publishers are drowning in cash as the need for physical game discs is diminishing and is being replaced with high-margin downloadable content directly distributed to gamers over consoles.
The improvement in profitability stems from growing digital sales of content, including full-game downloading on consoles, sales of additional in-game content, and the growth of mobile games. EA data by YCharts. As margins and profits expand, game companies are finding other attractive growth areas within the industry to allocate excess cash to drive future growth.
The top three game publishers are beginning to allocate capital into mobile gaming as a way to diversify revenue channels and benefit from the fast growth of the mobile market. Zombies , in addition to mobile versions of its own console franchises. Perhaps the biggest opportunity facing game companies today is the global phenomenon of competitive gaming, or e-sports. Newzoo estimates the global e-sports audience to be million, with e-sports spectators totaling million with the balance being active participants.
The large global audience is a great opportunity for game companies to reach new audiences by designing games with compelling multiplayer competitive game modes.
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Activision Blizzard, for example, designed Overwatch to specifically appeal to the global e-sports audience. Sports games like EA's FIFA and Madden NFL , as well as Take-Two's NBA 2K are perfect for e-sports as well. The e-sports market has been around for several years, but game companies are only now beginning to actively pursue it as another revenue channel.
The bright prospects for the video game industry is also attracting outsiders like Amazon. Facebook has its Oculus Rift virtual reality headset.
Amazon and Alphabet offer game developers cloud storage solutions to host mobile games and both are also competing in live game streaming. Amazon has even embarked on a journey of developing games with Amazon Game Studios. These tech giants have clearly noticed the growing audience for e-sports and the high engagement levels demonstrated by gamers. In the fourth quarter of , Activision Blizzard players spent about 43 billion hours engaged with the brand's various game titles.
It shows how video games have become a major form of entertainment which bodes well for the industry's future. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors.
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