The video games industry is a forefront sector for innovation and creativity. With the UK games market worth £7.82 billion in 2023, a 4.4% increase compared to 2022's total of £7.49 billion, the industry is showing its resilience after a difficult few years which followed the gaming “boom” during the pandemic. We comment here on some of the overarching trends and cutting-edge technological progress we have observed through our recent work with the industry.
The era of industry consolidation
We have seen significant consolidation in the video games market. There are many factors at play, but costs and the desire to increase efficiency seem key to this. It is no secret that development costs for AAA titles are substantial and can run into hundreds of millions of pounds.
Mergers and acquisitions can provide access to established titles, new customer bases and revenue streams, together with longstanding IP, which allows for less risky investment in re-releases and sequels instantly familiar to the consumer.
A larger and more diverse business (perhaps with interests, e.g. in hardware or other media) may also be better placed to withstand the investment required in AAA development and to take risks with completely new titles.
On the other hand, clearly no business can be immune from these costs or from general economic conditions, as illustrated by the difficult news of industry redundancies and restructuring (including closing of studios in consolidated groups) which has continued throughout 2024
Live service games
Use of live service games is a business model which can be used to try and maximise the return on investment in a new title, and it continues to be popular with a number of releases seen in 2024.
“The increasing prevalence of live service games is one of the most unmistakable trends in the games industry in recent years. This is being driven both by player demand and that 50% of the top 25 gaming companies by revenue are publishing live service titles is impossible to ignore.” – Game Developer
In general terms, live service refers to a title intended to be played online and maintained with new content over a long period of time, with monetisation through recurring player spending on things intended to enhance the experience such as DLC and in-game items.
The need to keep players engaged over the long term, and to win and keep customer loyalty from existing well-known titles of this type (which already have very loyal fanbases) are potential challenges with this approach as compared to traditional releases. With concerns about these risks being discussed by some developers, it will be interesting to see how the market evolves.
Subscription models
One trend that does seem to be on the up is the use of subscription services.
The industry has been talking for some time about the possibility of “Netflix-style” platforms taking over in a similar way to television and film streaming, although the interactive nature of a video game, and the level of engagement required from a player, means that model may not directly translate.
Even if this model may never replace more conventional sales, we are now seeing subscription services from the major console providers and from publishers, which provide customers with access to new and older titles.
Some AAA titles have also recently been released (even if not exclusively) through the subscription model. We expect this approach is likely to become increasingly common, at least in the short term, as industry players continue to invest in their new services.
Indie developers and regional powerhouses
Away from the largest projects, there is a thriving indie scene in the UK, with such titles often sold through gaming platforms and app stores and, more recently, through publication arrangements with the major subscription services mentioned above.
Which is not to say that smaller companies are not involved with the major developments. The consultancy and “work-for-hire” approach is a valuable revenue stream for many companies (which are often founded by veterans of the AAA world), although many may prefer to focus completely on their own projects.
From our regional offices in cities such as Manchester and Leeds, where a huge amount of indie development is done, we are seeing first-hand the contribution that the industry has made and continues to make around the country. There is a wealth of talent outside the capital working in both large and small companies in regional hubs across the UK, and video games will continue to be a significant driver for the regional economies as well as the national economy.
By enhancing Video Games Tax Relief, improving access to finance, and bolstering skills development, we can empower and fortify the UK’s video games clusters. There is a real opportunity for action by the new Labour government (whose manifesto included a plan to accelerate growth in gaming and other creative sectors), perhaps by implementing targeted funding at a local level as recommended by industry body UKIE.
Spatial computing and XR / AR / VR
“Spatial computing” – the blending virtual experiences with our physical world – is a concept that has been floating around for decades. Many have credited the first formalised use of the term to Simon Greenwold, who presented his thesis on spatial technology at MIT back in 2003, and there have been a number of attempts to get the technology into the mainstream since then (Google Glass was launched over a decade ago…).
But after a stuttering start, will 2024 be the year that spatial computing (and in particular mixed, augmented and virtual reality) has its defining moment?
Recently, we have seen VR games such as “Gorilla Tag” shoot up in popularity (hitting a whopping 1 million players daily earlier in the summer) and significantly, later in the summer, Apple launches its ‘Vision Pro’ headset in the UK (after a few months being available in the US market) to compete with other recently launched, sophisticated (and premium) spatial computing headsets like the Meta Quest Pro.
Apple’s entrance into this market is being heralded as a big step forward for spatial computing technology; Apple has historically been a catalyst for emerging technologies entering into the mainstream (see tablets and wearable tech) – so watch this space.
“The AR and VR video game market will hit $11.0 billion by 2026. The growth follows an 18.5% CAGR from 2021 to 2026.” - Industry ARC
As the technology is expanding, the application opportunities are beginning to present themselves, both for existing IP rightsholders looking to create new experiences from existing IP, and new entrants creating entirely new products – we expect 2024 to see use of spatial computing to continue its expansion way beyond the more obvious (but still incredibly fun) immersive gaming experiences – from training surgeons on ‘virtual’ patients, to revolutionising the way students learn new materials and helping consumers choose and purchase goods.
Rise of the meditative video game
There has been a marked rise in the popularity of the ‘cozy’ game – games with a repetitive nature, in the spirit of mindfulness. “PowerWash Simulator” is a highly successful example of the genre. This trend has continued into 2024, with releases ranging from more ‘on the nose’ meditation games such as “Headspace XR”, released for Meta Quest headsets earlier in the year, to high-profile ‘soft games’ such as “Tales of the Shire” (a Lord of the Rings game) due to launch on consoles and PC later this year.
“One of the many reasons why PowerWash Simulator has been such a success is the help it has given people with their mental health. Players of the game have even taken part in a research project by Oxford University looking at the relationship between gaming and mental health. As society starts to take mental health more and more seriously, the birth of games like PowerWash may be seen in years to come as a key moment in a change of attitude to gaming.” – Karish Andrews, Partner – Lewis Silkin
These games appear to be attracting a new audience of ‘non-traditional’ gamers, and we expect to see this corner of the market continue to grow throughout the second half of 2024. Indeed, over 70 indie titles were trailed at the most recent edition of Wholesome Direct, showing the continued interest in this genre.
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