By Nick Frasse, Associate Product Manager
The world of video gaming is experiencing an unprecedented transformation. The catalysts? Cutting-edge technologies like artificial intelligence (AI) and edge computing. These technologies are not just revolutionizing the gaming experience but also how games are developed, offering a democratizing effect that’s set to reshape the industry landscape.
Handheld Power Redefined
Edge computing, which brings computation closer to data sources for real-time interaction and responsiveness, holds massive upside for the gaming industry. Gamers could enjoy faster load times, near-zero latency, and an overall improved gaming experience. But perhaps even more exciting is the possibility of players creating their own games in real time. This potential shift towards player-creators could redefine the boundaries of creativity and player agency, signaling a future where anyone could become a game developer. An example of this is Legend of Zelda: Tears of the Kingdom which leverages user-generated content (UGC) to foster creativity and engage its community. This freedom of creativity coupled with the tangible impact of players’ actions on the game world has boosted sales, driven engagement and created a viral wave on social media.
Free Guy is Paid Guy IRL
Simultaneously, AI advancements are opening innovative avenues in game development. Machine learning and natural language processing are breathing new life into Non-Playable Characters (NPCs), creating advanced AI NPCs that can conversate more naturally and make intelligent decisions. This level of immersion is clearly in high demand, with a recent study revealing that 99% of gamers believe advanced AI NPCs would enhance gameplay.
While these advanced AI NPCs can enrich gameplay, they also present a valuable revenue opportunity for publishers. The same study found that 81% of gamers were willing to pay more for games with advanced AI NPCs, suggesting additional untapped income streams for these features. For aspiring publishers and indie developers, this is an opportunity to meet the growing demand for immersive experiences while driving additional revenue.
Pac-Man Growth Strategy
Though AI and edge computing could diversify game development, they also have the potential to influence M&A activity in the gaming industry. As more non-traditional developers use these technologies to create innovative games, bigger publishers could start focusing their growth strategies on acquiring emerging new titles. This might lead to a surge in M&A activity in the medium to long term, fueling industry growth while also nurturing innovation.
As we continue into this exciting future, it’s clear that the boundaries between players and creators are set to blur, paving the way for an industry that is more innovative, inclusive, and dynamic than ever before.
One way for investors to access the space in a diversified way and to capture the future potential of the industry is through the VanEck Video Gaming and eSports ETF (ESPO). ESPO is a passive product that tracks the MVIS Global Video Gaming and eSports Index. The index targets the 25 largest most liquid companies in the industry that drive 50% or more of their revenue from said industry.
Originally published 9 June 2023.
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