This essay was written collaboratively between Naavik with BITKRAFT Ventures. BITKRAFT is one of gaming’s top venture firms, investing in notable companies like Epic Games, Manticore, & Yield Guild Games. Matt Dion, Jimmy Stone and Abhimanyu Kumar contributed from Naavik’s side.
In 2021, gaming—consistently reported as a roughly $175B industry¹—stands as the largest media category by revenue. Having recently claimed the leading position from long-term media behemoth linear television, gaming today is larger than the global music, film, and on-demand entertainment sectors combined. And to complement this new standing, among these media categories, gaming is also the fastest-growing at around 10%, according to various industry research firms including Newzoo or WSJ / Activate.
Nevertheless, and as counterintuitive as it may sound, to us at BITKRAFT and Naavik, we believe $175B remains an incomplete underestimation of gaming's potential market size. As a result—and as this report breaks it down—we have developed what we believe to be a more holistic method of measuring the size and scope of the global games industry.
To preface our approach, previous attempts to size the industry have been smaller in scope, limiting their measurements to revenues from games software alone (e.g. sales and in-app purchases from PC, console, and mobile titles). Others have approached the market sizing exercise by looking only at public company valuations. Both of these approaches exclude several important sectors, including entire verticals that depend upon games and gamers as their primary sources of revenue. Areas such as esports, gaming-related adtech, and game streaming have previously been ignored. So too have gaming hardware and streaming peripherals, the sales of video game consoles, as well as emerging gaming platforms, to say nothing of the growing swath of blockchain games and play-to-earn ventures.
Having an accurate picture of the market is important when designing new games, launching new products (or businesses), and judging investment opportunities. Just as the definition of a “gamer” has evolved, we believe so too must the definition of the “games industry”. Segments that were once ignored have now matured to support legitimate growth businesses. Gaming hardware no longer encompasses only consoles, but also esports peripherals and streaming equipment. Revenue no longer ends with PC, console, and mobile, but also VR and blockchain gaming.
As two organizations focused on the future of games and interactive entertainment, we at BITKRAFT and Naavik felt it was critical to undertake this exercise in order to reframe the conversation. As our analog and digital lives converge ever closer, gaming and interactive entertainment will likely be ubiquitous in our new Synthetic Reality. It is more important than ever that entrepreneurs, business leaders, and investors understand the full scope of the gaming environment in order to have the opportunity to succeed.
Our Approach to Sizing
The market size most frequently cited for the global games industry comes from Newzoo, which puts it at $175.8B in 2021.² However, as mentioned, this sizing ignores several key segments outside of gaming content and virtual goods purchases. Excluded categories include other forms of content and IP sales, but more importantly the sales of any gaming hardware and equipment (including consoles) as well as gaming software such as streaming services (e.g., Twitch), gamer communication (e.g., Discord), game engines (e.g., Unity), and other items.
After incorporating gaming-specific hardware and software (e.g. development tools, engines, etc.) as well as complementary markets (e.g., streaming, esports, etc.), we project a more complete global market size of $335.5B in 2021—over 90% or nearly $160B higher than Newzoo’s estimate.
In order to derive our estimate of the size of the global games industry in 2021, we performed a bottom-up analysis of industry segments involved in producing, monetizing, playing, and/or participating in games. Wherever possible, we have based our estimates on what we believe to be trusted analyses and/or direct earnings reports. We also utilized our own internal estimates and projections where quality data was more difficult to source. In all cases, we sought to be conservative with our estimates, and have called out potential areas for future change (whether growth or contraction) in the relevant sections below. You can read more about our methodology at the end of this piece.
Our detailed market analysis uncovered several interesting findings:
- Game Content & IP ($193.3B)³ is more than double the combined size of Gaming Hardware⁴ and Gaming Software⁵ ($85.4B).
- Within Game Content & IP, Mobile Gaming Content⁶ ($79.1B) is almost as large as PC & Console Gaming Content⁷ combined ($82.5B).
- Grey Market Game Sales⁸ ($11.5B)—the trade of video game systems, games, or virtual items through unintended or unofficial methods—are estimated to be almost twice as large as several more highly publicized segments⁹ (VR Gaming Content = $3B; AR Gaming Content = $0.5B; HTML5 Gaming Content = $2.6B).
- All of Blockchain Gaming10 ($1.5B) is today "only" approximately 10% of the size of Grey Market Game Sales¹¹, albeit growing rapidly. The introduction of digital ownership via NFTs suggests blockchain games could potentially eat into the large grey market.
- PC Gaming Hardware¹² ($42.9B) is significantly larger than Console Hardware¹³ ($24.8B), despite recent successes of Sony Playstation 5, Microsoft Xbox One, and Nintendo Switch.
- The Esports¹⁴ ($1.1B) and Game Engine¹⁵ ($1.9B) markets are still relatively small in comparison to the overall gaming industry.
Game Content & IP
Revenues from Game Content & IP are the typical standard by which the gaming industry has been measured in recent years. Here, we consider game sales and microtransactions across PC, console, and mobile devices (as well as software services and add-ons, where available), while layering on revenues from esports, arcades, and location-based gaming. We have also taken conservative approaches to what we’re referring to as “Emerging Platforms”, in which we include VR, AR, Web-Based / HTML5, and blockchain games. Finally, we attempt to factor in sales and trading in grey markets, as well as revenues from the sale of cheating software.
It comes as no surprise to us that this data reveals revenues from mobile devices as the driving force in this section of the market. Mobile gaming is well-established in 2021, and PC and consoles have even more entrenched audiences to draw from. However, we are beginning to see sizable markets in mixed reality, with VR & AR content combining for $3.5B.¹⁶ It is worth noting that here we excluded mobile-based AR content and instead referred to games sold on head-mounted devices only, such as those offered by Tilt Five (one of the first AR gaming devices available to consumers). This also excludes the $5.4B sales of headsets (e.g., Oculus Quest) themselves, which we included in their respective hardware segment instead.
Additionally, we were surprised by the estimated size of grey market sales¹⁷ ($11.5B), which, when considered in tandem with the emergence of play-to-earn and other blockchain games, could change drastically in the coming years.
Given the ever-changing tastes of consumers in the games industry, and the sometimes hits-driven nature of the business, we have identified a couple of areas within the Game Content & IP segment that could potentially change significantly in the coming years.
First, it is important to recognize that blockchain gaming is still in its relative infancy. According to DappRadar, there are just over 1,000 games on public blockchains compared to the tens of thousands seen in the early days of Apple’s App Store. As more games are introduced and adoption barriers are lowered for users, the blockchain game market has the potential to grow meaningfully. On the other hand, there is always a possibility that blockchain gaming may enter the “Trough of Disillusionment” phase of the Gartner Hype Cycle, failing to gain traction among gamers and resulting in a pullback of revenues.
Second, esports revenues are still relatively small in comparison to the broader gaming market. As we (hopefully) exit pandemic lockdowns, esports viewership—and by extension, revenues —could accelerate. This is also likely to be strongly correlated with the success or failure of new gaming IPs. As new competitive games are introduced to the market, further esports ecosystems could develop around them, bringing in new fans, new events, and eventually new revenue streams.
One key part of the gaming industry that has historically been excluded from market sizing reports is the gaming hardware vertical. There are good reasons for this, of course—after all, who is to say that a cell phone is not also a mobile gaming device, or that a PC workstation is not also a gaming rig? With that in mind, a good place to start is with gaming consoles, where we began our exploration with the heavyweights: Microsoft’s Xbox ($6.7B), Sony’s Playstation ($10.4B), and Nintendo’s Switch ($7.8B)¹⁸.
With regards to PC hardware, we have divided our analysis into three areas: standalone gaming PCs and laptops; gaming components (in which we include GPUs); and gaming/streaming peripherals. Given the increasing popularity of PC gaming and streaming, as well as the success of companies dedicated to the space such as Corsair and Razer, we felt it crucial to include these revenue streams into our analysis.
One potential area for future changes is VR hardware. According to the Entertainment Software Association, 73% of US gamers own a console but only 29% own a VR headset. We discussed how VR sales could potentially surpass console sales in the next few years on a recent podcast. Additionally, meaningful investment is being made in the space by tech giants such as Facebook, Apple, and Sony. Yet there are still major technological hurdles to overcome, and a non-zero possibility that head-mounted devices may never truly breakthrough to a mass-market audience.
Another important gaming hardware segment to consider going forward is mobile gaming devices¹⁹ ($39.7B). This already-large vertical could experience even further growth as the proliferation of mobile gaming likely continues worldwide and device manufacturers continue to seek to improve their offerings targeted directly towards mobile gamers.
Here, we are measuring revenues from a variety of games-related services, both B2B (including B2Creator) and B2C. The vast majority of B2B revenues come from mobile advertising, as well as game engines and development tools.
B2C revenues are generated primarily from gaming videos, ($9.3B²º), which includes streaming platforms such as Twitch and YouTube Gaming. We also expect nascent, but growing B2C markets in the areas of game coaching and communications platforms, such as Discord or Teamspeak.
Game engine revenue ($1.9B²¹) is a small portion of in-game advertising revenue ($20B²²). Popular game engines like Unity and Epic’s Unreal Engine are currently prioritizing user growth over monetization. Over time, these companies could transition more towards monetization, potentially resulting in this industry vertical’s growth. On the other hand, new entrants seeking to further democratize game creation such as Manticore Games may end up applying downward pressure on industry margins as competition for developer share heats up. These organizations have thus far competed on the basis of offering ever-smaller revenue splits, which may result in a race to the bottom.
Elsewhere, we may see changes in the game coaching ($1B²³) vertical, as we project the overall influence of esports to continue growing. We have already seen U.S. colleges institute scholarship programs, and it is not far-fetched to expect that coaching will further penetrate the amateur/hobbyist segment of gamers.
In summary, we estimate that the gaming industry’s complete market size is potentially significantly larger than what has previously been reported. We believe that this difference is primarily driven by gaming hardware, non-game software, and grey market sales. As the industry evolves, so will our approach to measuring its size and scope, especially as we expect emerging game categories (e.g. blockchain gaming, VR/AR, etc.) to add new growth opportunities and potentially chip away at existing categories.
We are hopeful that our market sizing approach is educational for investors and industry professionals alike as they consider how to evaluate the potential of gaming and the opportunities available to businesses.
Who We Are
BITKRAFT Ventures is a global early and mid-stage investment platform for gaming, esports, and interactive media. Founded by esports veteran Jens Hilgers, BITKRAFT serves a worldwide network that spans some of the industry’s most forward-thinking startups and founders working to build and operate the virtual worlds and economies of the future. BITKRAFT operates four funds with a total of over $500M USD in assets under management and has over 50 companies in its global portfolio.
BITKRAFT’s experienced international team seeks to create substantive value through early candid partnerships, domain experience, entrepreneurial history, and a global ecosystem of strategic partners.
Naavik, in Hindi, represents the boatmen who help passengers navigate convoluted waters and reach their desired destinations. We work similarly.
Ever since our founding in 2019, we’ve helped 50+ companies across the gaming industry reach their desired destinations of success. Whether it’s market research, game design assistance, user acquisition expertise, M&A due diligence, or even long-term advisory relationships, we’re here to help everyone better master the business of gaming.
In 2020, Naavik merged with Master the Meta to provide outstanding and informative content through our newsletter, deep dives, and podcast. You can learn more about the Naavik team, check out our work, and get in touch through our website.
Overview of Underlying Data by Segment
Sources & Notes
1: Newzoo - Global Games Market to Generate $175.8 Billion in 2021; Despite a Slight Decline, the Market is on Track to Surpass $200 Billion in 2023
2: Newzoo - Global Games Market to Generate $175.8 Billion in 2021; Despite a Slight Decline, the Market is on Track to Surpass $200 Billion in 2023
3: Game Content & IP includes several subsegment estimates. PC, Console, Mobile, Tablet, and Web-based / HTML5 2021 market size estimates are sourced from Newzoo. VR and AR 2020 market size estimates are sourced from Digi-Capital. Blockchain gaming 2021 market size estimates are sourced from Non-fungible.com, Delphi Digital, and BITKRAFT / Naavik internal estimates. Retail sales are forecasted based on arcades and location-based VR market size estimates sourced from Absolute Reports and Futuresource Consulting VR. Grey market sales and trading market size estimates are sourced from Deutsche Borse Group and assumed to grow at a similar rate as the Game Content & IP market. Cheating market size estimates are sourced from the South China Morning Post and include China only. Esports market size estimates are sourced from Newzoo.
4: Gaming Hardware includes several subsegment estimates. PC Gaming Hardware 2020 market size estimates are sourced from John Peddie Research. Console Gaming Hardware market size estimates are sourced from Sony, Ampere Analysis, and Nintendo. VR / AR Hardware market size estimates are sourced from CCS Insights and Statista. Mobile Device market size estimates are sourced from Accenture.
5: Gaming Software includes several subsegment estimates. Streaming Platforms market size estimates are sourced from Accenture. Communication Tools market size estimates are sourced from Business of Apps. Coaching market size estimates are sourced from Bloomberg. Game Engines are sourced from Unity and BITKRAFT / Naavik internal estimates. Developer Tools market size estimates are sourced from Research and Markets and BITKRAFT / Naavik internal estimates. Ads and Adtech market size estimates are sourced from Accenture.
6: Mobile 2021 market size estimates are sourced from Newzoo.
7: PC and Console 2021 market size estimates are sourced from Newzoo
8: Grey market sales and trading 2021 market size estimates are sourced from Deutsche Borse Group’s 2015 market size estimate, which is then assumed to grow at a similar rate as the Game Content & IP market.
11: Grey market sales and trading 2021 market size estimates are sourced from Deutsche Borse Group’s 2015 market size estimate, which is then assumed to grow at a similar rate as the Game Content & IP market.
12: PC Gaming Hardware 2020 market size estimates are sourced from John Peddie Research.
14: Esports market size estimates are sourced from Newzoo.
15: Game Engines are sourced from Unity and BITKRAFT / Naavik internal estimates.
16: VR and AR 2020 market size estimates are sourced from Digi-Capital.
17: Grey market sales and trading 2021 market size estimates are sourced from Deutsche Borse Group’s 2015 market size estimate, which is then assumed to grow at a similar rate as the Game Content & IP market.
19: Mobile Device market size estimates are sourced from Accenture.
20: Streaming Platforms market size estimates are sourced from Accenture.
21: Game Engines are sourced from Unity and BITKRAFT / Naavik internal estimates.
22: Ads and Adtech market size estimates are sourced from Accenture.
23: Coaching market size estimates are sourced from Bloomberg.