Matt Tonge

How we’re playing the video gaming market

Matt Tonge

The video gaming industry has come a long way from being just a teenager’s pastime – it is big business. The market has seen significant growth over the last decade, with global revenue rising from US$52bn in 2012 to US$104bn in 2017 and another US$30bn of annual revenue is expected to be added over the next three years (source: PWC, Berenberg).


The sector has provided investment opportunities for the Economic Advantage process due to the abundance of intellectual property (IP) assets within listed companies. In our funds, we have historically shied away from investing in “hit-driven” games publishers, considering them to have too much forecast risk attached, which can make share prices very volatile. Instead, we have more often chosen to invest in companies providing support services to games developers and publishers, which benefit from the industry’s rapid growth but enjoy more predictable returns.


Another recent trend which has made the sector more attractive to us is the shift to digital distribution of games and gaming content. Gamers can now purchase additional game content online via their console, meaning existing games stay in vogue for much longer. This not only gives publishers and support services providers a chance to monetise their IP for a longer period of time, but also means that independent developers are now on more of a level playing field when it comes to distributing their games.


Below we take a more in depth look at the three sector stocks which are held in the funds.


Keywords Studios

Keywords Studios is a provider of outsourced art, localisation and testing services to the video games industry and was first added by the team in 2013. Its Economic Advantage is in the strength of IP and a physical distribution network of over 40 facilities in 20 countries. It has a strong market share, counting 23 of the top 25 games development companies as clients. The company has enjoyed rapid growth, fuelled by acquisitions, as it looks to consolidate what it considers to be a highly fragmented market.

Halo Video Game

Keyword Studios produced the art on Halo 5: Guardians

Sumo Group

The company was added to portfolios at the end of 2017. It provides a range of services to video game publishers and developers, ranging from visual concept design and pre-production through to marketing and post-release support. As one of the few independent studios in the UK with the scale to provide full turnkey development of a game, it often becomes embedded within successful franchises, becoming the ‘spiritual owner’ of the publisher’s IP. This creates an effective barrier to competition and also allows the company to benefit from the move to digital distribution discussed above.


Sonic Video Game

Sumo Group was the developer of Sonic & All Stars Racing Transformed


In May 2018, Team17 became the most recent video gaming stock to be added to our portfolios. It is different to Keywords Studios and Sumo Group in that it is not only a partner to external independent video game developers but is a video game publisher itself. The company supports both its own IP (in-house developed games) and games developed by third parties, and aims to be a one-stop-shop for all the services a developer might need to bring their game to the point of commercialisation, including distribution relationships to enable a cross-platform release of the game. It has a tried-and-tested method for narrowing down its extensive pipeline of prospective indie developers to just a handful of the best quality games to back.

Worms Video Game

Worms is one of Team17’s core franchises

All use of company logos, images or trademarks in this document are for referential purposes only.


For a comprehensive list of common financial words and terms, see our glossary here.

Key Risks 
Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. 
Some of the Funds managed by the Economic Advantage team invest primarily in smaller companies and companies traded on the Alternative Investment Market.  These stocks may be less liquid and the price swings greater than those in, for example, larger companies. The performance of the  GF UK Growth Fund may differ from the performance of the  UK Growth Fund and will be lower than its corresponding Master Fund due to additional fees and expenses.
The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product.  Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.
Wednesday, September 12, 2018, 4:59 PM