Video Games Are Growing More Realistic — and Dangerous

I love my digital stuff. My iPad Pro, Dell laptop and Nexus6 smartphone make me way more productive, and I can trade and catch up on ballgames from anywhere.

Sadly, there is a darker side to digitalization. It can be addictive. People are dropping out, losing themselves outside the physical world. Many are spending their time playing or watching others play video games. And it’s starting to fray the social fabric.

It’s weird because the New Gilded Age is one of unprecedented opportunity. We have access to virtually unlimited compute power and knowledge. If you can dream something, you should be able make it happen.

“Massively multiplayer online game,” “first person shooter” and “role playing game” is the vernacular of gamers. While the phrases may not mean much to many of you, it has become a huge business. A recent Economist article argues it’s an alternative reality that is sucking-in disillusioned young people in America at a dizzying rate.

For example, between 2000 and 2015, the rate of employment for young men in their 20’s dropped from 82% to 72%. Fully 22% of the 2015 jobless cohorts acknowledged not working at all during the year. Furthermore, they are not marrying, nor are they leaving their parents’ home.

Young adults are delaying employment to play video games.

Given the decline in work hours is offset 1-for-1 with a rise in hours spent gaming, Erik Hurst, an economist at the University of Chicago, concludes a significant portion of young adults are “delaying or cutting back employment to play video games.”

It’s something the gaming industry has known for a while. In 2014, Wall Street analysts were shocked when a bidding war broke out for Twitch, a fledging online network where gamers went to watch others play video games. The bidders were Amazon (AMZN) and Alphabet (GOOGL). The winning bid was $970 million.

Since then, Alphabet has scrambled to beef up YouTube Gaming and Microsoft (MSFT) countered with Beam. Last week, Facebook (FB) announced it was bringing its vast social network to desktop gamers. And Nvidia (NVDA), a company that dominates high-end gamer graphics cards, is stepping into the fray, too.

Gaming Sales to Skyrocket

Consulting firm PricewaterhouseCoopers predicts U.S. gaming sales will reach $19.6 billion by 2019. That is a compound annual rate of 30% from 2015. It augers well for leaders like Activision Blizzard (ATVI) with its diverse portfolio and strong franchises like Call of Duty, Overwatch and Candy Crush.

Unfortunately, commerce does not strengthen the social fabric.  Policymakers are being forced to rethink safety nets. The consequences are expensive and long-lasting.

In 2010, a cornerstone of the Affordable Care Act was a provision allowing young people to remain on their parents’ health insurance policies until age 26. In fact, the provision was so popular it was included in the recent repeal and replace effort. This is a symptom, not a solution.

Some warn things will only get worse as robots, both mechanical and software, replace large swaths of workers, before new industries develop. Artificially intelligent software can already write code, they warn. If young people are disillusioned now by grim employment prospects, just wait.

I’m more optimistic. The promise of the New Gilded Age is invention. Digitalization changed the way we consume and the way we connect with each other. It made new business models possible.

In the past, technology has always created new opportunities for investors and society at large. And it will be that way again now.

Best wishes,

Jon Markman

 

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Comments 5

  1. Owen March 29, 2017

    Disagree, the rate of AI progress and the stagnant Human IQ is diverging at an ever increasing rate. Male fertility is dropping. So we have a declining population, declining economy as the number of consumers shrink and a bunch of gamers who eat junk food, don’t go outside or meet girls.

    Reply

  2. H. Horrace Newberry March 29, 2017

    A Brave New World… with a dash of yin and yang.

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  3. Liam March 29, 2017

    You’re more optimistic Jon? Is that because you’re job is safe and you have investment capital and investing acumen in case you were ever out of work? Technology will not solve any problem relating to unemployment. Without a meaningful, purposeful existence, the ONLY thing facing the poor and the middle class is chronic unemployment and massive poverty. And where have you been? Widespread video game addiction has been at epidemic levels at least since the inception of Blizard’s World of Warcraft, if not since the popularization of the internet. Technology is nothing more than silicon opiates the global elites push on the masses.

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  4. Dd March 31, 2017

    Huh, you must be crazy, Yellen and Obama said employment is falling because baby boomers are retiring… Can gov’t be wrong?

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  5. Doug Jaeger April 18, 2017

    The alternative reality of (violent) gaming isn’t “sucking-in disillusioned young people in America at a dizzying rate”. It’s creating disillusioned people who are unplugging from our natural tendency as humans to be social creatures and is contributing to the culture of violence that is pervading the USA. Nothing good comes from this gaming culture, other than profits for the companies that put it out – just like the media that fills our cable channels (and Netflix, Amazon etc.) with nothing but violence. We reap what we sew…it’s laughable when I see people on the news who are shocked at the latest violence in our country. Just like this clown who is killing people and posting it on FB. But it’s OK…lots of investors and people like Zuckerberg are getting rich, rich, rich…

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