Video Games Play with Digital Transformation
The new season of Fortnite is almost here and it’s going to be sensational.
According to a report on Wednesday from Bloomberg, Epic Games, Fortnite’s parent company, is on the verge of raising $700 million to fund future iterations of the multiplayer battle royale video game.
The investment is indicative of how quickly the entertainment landscape is changing.
To be clear, Fortnite is a proven commodity. It’s a business that generated $1.8 billion in 2019 selling advertising and hawking virtual trinkets like avatar outfits and extra lives. The online community now has millions of active players. In May 2020, registered users spent a collective 3 billion hours inside the Fortnite universe, battling zombies and each other.
The success is a far cry from the tiny company Tim Sweeny started 30 years ago with $4,000 in the basement of his parent’s Maryland home.
At the time he was working toward a mechanical engineering degree and fiddling with game development in the evenings and weekends. By 1998, Sweeny had developed several smaller games and the Unreal Engine, a software tool to help build gaming code.
The reported $700 million investment brings the value of Epic Games to a staggering $15 billion.
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Investors understand that video games resonate with consumers on a different level than movies and even live sports where the interaction is mostly passive. As the gameplay has improved, video games have become more immersive. And always-on network connectivity means players scattered across the world can communicate in real-time.
In many ways, the evolution of video gaming is a digital transformation story. The kicker is the biggest platforms have found an unobtrusive way to lure in customers and then monetize their time.
In April, the Fortnite platform hosted a rap music concert. 27 million people showed up to watch a virtual Travis Scott performance. The 10-minute concert was a kaleidoscope of color, unmoored from the laws of the physical world. It showed what is possible.
And the potential of the sector is not confined to just Epic. There are public companies that stand out in the crowd, too …
Activision Blizzard (Nasdaq: ATVI, Rated “C”) and Electronic Arts (Nasdaq: EA, Rated “C+”) each moved to record highs Wednesday. The gains push their market capitalizations to $56.2 billion and $36.3 billion, respectively.
In addition to solid game franchises like Call of Duty and Madden NFL, these firms have followed Epic into producing their own free-to-play online battle royale games.
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Warzone, an Activision title, and Apex Legends from Electronic Arts have each attracted tens of millions of users.
The videogame industry is rapidly changing and with that change comes opportunity for investors.
Jon D. Markman