In June 2019, CD Projekt Red, a Warsaw-based game developer, held a briefing for its highly anticipated title, Cyberpunk 2077, at E3 2019. The long-awaited, dystopian RPG was first announced back in 2013. CD Projekt Red has been recognized as a leader in the development of intricate open-world RPGs, fueled in part by the latest entry in its critically acclaimed series The Witcher, which took home the Game of the Year award at the Game Developer’s Choice Awards in 2016 for The Witcher 3: Wild Hunt. Fans in attendance at E3 2019 that were expecting the usual story trailer (and perhaps even a release date) were stunned when Keanu Reeves’ likeness appeared in the trailer in the form of the Johnny Silverhand, a character first introduced in Cyberpunk 2013 – a pen and paper RPG released in 1988. These same fans were even more surprised when Keanu himself stepped on stage after the trailer to wrap up the presentation. The landmark reveal of the Hollywood A-lister, which will undoubtedly go down as one of the greatest E3 moments in the 25-year history of the event, illustrates a developing entertainment industry trend that has become increasingly apparent over the last few years: the convergence of the video game industry with traditional media such as movies and television.

Keanu Reeves (The Matrix Trilogy and John Wick) as Johnny Silverhand in CyberPunk 2077 (2020)

The Crossover of High-Profile Actors and Actresses into AAA Game Titles

In recent years this trend has manifested itself via the crossover of high-profile actors and actresses into AAA titles across a broad spectrum of gaming genres. It’s important to note that certain facets of video game production, such as voice acting, have featured well-known Hollywood actors for quite some time. Samuel L. Jackson (Grand Theft Auto: San Andreas, 2004), Liam Neeson (Fallout 3, 2008), and Sean Bean (Elder Scross IV: Oblivion, 2006) are just a few examples of prominent crossover roles. However, with recent advancements in facial recognition and full body capture software, actors are not only providing the vocals for animated characters, but also serving as the actual character models. These technological advancements, coupled with ballooning game development budgets that allow for more in-depth writing and storylines, provide an additional platform for artists to exhibit their skills. Moreover, certain titles, such as Kojima Productions’ upcoming Death Stranding, have multiple prominent actors (Norman Reedus and Mads Mikkelsen) in leading roles. Given this, one can conclude that in addition to story, graphics, and gameplay, it’s likely that future AAA games may also rely on star power provided by large, well-known casts to drive sales.

Norman Reedus (The Walking Dead, Blade II, The Boondock Saints) and Mads Mikkelsen (Rogue One, Doctor Strange, Casino Royale) in Kojima Productions’ Death Stranding (2019)

The Proliferation of Film and Television Game Adaptations

A separate but related trend is the proliferation of high-budget live-action films and television series based on video games. Over the last few years, there have been several high-budget crossovers such as Rampage (Warner Bros. Pictures, 2018), Assassin’s Creed (20th Century Fox, 2016), and Warcraft (Universal Pictures, 2016). Although these films were largely considered critical and commercial flops in the US, they were able to leverage their globally recognized brand names to help close the ticket sales to production cost gap. Despite the poor US box office performance of video game-related films in recent years, there are still several video game-to-film adaptations on the horizon, such as Sonic the Hedgehog (Paramount Pictures, 2020) and Unchartered (Sony Pictures, 2020), implying that film studios are still willing to take financial risk in hopes of landing a hit. Recent results of this trend have been encouraging. For example, Detective Pikachu (2019), featuring Ryan Reynolds who voiced the eponymous mouse-Pokémon, was the highest reviewed live-action film based on a video game of all time and has been the 9th highest grossing movie of 2019 so far.
A similar pattern can be seen in television, with several live action adaptations set to hit the markets. Looking to the near future, there are at least three video game-based series slated for release, including live-action adaptations of Final Fantasy XIV and the Halo series by Sony Pictures Television and Showtime, respectively. The frequency of game-based adaptations is indicative of both the blurring lines between video games and Hollywood and real consumer demand for gaming-inspired content.

The Rise of the Global Video Game Market and the Implications for the Entertainment Industry

When considering the development of the global video game industry through an economic lens, the drivers behind these trends become more apparent. In March 2019, the Motion Picture Association of America (MPAA) reported that the entire global theatrical and home entertainment industry reached $96.8 billion in 2018, with the global box office segment accounting for $41.1 billion. By way of comparison, Newzoo reported that the total global gaming market grew to $138.7 billion in 2018 from $108.9 billion the year before. Within the sector, the console game and boxed/downloaded PC game segments, which are the primary forms utilized by AAA game developers such as CD Projekt Red, accounted for approximately $73.5 billion. Those two segments are expected to reach approximately $98.0 billion in 2023, increasing at a compound annual growth rate of 6% over the period. When considering the growth of the video game industry relative to the industry’s age, it’s not surprising that Hollywood production companies would attempt to capture some of that growth through crossover content.
As the global video game industry continues to grow and mature, consolidation within the industry is an expected development. The crossover of both content and artists between Hollywood and video games are two trends that show the natural convergence between the two industries. When considering additional factors, such as the growing viewership market for Esports, the potential for increased M&A activity between large media conglomerates and companies in various pockets of the gaming industry becomes apparent. As an example, according to Bloomberg, certain Disney investors are already considering the value of an Activision-Blizzard acquisition. As video games continue to gain popularity by solidifying their position in the cultural zeitgeist, the convergence of the two industries will accelerate, increasing the value potential of gaming companies to large media companies.

How can we help?

Teknos Associates is uniquely positioned to identify and analyze the current and anticipated trends within the Esports and gaming industry. From our significant knowledge of how the Esports and gaming industries have developed, to our first-hand experience providing advisory services to organizations at all stages of development and growth, our team is ready to help brands capitalize on the myriad of opportunities available in the Esports and gaming industries. Our vast experience includes providing valuations, offering structural guidance, and delivering strategic analyses. To learn more, contact Teknos Associates at info@teknosassociates.com .

Sources

Newzoo 2019 report

Bloomberg Disney Article