The state of the video game industry today


More people are playing video games than ever before.

But how they play games, where they buy them, and what devices they play them on have changed. In fact, in just a few short years the gaming industry has changed dramatically and this may only be the beginning.

In this clip from from The Motley Fool's Industry Focus: Tech podcast, Dylan Lewis and David Kretzmann talk about where the video gaming industry is today in terms of size and reach. Also, they take a closer look at one of the industry's giants, Activision Blizzard(NASDAQ: ATVI), and how it has grown its impressively huge user base.

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A full transcript follows the video.

State of the Video Industry Expert Voices_Branded Video
State of the Video Industry Expert Voices_Branded Video

This podcast was recorded on June 10, 2016.

Dylan Lewis: We're going to be talking video games today. Before we dive into the companies, I have to ask: Did you have a favorite video game growing up?

David Kretzmann: Growing up, my family didn't have any of the fancy consoles, so I never had a PlayStation, or an Xbox. I would have to go over to a friend's house to play that. On our Windows 95 computer -- and we kept this computer specifically for these two games -- I played Road Rash and then Warcraft II special edition, Tides of Darkness. Those were the two games I played in my own house on a somewhat regular basis.

Lewis: I was raised in a very similar household, where my parents told me, "We're not buying you a video game console. If you want one, you have to buy it yourself." Eventually, I saved up and got enough for the PS2. That was my console. That was my baby as a kid. When you're young, you're just like, "Boy, I really hope I have a sleepover sometime soon. I really want to go to that guy's house who has the Xbox."

Kretzmann: Yeah, some popular friends on the block.

Lewis: That Warcraft reference is a nice transition into one of the companies we're going to be talking about. Before we get too far into the stocks that we'll be discussing on today's show, I figure we'll set a little groundwork here for what the gaming industry looks like. I'm just going to throw out a couple different estimates of market size I've seen lately.

Digital gaming was a $60 billion-plus market last year. That was actually led by PC gaming, which is surprising. You hear all this about the death of PCs, or the rise of the tablets, or the multi-capable devices, switch over to mobile. PC gaming still leading the charge there.

The worldwide mobile gaming market is a high $20 billion market. I've seen projections that that will hit $45 billion by 2018. Just to give you an idea of where this market's going, some big growth expected and not necessarily from the areas that you might be expecting it.

Kretzmann: Yeah, absolutely. There is a lot of different growth arenas in this space. To give some additional context, 10 years ago there were 200 million players, 200 million gamers. Five years ago that increased to 1.5 billion. Most recently, the most recent number I have seen is 2.6 billion gamers worldwide. You're seeing more and more gamers, more and more platforms that people can play the games on, so a lot of growth happening in this space.

There have been a lot of great investments in it over the past 5, 10 years. I think some of the names we'll talk about today, there's a lot of potential there for investors going forward as well.

Lewis: The two big names, at least as far as I'm concerned in the video game market, Activision Blizzard and Electronic Arts (NASDAQ: EA). These are both video game publishers. Activision's made shareholders pretty happy over the last couple years. They've got some big time franchises under their belt: World of Warcraft, Call of Duty.

Electronic Arts, most of the people know them for their sports games. They're trying to move beyond that a little bit right now. You want to start out with Activision; talk a little bit about what they're doing?

Kretzmann: Let's do it. Yeah. As you mentioned, Activision, they have the No. 1 console franchise, which is Call of Duty. This is a franchise that's been out for about a decade -- I think a little more than a decade, I think 12 years. Each year or so, they'll issue a new iteration of that franchise, an extension, a different version. It's been just an amazing seller for the company.

Similarly, with PC gaming, you have World of Warcraft, which has been just a juggernaut of a game. It's actually a subscription model. You pay a monthly subscription, and you can play in this online fantasy world with your friends and other players around the world. Warcraft, the most recent numbers I saw, there are still more than 5 million players with Warcraft.

Activision, a massive company in this space. It's the largest video game software publisher in the world. Last year -- we'll talk about this more I'm sure -- they acquired King Digital (NYSE: KING), which is a large mobile game operator.

By bringing King Digital under its umbrella, Activision now has more than 500 million monthly active users through all of its different games and platforms. That's a user base that's rivaled by only a few companies out there like Facebook (NASDAQ: FB), YouTube, some juggernaut brands out there. Activision has a huge audience.

To give you another pretty staggering number, over the past year audiences spent 42 billion hours playing and watching Activision's games. They have a lot of people paying a lot of attention to their games.

David Kretzmann owns shares of Activision Blizzard, Electronic Arts, and Facebook. Dylan Lewis has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.