Gaming is now the world’s favorite form of entertainment, as the gaming industry generated more revenue last year than TV, movies, and music did.

While other forms of entertainment are experiencing declines – TV revenue fell by 8% last year – the gaming sector’s sales are increasing at an annual rate of 10.7%. Some of the greatest growth is coming from relatively new markets, like China, where game sales are climbing 14% per year.

For investors, the rise in the popularity of gaming is creating opportunities on a number of fronts.

Game Developers

One promising game developer is Frontier Developments. The UK-based firm has had considerable success with two major gaming franchises – Elite Dangerous, a multiplayer space epic, and Planet Coaster, an amusement park simulation game. A new release planned for this summer, Jurassic World Evolution, will coincide with another Jurassic World film hitting theaters, and that game could power the firm’s next leg of growth.

The developer is also the publisher for its games, which are available on every major gaming platform. It also plans to launch one new major product per year over the next several years. Tencent, the Chinese Internet services and products company, has a 9% stake in the company, and that relationship could help Frontier penetrate the booming gaming market in Asia.

Perhaps one of the most popular games among teenagers today is Fortnite, a multiplayer shooter game. Its publisher, Epic Games, makes Fortnite available free online as a digital download, and it can be played on a PC, console, or mobile device. While the game is free, there are add-ons you can buy, like clothing items for your game avatar, that cost real money.

The popularity of the game has many parents whose teens are obsessed with it wondering how they can invest in it. Epic is a private company, but here again, Tencent is an important player. The Chinese Internet giant has a 40% stake in Epic. Investing in Tencent could provide an opportunity to benefit from the promising potential of Fortnite.

Grand Theft Auto V, developed by Rockstar Games and published by Take 2 Interactive, recently became the highest-grossing entertainment release of all time. It has now sold more than 90 million units since it was brought to market in 2013, and this year it surpassed the $6 billion mark in revenue, making it the highest-selling title in any category of entertainment. That includes books, films, and albums.

The dominance of gaming in our culture is evident in the reversal of the past relationships between the gaming industry and Hollywood and publishers. It used to be that games were developed from popular movies and books. Now it is often the other way around. In 2017, both Angry Birds and Assassin’s Creed were released as movies, years after they were launched as successful games.

Gaming has even evolved beyond a participant activity and become a spectator sport. Watching other people play games has become big business, with Activision Blizzard’s StarCraft franchise a key catalyst of the growth of the industry in the late 1990s and early 2000s. Activision Blizzard has continued to develop eSports-friendly games, including Overwatch and StarCraft II. Today, eSports is a global phenomenon. There are professional tournaments broadcast on ESPN and TBS. Top players can earn well above $1 million in prize money. The popularity of eSports has even trickled down to many high schools, which have formed teams. 

Gaming Device Suppliers

The companies developing games are not the only opportunities for investors to participate in the popularity of gaming. They can also invest in the companies that make gaming devices. One of the best-known brands in the gaming sector, Nintendo, straddles both worlds. It has created some of the world’s top-selling game franchises, such as Mario, the Legend of Zelda and Pokémon. Nintendo also builds and markets the devices that games can be played on. It introduced a new level of interactive gaming with its revolutionary Wii, and it recently had another major breakthrough with the Switch, which brings console-quality gaming to a mobile device.

Before the arrival of the Switch, players could experience high-quality, immersive game play on their PCs or consoles, but when traveling, they didn’t have a device that could provide the same level of gameplay or deliver the processing power needed to handle a high-end, sophisticated experience. With the Switch, gamers can have that level of play anywhere they are. It has brought a huge change in how gamers can experience this content.

Semiconductor Companies

The future of gaming looks bright, with augmented and virtual reality gaming experiences likely to grow significantly from their current penetration among early adopters. These types of games demand significant processing horsepower, and increased adoption will likely drive demand for high-end microprocessors and graphics processors. That has created growing demand for a company like Advanced Micro Devices (AMD). Years ago, it was fighting a losing battle for the PC microprocessor market, a market which Intel dominates. But four years ago, the company named Dr. Lisa Su as its CEO, and she has turned the firm around, in part by making gaming a focus for the company. She recognized the growth potential in the processors and graphic cards that are needed to power high-end games.

AMD competes in that space with Nvidia, the company whose products have long been considered the gold standard in graphics processing units (GPUs). But no company in this space can rest on its laurels. The speed at which this industry evolves has made the development of processors almost like an arms race as companies look to develop processors that can handle ever-more sophisticated games.

Companies like those discussed here have had a good track record of pushing the envelope and delivering increasingly compelling experiences for consumers. That may explain why there is a high likelihood that gaming will maintain its status as the world’s most popular form of entertainment for years and decades to come.

1. Sources: Newzoo forecast for gaming revenue, Statista forecast for TV and global box office revenue, IFPI actual data for global digital music revenue. The mention of specific companies does not constitute a recommendation by OppenheimerFunds, Inc.

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