Recession
MixedCounter-intuitively, gaming can hold up well in recessions — it's cheap home entertainment compared to going out. But big AAA releases still slow.
2020 COVID lockdowns drove a gaming boom: Take-Two and EA hit record revenue.
Business
Video games
Bigger than movies and music combined — and increasingly run like a subscription business.
At a glance
Industry size
≈ $200B / yr
Active gamers worldwide
≈ 3B
Top game (lifetime)
GTA V — 200M+ sold
Biggest publisher
Microsoft (Activision deal)
Step 1
What this business actually is
Video game companies make and sell games — on consoles, PCs, and phones. Worldwide, gaming is now larger than the movie and music industries combined.
The business has changed dramatically in the last decade. Most games used to be sold once for $60. Today, the biggest titles are free to download and make money from in-game purchases over months and years.
🕹️
Bigger than movies + music combined
Step 2
How a game is made and sold
Three layers. Engines (Unity, Unreal — the underlying software that lets a studio build a 3D game). Studios (the creative teams that make the game). Distribution (Steam, Apple App Store, Google Play, PlayStation, Xbox — they take a cut of every sale).
A blockbuster game can take 5-7 years and $200 million to build. If it works, it can earn billions. If it doesn't, the studio can collapse.
⚙️Engine
→🎨Studio
→🛒Store
→🎮Player
Step 3
Where the money comes from
Three big buckets. Upfront game sales (still common on console). In-game purchases — "microtransactions" for skins, weapons, loot boxes. And subscriptions — Xbox Game Pass and PlayStation Plus are the Netflix-of-games model.
The shift from upfront to subscriptions has made earnings more predictable and stickier for the biggest publishers.
🧑
Players pay over time
→
🏢
Studio + platform split
→
⚙️
Years of development
Step 4
Why making games is so risky
Most of the cost is upfront — years of salaries before a single dollar comes in. A studio can spend $200 million on a game that flops.
That's why the industry consolidates around big publishers (Microsoft buying Activision, Sony acquiring studios). The cushion of multiple games softens the blow when one fails.
Roughly where the money goes
Salaries
55%
Tech / engines
15%
Marketing
20%
Other
10%
Step 5
Hits vs platforms
Owning a hit-driven studio (Take-Two, EA) means betting on whether the next game lands. Owning a platform (Microsoft, Sony, Nintendo) means earning a cut of every game sold on your store, plus your own first-party titles.
Platforms tend to be more durable; hit-driven studios swing harder with each release.
🎯Hit studios
vs🏰Platforms
Platforms tax every sale
Step 6
Risks worth knowing
Hit-or-miss. A flagship game flopping can erase a year's profit. Regulation (especially around loot boxes, which several countries treat as gambling). Player burnout — long-running games eventually decline.
And the talent market is brutal. The best designers move between studios constantly.
💔Flops
🎰Loot-box rules
🚪Player churn
🥊Talent fights
Different conditions
How video games performs in different scenarios
Most industries behave very differently depending on the economy. Here's how this one has historically responded to common macro situations.
High Fed rates
Gets hitStudios are valued on years of future profits from current investments. High rates compress those valuations.
2022 saw gaming stocks down 30-50% as rates rose, even before any operational slowdown.
Strong dollar
Gets hitMost big publishers earn a large share abroad. A strong dollar shrinks reported overseas revenue.
Two ways to gain exposure
A thematic ETF, or individual companies
People who want exposure to video games usually either own a single ETF that bundles many companies together, or own a few individual stocks. They just spread the decision differently — neither approach is described here as better than the other.
Thematic ETFs
New to ETFs? See how they work.
See live performance
How video game companies are doing today, on the Themes page.
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