September 2018 Chief Investment Office GWM Investment Research Ahead of the game Shifting Asia Content 03 Editorial 04 Asia video gaming by the numbers 06 Executive summary 07 Asia’s gaming leadership to expand 11 The heterogeneous nature of Asia gaming 14 Gaming stakeholders – The four major pillars 15 eSports: A paradigm shift for Asia’s gaming industry 18 The life of a professional gamer (2020–2080) 24 Augmented reality and virtual reality 26 How Asian gaming is at the cusp of major technological changes 30 What does gaming mean for Asian society 32 How investors can participate in Asia’s gaming industry Shifting Asia Editor Cover photo This report has been prepared Aaron Kreuscher gettyimages by UBS AG. Please see important disclaimer Design Contact and disclosures at the end of CIO Content Design ubs.com/cio the document. Illustrations Editor-in-Chief Rodrigo Jimenez Carl Berrisford Subscribe Project Management For more updates from the Chief Author Sita Chavali Investment Office, please sign-up at Sundeep Gantori www.ubs.com/cio-newsletter Editorial Dear reader, Specifically, we think the industry will benefit from a) a rising share of games A rapidly growing online population and expenditures in overall entertainment rising incomes have turned Asia into a spending, b) a rise in gamers from new breeding ground for new technologies. We markets like Southeast Asia and South Asia, have explored several areas in past Shifting increased penetration of female and older Asia publications of booming homegrown gamers and new platforms, c) increased innovation in the region, including artificial monetization per user, and d) expanding intelligence, insurance technology, cashless gaming ecosystems thanks to adoption of Min Lan Tan payments and biotechnology. The video new technologies like artificial intelligence. Head of game industry (referred to as “the gaming APAC Investment Office industry”), the focus of this edition, is Another exciting development is the grow- another such area where Asia has not only ing popularity of eSports, the professional taken over the reins from the developed competition of video games, and its influ- world but looks set to reshape the indus- ence on entertainment spending habits. try’s future. Asia is currently home to around half of the world’s 395m eSports fans, 60m of whom The video games of today are very different tuned in to watch the League of Legends from those we grew up with. Most of us World Championship in 2017. With Asia’s would remember the days of Pong and eSports sector gaining official recognition Atari, when 8-bit graphics had us glued to from events like the Asian Games, it’s likely our television screens. Now, people have left to continue growing quickly in the years to the living room and are gaming on the go come, leading to greater monetization with their mobile phones or through virtual opportunities for the games industry. reality headsets. Yet it’s not just games and platforms that have changed; top develop- The future of Asia’s video game landscape ers and games markets are now increasingly is exciting but not without risks and chal- residing in developing Asia. lenges. China’s recent regulatory delays in new game approvals show how govern- The games market is now a hundred- billion- ments are seeking to strike the right bal- dollar revenue industry, and its growth tra- ance between the need to regulate and a jectory continues to point sharply upwards – conducive environment for new entertain- especially in Asia, which has been growing ment forms to thrive. Still, we expect Asia’s by double digits over the past few years. games revenues to rise three folds between In fact, despite a late start, Asia will become 2017 and 2030 – an estimate which could the biggest market for games revenue prove conservative – and we believe invest- worldwide this year, with its growth out- ment opportunities abound in the years stripping even the explosive pace experi- to come. enced in the West over the recent decades. Looking ahead, we expect Asia’s video We hope you enjoy reading about this fun games revenues to grow from USD 61.1bn and exciting topic, and please reach out in 2017 to USD 200bn in 2030, an average with any questions or feedback. annual growth rate of 9.5%, with a third of the gains driven by user growth and the rest Game on! by increased monetization per user. Shifting Asia: Ahead of the game – September 2018 3 Asia video gaming by the numbers Asia Pacific’s ranking by region in the global gaming mar- ket, with the region significantly outgrowing the global market (mid-teen growth rate vs. high single digits). Asia’s gaming industry is set to record a notable achievement this year: revenues are on pace to top the rest of the world for # the first time, according to Newzoo. The strong growth in 1 recent years has been driven by mobile gaming, with sup- port from incremental growth drivers like eSports, VR/AR and the emergence of new technologies. It’s clear that APAC Asia’s ascent has only begun. The number of active gamers (those who play games at least once a month or billion spends at least one hour on average active gamers per week playing games) in Asia Pacific, >1.2 according to Newzoo and Razer. If the 1. region’s gamers were a country, they 2. would represent the third most populous 3. 4. nation in the world. China accounts for China 5. almost half of the 1.2bn. The amount Asia’s best eSports player is paid in USD millions annually to compete in professional gaming USD million leagues, according to Bloomberg. The 2.5 figure doesn’t include endorsements or prize money and shows the rising popularity of eSports, which may soon rival many traditional sports. Asia Pacific’s gaming share in percentage of regional media & entertainment spend. While the region’s entertainment spend as a percentage of GDP is below 13.8 % the global average, its spend on gaming as a share APAC’s gaming share of media & of total entertainment spend is above the global entertainment spend average (12.3%) at 13.8% (source: Frost & Sullivan, Razer, Bloomberg Intelligence). This highlights the strong gaming culture in the region. 4 Shifting Asia: Ahead of the game – September 2018 Asia video gaming by the numbers Asia Pacific’s share in percentage in the global gaming peripherals market, according to Newzoo and Razer. Despite accounting for more than 50% of global active % gamers and global gaming revenues, the region’s spend 25 on gaming peripherals significantly lags behind North APAC’s share in the global gaming peripherals market America and Europe. While the higher share of mobile gaming partly explains the lower peripheral spending, we still see peripherals as an incremental growth oppor- tunity within the region. The percentage of active mobile players in China who are female. In comparison, 41% of US mobile gamers are female, % and the ratio is lower in the rest of the 45 world. While Asian female gamers domi- Active female mobile gamers in China nate genres like casual and simulation games, their participation is increasingly rising in other genres. The average time spent in minutes by active gamers in China per day, based on a UBS Evidence Lab min survey. With the rising trend of 60 eSports, the user engagement Average time spent by with gaming titles should continue active gamers in China to gradually rise in the region. Our forecast for Asia’s gaming revenues, which we expect to grow more than three times from 2017–2030. We Average annual 9.5% growth rate conservatively expect the region’s revenues to grow from USD 61.1bn in 2017 (source: Newzoo) to USD 200bn in 2017 2030 2030, or an average annual growth rate of 9.5%. The esti- USD USD mate is also based on the assumption that gaming should constitute a high-teen percentage of the region’s entertain- 61 200 ment spend, which we think is reasonable given the billion billion increasing shift from traditional media spend to gaming. Shifting Asia: Ahead of the game – September 2018 5 Executive summary USD Video game revenues in Asia Pacific will exceed the rest of the world’s this 200bn year, cementing the region’s position as a global gaming leader. And this USD journey has only just begun – Asia’s gaming ascent is set to continue over the 61.1bn next decade, with gaming revenues growing from USD 61.1bn in 2017 to USD 200bn in 2030 (one-third driven by user growth, two-thirds by increased monetization per user), according to our forecasts. 2017 2030 While the recent regulatory suspension of new game approvals in China is a Asia’s gaming ascent is set to temporary setback, we don’t believe it will affect the region’s strong gaming continue over the next decade, culture and long-term growth opportunities; we continue to forecast average with gaming revenues growing annual revenues growth of 9.5% for Asia’s gaming industry from 2017 to from USD 61.1bn in 2017 to 2030. This is based on multiple factors, including steady growth in Asia’s USD 200bn in 2030. gaming population thanks to new audiences, markets and platforms, the rise of gaming as a share of the region’s entertainment spending, new supporting technologies and the rising popularity of competitive eSports. Asia Pacific today accounts for 51% of the 395m global eSports audience, according to Newzoo. eSports adoption, which drives gaming discovery Global APAC eSports and distribution in growing ecosystems, is strong in Asia thanks to favorable audience demographics (high proportion of millennials).