Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 447

The future of media: It's game on, now!

During a span of just 21 days in January 2022, the rapid pace of change in the media and entertainment industry inspired three blockbuster deals.

Microsoft announced its intention to buy video game publisher Activision Blizzard for US$75 billion, a transaction that aims to bring the iconic Call of Duty and World of Warcraft franchises under the tech giant’s umbrella. Take-Two Interactive unveiled its plan to shell out US$12.7 billion for mobile game maker Zynga, best known for the FarmVille franchise. And Sony agreed to purchase Bungie, creator of the popular Halo and Destiny games, for US$3.6 billion.

If all three deals close, that’s US$85 billion of M&A activity centred on video games, the fastest growing segment of the media sector. The Activision deal is Microsoft’s largest acquisition ever and could vault it to the top of the US$200 billion gaming industry, just behind China’s Tencent.

Gaming’s global appeal fuels industry leaders in Asia and the US

Sources: Capital Group, Newzoo. Quarterly revenue figures are estimates by research firm Newzoo, as at 30 September 2021.

Driven in part by a pandemic-era gaming boom, the fast-changing media landscape is fundamentally transforming the way people interact and entertain themselves in a world where traditional TV viewing and movie attendance are in serious decline. That dynamic makes interactive games even more valuable to the likes of Microsoft, Sony and others. Portfolio Manager Martin Romo says:

“I think it’s a testament to how powerful and alluring video games have become. The global gaming industry provides compelling entertainment at a reasonable cost and it’s already surpassed the movie industry in terms of annual gross revenue. Fundamentally, I think that growth is likely to continue and even accelerate in the years ahead.”

Streaming and social media competition heat up

The disruption extends to other areas of the media world, as well. Jody Jonsson, a Capital Group Portfolio Manager, says:  

“Another big theme playing out here is that you have a lot of companies trying to get into each other’s business. There was a time when they had these sandboxes all to themselves, but that’s changing. Everyone is looking at everyone else’s sandbox and trying to jump in.”

For example, Netflix - the clear leader in streaming video - is encountering fierce competition from Amazon and Apple, as well as old guard media companies such as Disney. In less than three years, Disney’s streaming service, Disney+, has grown to 130 million subscribers.

In the social media space, TikTok is challenging Facebook parent Meta Platforms, attracting hordes of young viewers thanks to the power of its short-form videos. Facebook has responded by launching its own short-form video offering, dubbed 'Reels', which is growing in popularity, just not as fast as TikTok, which was the most downloaded app of 2021.

Other battles in the media business were lost years ago. For instance, a precipitous decline in traditional TV viewership - especially among young people - raises the possibility that cable TV packages, once a must-have in the US, may no longer exist in a few years. If live sports and news programmes ever move en masse to streaming services, that could spell the end of cable TV in its current form.

Young people are increasingly shunning pay TV in the US

Sources: Capital Group, Nielsen. Traditional TV includes live TV and recordings of live TV (for example, using a DVR).

There’s no business like show business

This type of momentous change and disruption may appear surprising to some, but it’s par for the course in the media and entertainment biz, explains Capital Group equity analyst Brad Barrett, who has covered the industry for two decades:

“Media is always being roiled by technological change. It felt like a huge amount of change when the internet started disrupting traditional media outlets in the early 2000s. It felt huge when YouTube burst onto the scene. And then came social networking, smartphones and video streaming. They all caused a great deal of disruption and continue to do so.”

A new trend is the globalisation of content production and consumption. Case in point: Three of Netflix’s most popular series - Squid Game, Lupin and Money Heist - are filmed in South Korea, France and Spain, respectively. And they come with English subtitles, which had previously been a deterrent for many native-English speaking viewers. Not so anymore. Consumers are watching content from all over the world and English speakers embrace these non-English shows with enthusiasm. It’s a breakthrough for global creativity.

Metaverse now?

Looking ahead, what will be the next source of media disruption?

Based on the rising number of sensationalist headlines, the metaverse is certainly one candidate. Depending on who you ask, the much touted metaverse is either the future of the internet or a virtual reality pipe dream.

As technologists have described it, the metaverse is an incredibly immersive and expansive digital world in which people can interact, transact, play games, attend concerts, watch movies, meet co-workers in a virtual office and engage in myriad other activities through user-created avatars.

The idea is so powerful it prompted Facebook to change its name to Meta Platforms, promising to transform the social media giant into a 'metaverse company'. It will have plenty of competition, however. Microsoft declared the Activision deal is, in part, driven by a desire to develop compelling content for the metaverse, a world where virtual reality headsets may become as common as smartphones.

There are also many independent websites with a metaverse focus, including Sandbox, founded in 2012, and Decentraland, launched three years later. Users of these sites are already buying virtual land, virtual houses and virtual artwork, often with cryptocurrencies such as Bitcoin, Ethereum, Cardano and Solana.

The term metaverse was originally coined by Neal Stephenson in his 1992 novel Snow Crash. The concept was further popularised by Ernest Cline in his 2011 sci-fi novel Ready Player One, which was subsequently turned into a movie. One oft-cited answer when people ask, “What is the metaverse?” is to read Ready Player One or at least watch the movie.

Clearly, the concept has been around a while and it’s not all hype, says Peter Eliot, a Portfolio Manager:

“When I ask friends what they think of virtual reality, very few have tried it. That’s going to change fast, and it means the race is on for investors to appreciate and understand the metaverse. There’s already a lot happening, and it’s growing exponentially. I don’t think this is 10 years away. It’s more like metaverse now.”

Bandwidth needs are expected to soar amid the growth of the metaverse

Sources: Capital Group, TeleGeography. Actual data through 2020. 2021 to 2023 are estimates.

 

Jody Jonsson and Martin Romo are Equity Portfolio Managers at Capital Group, a sponsor of Firstlinks. This article is neither an offer nor a solicitation to buy or sell any securities or to provide any investment service. The information is of a general nature and does not take into account your objectives, financial situation or needs. Before acting on any of the information you should consider its appropriateness, having regard to your own objectives, financial situation and needs.

For more articles and papers from Capital Group, click here.

 

RELATED ARTICLES

The digital transformation of Australia’s media

An important Foxtel announcement...

The death of the single-industry superannuation fund

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

Latest Updates

Investing

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

Investment strategies

A closer look at defensive assets for turbulent times

After the recent market slump, it's a good time to brush up on the defensive asset classes – what they are, why hold them, and how they can both deliver on your goals and increase the reliability of your desired outcomes.

Financial planning

Are lifetime income streams the answer or just the easy way out?

Lately, there's been a push by Government for lifetime income streams as a solution to retirement income challenges. We run the numbers on these products to see whether they deliver on what they promise.

Shares

Is it time to buy the Big Four banks?

The stellar run of the major ASX banks last year left many investors scratching their heads. After a recent share price pullback, has value emerged in these banks, or is it best to steer clear of them?

Investment strategies

The useful role that subordinated debt can play in your portfolio

If you’re struggling to replace the hybrid exposure in your portfolio, you’re not alone. Subordinated debt is an option, and here is a guide on what it is and how it can fit into your investment mix.

Shares

Europe is back and small caps there offer significant opportunities

Trump’s moves on tariffs, defence, and Ukraine, have awoken European Governments after a decade of lethargy. European small cap manager, Alantra Asset Management, says it could herald a new era for the continent.

Shares

Lessons from the rise and fall of founder-led companies

Founder-led companies often attract investors due to leaders' personal stakes and long-term vision. But founder presence alone does not guarantee success, and the challenge is to identify which ones will succeed in the long term.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.