The global video games industry is entering a period of consolidation that is likely to favour the biggest publishers and developers, according to analysts at Bernstein, who argue that investors should look beyond slowing revenue growth and focus on rising barriers to entry.
The broker estimates the gaming market will generate around $220 billion of revenue in 2026, up 0.7%, following growth of 4.8% last year.
While that points to a softer near-term outlook, Bernstein believes the industry is becoming increasingly concentrated as smaller studios struggle with rising development costs and a tougher funding environment.
The firm said studio closures and restructuring programmes across the industry were reducing competition and strengthening the position of established developers with successful intellectual property and large player communities.
Bernstein highlighted Asian gaming groups as its preferred investments, including Tencent Holdings (HKG:0700, OTC:TCEHY), NetEase (NetEase Inc (NASDAQ:NTES)), Nintendo (OTCMKTS:NTDOY), Capcom (OTCMKTS:CCOEY) and Konami (LON: KNM).
Analyst Robin Zhu argued that Japanese, Chinese and Korean developers continue to benefit from lower development costs and improving productivity compared with many western rivals.
PC gaming was also identified as one of the industry's strongest growth areas, supported by advances in hardware and a growing number of blockbuster releases.
Attention is increasingly turning to the launch of Grand Theft Auto VI, published by Take-Two Interactive Software Inc (NASDAQ:TTWO), which is expected in November.
Zhu said rival publishers had crowded release schedules into September in an effort to avoid competing directly with what is widely expected to be one of the biggest game launches in history.
The broker also dismissed concerns that AI will materially disrupt the industry's economics, arguing that successful franchises, creative storytelling and engaged player communities remain the key drivers of long-term value creation.
