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

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

Super crosses the retirement Rubicon

Australia's superannuation system faces a 'Rubicon' moment, a turning point where the focus is shifting from accumulation phase to retirement readiness, but unfortunately, many funds are not rising to the challenge.

Latest Updates

Investment strategies

Why I dislike dividend stocks

If you need income then buying dividend stocks makes perfect sense. But if you don’t then it makes little sense because it’s likely to limit building real wealth. Here’s what you should do instead.

Superannuation

Meg on SMSFs: Indexation of Division 296 tax isn't enough

Labor is reviewing the $3 million super tax's most contentious aspects: lack of indexation and the tax on unrealised gains. Those fighting for change shouldn’t just settle for indexation of the threshold.

Shares

Will ASX dividends rise over the next 12 months?

Market forecasts for ASX dividend yields are at a 30-year low amid fears about the economy and the capacity for banks and resource companies to pay higher dividends. This pessimism seems overdone.

Shares

Expensive market valuations may make sense

World share markets seem toppy at first glance, though digging deeper reveals important nuances. While the top 2% of stocks are pricey, they're also growing faster, and the remaining 98% are inexpensive versus history.

Fixed interest

The end of the strong US dollar cycle

The US dollar’s overvaluation, weaker fundamentals, and crowded positioning point to further downside. Diversifying into non-US equities and emerging market debt may offer opportunities for global investors.

Investment strategies

Today’s case for floating rate notes

Market volatility and uncertainty in 2025 prompt the need for a diversified portfolio. Floating Rate Notes offer stability, income, and protection against interest rate risks, making them a valuable investment option.

Strategy

Breaking down recent footy finals by the numbers

In a first, 2025 saw AFL and NRL minor premiers both go out in straight sets. AFL data suggests the pre-finals bye is weakening the stranglehold of top-4 sides more than ever before.

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.