3 Key Takeaways From E3 2018

In this segment from the Motley Fool Money podcast, host Chris Hill and senior Motley Fool analysts Jason Moser, Jeff Fischer, and Aaron Bush review what we learned from the Electronic Entertainment Expo last week. The Los Angeles-based conference is the video game industry’s top showcase, where watchers can get a good idea of what might be coming as the companies look to level up.

A full transcript follows the video.

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This video was recorded on June 15, 2018.

Chris Hill: E3, the Electronic Entertainment Expo — which is hard to say, and which is probably why they call it E3 — E3 wrapped up this week in Los Angeles. This is the premiere trade event in the video game industry. Video game stocks as a group have done well for investors over the last few years, Aaron.

Aaron Bush: Very well.

Hill: You like this industry. What’s your headline for this event?

Bush: It’s always fun to see the games being showcased, all the publishers laying out their pipeline for what’s to come. But what’s actually most interesting to me is figuring out where the industry as a whole is going. Throughout all the different things that these companies say, you can start to piece together some common threads. Just three main highlights for me.

The first one is mobile. This isn’t anything new. Showcasing mobile at E3 is always awkward, because it’s a very hardcore gamer environment. But the fact that they’re doing it more and more means that they’re trying to get access to more gamers, because people are playing more games in more ways. They’re trying to extend the franchises that they already have. We’re moving toward a trend of being able to play the same game wherever you are. That’s game-changing.

That leads me to my second point, which is that the future is streaming. There was a little bit of chatter at E3 about the next wave of gaming consoles. But, even then, there was a little bit of chatter about what comes after that. It’s starting to seem more and more likely that the next gaming console might actually be the last wave of gaming consoles. The shift of people powering these games in their homes on these big machines to companies with servers powering these games and just streaming it to people on whatever device they have, that’s game-changing. It also lends itself much more to a subscription strategy, which changes the economics of the entire industry. That’s a big deal.

Lastly, I just would say, more than any other time before, there were many personalities, in terms of people, at E3. This is pro players, this is influencers, celebrities. What that signals to me is that gaming is turning more mainstream than ever before, and the implications of that, who else becomes attracted to games, what else these gaming brands can do in new mediums. I see this industry turning much more profitable and more mainstream, and I think that’s really exciting.

Hill: The hardware aside, one of the things we’ve talked about in this industry is that, kind of like the movie industry, it is dependent on the hits. Did you see anything this week that changed that thesis? That, no, at the end of the day, however these games are delivered, they still have to be great games?

Bush: It’s definitely both. You have to win people over at the beginning. Then, there’s an ongoing element of more content. If you look even beyond E3, just the top gaming companies, already, many of them, half of their revenues come from these recurring purchases or this additional add-on digital content. So, we’re already there, but we still have a long way to go.

Jeff Fischer: Aaron, this wasn’t premeditated. I’ll just put you on the spot here.

Bush: Sure.

Fischer: Coming away from E3, your favorite gaming company, which I think you have well in your mind already, and a company to watch, perhaps?

Bush: In terms of what we actually can invest in, I think, actually, Microsoft is almost a dark horse. I say that in the sense that, they haven’t been super strong in terms of this console generation, in terms of their own exclusive games and such, but they’re definitely laying the seeds to win over the next generation. And, if this world turns much more streaming-heavy, Microsoft has Azure, so they already have the infrastructure in place to make that experience better than what other companies could do.

Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. Aaron Bush has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. Jeff Fischer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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