We explore the key investment risks and opportunities associated with the gaming industry.

Key points

  • The gaming industry has a number of social impacts, and the possibility of increasing regulation may have significant implications for gaming companies.
  • While studies have shown that there is not a clear relationship between gaming and violence, there is evidence of a link between the use of loot boxes in games and gambling addiction.
  • As the technology continues to develop, we may see exciting positive developments, such as the growth of the exergames market.

The gaming industry

At present, over two billion people play video games worldwide, and this number is likely to exceed three billion by 2023.1 Globally, an estimated 3-4% of gamers are addicted to video games and 8.5% of children aged between 8-18 suffer from gaming disorder, which is the obsessive and compulsive overuse of internet games and video games as an escape from life.2 A 2021 study found that the global prevalence of gaming disorder was 3.05%, suggesting that 60 million people may be affected.3 

Gaming addiction was perceived to have reached such extreme levels in South Korea that in 2011, the government introduced a shutdown rule, which banned children under the age of 16 from gaming between the hours of midnight and 06:00. Ten years after the controversial rule was established, the government decided to abolish the curfew, given the insignificant impact that it had, in addition to the infringement upon family autonomy and the right for a parent or guardian to do what they see fit.

China implemented an even stricter constraint on the use of online video gaming, so that companies could only allow minors to play between 20:00-21:00 on Fridays, Saturdays, Sundays and public holidays. The result of this was a major reduction in the amount of time spent by young people on video games; Tencent, the largest videogaming company in China (and the world), stated in an earnings report that the amount of time spent by children under 18 on video games had significantly declined, from accounting for 6.4% of the total amount of time spent by all users in September 2020, to only 0.7% in September 2021.4

Clearly, regulation of this type can have a major impact on gaming companies and their revenues. We believe, however, that drastic measures such as those seen in South Korea and China are unlikely to be implemented in Western countries. A much more common approach is the use of pop-ups during gameplay which remind players to take breaks, in order to encourage healthy practice. The precise impacts of such an approach are not clear and have not been studied, but are likely to have less influence compared to the regulation in China and South Korea.

Loot boxes and gambling

A loot box is a virtual ‘box’ that can be purchased (with real money) in order to receive random items, which can help a player progress in a game. There is evidence to suggest that loot boxes are linked to youth gambling addiction,5 and according to research on the topic, the relationship between loot box use and problem gambling is stronger than previously believed. The similarities between loot boxes and gambling mean that they could be acting as a ‘gateway’ to problem gambling for those that purchase them.6

Loot boxes are highly lucrative, generating approximately $15bn in sales in 2020 globally.7 This accounts for 11% of yearly gaming revenue and 28% of in-game purchase revenues. However, loot boxes have been the subject of scrutiny in recent years, resulting in new laws and (in some cases) outright bans, given their link to gambling.

In Germany, age restrictions for games with loot boxes have been raised. Gacha games, in which loot boxes are built into the game, have been banned in Japan. In China, gaming companies must disclose the exact items in loot boxes and the probability of obtaining them, as well as limiting the amount of loot boxes that can be purchased in a game. The Netherlands has banned loot boxes where the items have actual market value and can be traded outside of the game. In addition, Belgium has declared them a form of illegal gambling.

We believe that implementation of laws relating to loot boxes in the UK is likely, but that an outright ban is not, given that, after recent consultation, the government has decided against it. In the US, there have been efforts to regulate loot boxes through legislation, and in 2019 the Federal Trade Commission hosted a workshop on the issue. However, the way each state self-regulates means that it is unlikely that we will see a countrywide loot-box intervention. Continuing court cases in the European Union (EU) also suggest that we may see more EU countries implementing laws around loot boxes.

While the measures introduced in many countries may have short-term impacts on the share prices of gaming companies, to have a meaningful long-term effect we think that there would need to be more widespread collective action in place.

Gaming and violence

Violence is often perceived to be a major social impact of gaming; however, a study by the American Psychological Association (in addition to several others) has indicated that while video games may influence aggression, there is insufficient evidence to suggest they make users more violent. Evidence shows that the aggression that is caused by gaming typically stems from social factors, such as being mocked or losing – the aggression does not generally come from the game displaying violence or mature themes. The effects of violent video games on aggressiveness appear to be relatively short-lived, potentially lasting less than 15 minutes. As a result, we believe this is unlikely to affect sales within the gaming industry.

Benefits of exergames

Exergames, which encourage the user to engage in physical activity, have been shown to have positive health impacts, including improved balance, flexibility and muscle strength. Studies have also indicated that, compared with traditional exercise, exergames can lead to significantly higher levels of enjoyment. Given that 40-65% of participants drop out of a physical-activity programme within the first three to six months, providing a more enjoyable form of exercise with continuously changing aspects has the potential to decrease this dropout rate.

The drawback of this type of video game is that it tends to be expensive, and therefore less accessible to those on lower incomes. Although it may be cheaper than a gym subscription over the long run, the initial layout is costly.

At present, exergames account for roughly only 1% of the gaming market, but this figure is growing.8 With improving technology, exergames may be an exciting area of opportunity, at the same time as providing health benefits to their users.

Tighter regulation, but more opportunities

The negative social impacts of gaming, including gaming disorder and gambling, make the industry vulnerable in terms of increasing regulation. While we have seen outright bans introduced in China and South Korea, we think that it is unlikely Western countries will follow. We believe, however, that there is scope for additional laws and intervention which may have significant implications for gaming companies. Nevertheless, we do see potential within the interactive fitness space, where exergames can have a positive impact on users. As the technology develops, we expect this to be a growing area.

We view gaming as an industry where the social impacts, such as addiction, childhood usage and aggression, are widely acknowledged, but where there tends to be less understanding around the risks, the validity of those risks, and the potential investment implications. Given the fast-evolving technology involved in gaming, much of this research is in its early stages and regulatory consequences can only be analysed through country-specific case studies, often with cultural nuances, which presents further challenges. We believe this is a prime example of where, through active management, we can aim to better understand a material social risk which is in turn factored into our investment decision-making processes, with the intention of being forward rather than backward-looking. This analysis can also inform and enable more detailed engagements on this topic, helping our conversations with companies and our understanding of how risks are managed, to move beyond a high-level view.


  1. Number of active video gamers worldwide from 2015 to 2024. Statista. 17 May 2022
  2. Game Quitters. Video Game Addiction Statistics.  Accessed 15 August 2022: https://gamequitters.com/video-game-addiction-statistics/
  3. Ibid.
  4. Brenda Goh. China’s regulatory crackdown pushes Tencent to slowest revenue growth since 2004. Reuters. 10 November 2021
  5. The Guardian. UK will not ban video games loot boxes despite problem gambling findings. 17 July 2022.
  6. Zendle, David & Cairns, Paul. Video game loot boxes are linked to problem gambling: Results of a large-scale survey. PloS one, 13(11). 21 November 2018.
  7. Juniper Research. Video Game Loot Boxes to Generate over $20 Billion in Revenue by 2025. 9 March 2021.
  8. Aili McConnon. Video Game Makers Want to Get Players Off the Couch. 17 February 2020.


Newton responsible investment team

Newton responsible investment team

Responsible investment team


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