Collectibles ($142bn)

Gaming x Collectibles ($142bn)

‍Humanity’s innate desire to collect has been evident across millennia, profoundly influencing cultures and shaping the way we engage with the world throughout history. This instinct is trackable to as early as 8,000 BCE, when Neolithic communities collected polished stone axes as both tools and symbols of status. Fast forward to the 18th century, the rise of "cabinets of curiosity" showcased collections of exotic artifacts, blending science, art, and exploration. By the Victorian era, stamp collecting had emerged as a global phenomenon, reflecting an obsession with categorization and exploration.

‍Anything can be collected. There is no definition of a collectible other than it is an object regarded as something of value or interest to a collector. Regardless of the product or industry, there are typically four primary drivers for any collector: status, nostalgia, personal or historical ties, and/or investment.

The prevalence of collectibles (both physical and digital) is ubiquitous across most gaming communities, regardless of the benchmarks of success that we typically attribute to the IP or game itself (e.g., number of active players, game sales).

Despite the omnipresence of collectibles, barring major players like The Pokemon Company and Bandai Namco, the focus and investment into collectibles is depressed compared to (recently popularized) mediums such as TV and Film (transmedia).

‍We believe that collectibles are underutilized in games. This week, we will attempt to size the collectibles market and outline key considerations for expanding collectibles for any IP.

‍Sizing the Market: $142bn

‍There is a lack of comprehensive market sizing data around both primary and secondary sales of gaming-related collectibles. Today, we are segmenting the market into the following categories:

• Physical collectibles: Game cartridges, consoles, trading cards, figurines/statues/toys, gaming merchandise (e.g., posters, clothing, art books)
• Digital collectibles: Trophies and achievements, in-game items, NFTs

Based on our research, we believe the collectibles market today is primarily driven by four categories:

• In-game items ($80bn): a majority of sales come from primary sales for these digital assets (secondary sales are limited due to structural barriers which we outline later). The largest players here are publishers with strong IAP and “skins”-driven models such as Riot Games (League of Legends), Epic Games (Fornite), and Activision Blizzard (Call of Duty)
• Consoles ($37bn): with strong yet intermittent primary sales during new model release years and declining secondary sales. Based on our research of historical trends on resale sites, significant interest in collecting used consoles does not occur until ~10 years after a console is released (with a doubling of interest over the following decade)
• Physical game cartridges ($12bn): both primary and secondary sales are declining due to a shift in consumption preferences to digital (only 10-20% of new game sales are physical)
• Trading cards ($13bn): with double-digit growth in recent years being primarily driven by Pokemon and Magic the Gathering. While this category lacks IP diversification, there are upcoming projects such as those by Disney and Riot Games with promising potential

Considerations in Introducing Collectibles

‍There are four key factors to consider when introducing physical or digital collectibles into the IP’s strategy:

‍1) Presence and efficacy of a secondary market: In order for a collectibles market to proliferate past just initial sales, there must be some baseline of liquidity and the items must be to some degree tradeable or transferable.

For physical items, eBay remains the #1 marketplace for all collectibles. In 2023, an estimated 13% ($10bn) of eBay’s $73bn in gross merchandise volume (GMV; the total sales volume) was for collectibles. ~40% of this was toward trading card games alone (primarily Pokemon, Magic the Gathering), excluding sports. However, given its general purpose, eBay is an inefficient marketplace for collectibles. While more focused marketplaces have been established at retailers like Gamestop, gaming-related companies like IGN, or TCGPlayer for cards, there continues to be a lack of scaled secondary marketplaces for all gaming-related collectibles. This has driven the emergence of grey markets versus legitimate, specialized marketplace platforms.

Secondary markets have historically been restricted for most digital products in games, and there are two reasons for this. First, disallowing secondary sales allows the developer to funnel player spending to their primary monetization method (e.g., in-app purchases of skins in Fortnite and League of Legends). This also gives developers a degree of control over the game’s balance and economy. Second, game publishers have historically wanted exclusive control and the financial upside of owning the sales and distribution of assets related to their game within their own siloed ecosystems.

‍2) Trackability: The ability to easily understand the rarity and exclusivity tied to an item. This can be exhibited through explicit supply disclosure (“Item is #2 out of 1000”) or simplified classifications (“Item has a 5-star rarity rating”). Wata Games has begun tracking the number of games they certify and grade by console (Wata). We believe that the ability to roughly estimate rarity based on supply and scarcity will become increasingly important to design for. The value of tech-based solutions such as blockchain have proven that increased visibility into transactions and volume can drive more value.

‍3) Exclusivity: Status and exclusivity are often linear and interchangeably used. While this may come from constrained supply for physical goods, exclusivity can also be derived from the level of difficulty to obtain via achievements (typically for digital goods).

‍4) Utility: While this may come as a surprise given the medium's interactivity, we believe utility is one of the least important factors to implement for collectibles in gaming. Generally, collectibles have historically lacked long-term usage (unlike the replayability of “transmedia” projects like videos); the most prominent use case, display, is 1-dimensional. This is a result of the audience as well; limiting the strongest weapon to only those who can afford it does not bode well for gamers (derisively referred to as “pay-to-win”).

It is important to note that the primary motivators for collectors have different and sometimes competing contributions to the collectibles industry:

• Investors primarily care about the value of their collections where they can hold to restrict supply and then sell based on where they see the best value. These holders typically do not contribute as much to the “fandom” of a community outside of value yet strongly influence the value of the collectibles in their given market.
• Personal or historical connection, nostalgia and status as motivational drivers are difficult to put a price tag on. Additionally, in an opaque market like gaming collectibles, the balance of supply versus demand to inform price is inefficient. A counterexample most people are familiar with are cars: some tools aim to centralize historical sales of even vintage vehicles to give both sellers and buyers the information they need to make an informed decision.

Takeaway: Collectibles are a valuable ($142bn) and underutilized channel in gaming. While the volume and scalability of digital collectibles will likely drive the most growth by dollar, there is an opportunity for AAA publishers and indie developers alike to expand their footprint in the physical collectibles category. Additionally, while the growth of the digital collectibles category in gaming has been hindered by barriers put in place by individual IP owners, we believe that formalizing secondary marketplaces for collectibles in games will unlock this at scale as a business model.