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Thematic ● Global November 2020

Chart 7C. What content did children access on their devices during the pandemic Games

Chart 8C. Entertainment accessed by children on their devices (2019)

70%

School/Homework

13%

Traditional TV

58% Social media

Social Media

18%

49%

Movies

40% Video streaming

46%

Gaming (Minecraft, Fortnight, Roblox)

43%

Tv shows Chats/messaging incl. VC

39% 0%

18% 0%

50%

10%

20%

30%

40%

100%

Source: HSBC, Morning Consult

Source: HSBC, Morning Consult

Over the course of pandemic parents said that there was an increase in screen device usage time from their children (17 and under) and chart 7C highlights that 80% of their kids were spending time in gaming activities on their electronic devices (it was even higher for the sub-group of 5-12 year olds at 84%). Chart 8C compares the different types of entertainment for kids and teens: comparing video streaming (40%), social media (18%), traditional TV (13%) and games (Minecraft 36% in ages 5-12, Fornite 30% on average on all kids/teens and Roblox was 35% in ages 5-12). Reed Hastings (Netflix CEO) once joked that their main competitor was sleep. Jokes aside, it’s a valid question of what other activities digital content consumption like movies, games and social media eat into. Chart 5C shows that watching sports might not be one of them; it shows the percentage of esports fans who follow American sports franchises, and there is reasonable overlap between video games as a sport and physical sport watching. Another good question to ask is how does gaming look on a global level? The percentage of internet users who game is high in all regions (80%+ in Latam, APAC, Middle East/Africa and 70%+ in North America and Europe), as highlighted in chart 4C – it’s high in both DM and EM.

Chart 9C. Gaming traffic share % (2019)

14.5%

League of Legends (Riot Games)

10.7%

Player Unknown (PUBG…

9.5%

Fortnite (Epic Games)

Minecraft ( Mojang Studios)

6.4%

30%

6.3%

20%

2.9%

World of Warcraft (Blizzard…

0% Source: HSBC, Sandvine

8.0%

6.1%

4.2%

Gaming

Social

File sharing

0%

2.6% 4%

13.1%

10%

2.7%

Clash Royal/Clans (Supercell)

70

40%

6.5%

Warframe (Digital Extremes)

60.6%

60%

Destiny (Bungie)

Respawnables (DLE)

Digital content traffic analysis…

70%

50%

7.8%

Overwatch (Blizzard Entertainment)

Chart 10C. Video streaming 60% of internet traffic globally (2019)

8%

12%

16%

Video Streaming

Web

Source: HSBC, Sandvine

Let’s look at digital content streaming traffic worldwide. In terms of games, it looks like League of Legends (15%) by Riot Games, Player Unknown (11%) by PUGB and Fortnite (10%) by Epic Games took the top 3 spots in 2019 – see table 9C. In the same year, gaming was the third

Thematic ● Global November 2020

largest share of global internet traffic, where gaming took 8% of the traffic, which is comparable to social media traffic, which is at 6%. However, these numbers pale in comparison to video streaming on the internet, which is at 60% of traffic. However, as more high end gaming begins the transition towards services like Google Stadia and Amazon Luna, so cloud gaming traffic, we can envision cloud gaming traffic starting to grow over the coming few years. Different business models

It can be argued that Napster started the audio downloading revolution at the turn of the millennium, but what does audio streaming traffic look like today, in the age of the cloud subscription services? Chart 11C shows that Spotify took nearly a third of all audio steaming traffic on the internet. The nearest all in one audio streaming company is Apple Music at 15% share, and Google Music at about the 1% mark. However, in terms of share of global internet traffic, the tech giants services (Google, Netflix, Facebook, Microsoft, Apple, Amazon) are about 43% of all traffic (see chart 12C) However, we must also note carefully, we must not think of all big tech players under the same bucket. For example, even though they are all considered tech companies, they operate under different business models – e.g. paying subscription for Netflix but using Google for free, through their ad model.

Chart 11C. Global audio traffic (%, 2019) Spotify

28.0%

Shoutcast

22.8%

HTTP audio streaming

22.8%

12.00%

Netflix

11.44%

Facebook

3.9%

Soundcloud

Deezer

1.7%

Pandora

1.3%

Google Play Music

1.1%

7.79%

Microsoft

5.03%

Apple

1.1%

Tidal Netease Cloud Music

3.97%

Amazon

2.87%

0.2% 0%

Online education… to level the playing field?

Google

15.6%

Apple music

Source: HSBC, Sandvine

Chart 12C. US tech giants dominate global internet traffic (2019)

10%

20%

0%

30%

5%

10%

15%

Source: HSBC, Sandvine

As we saw in chart 3C earlier on, education is also one of the key applications being used by the internet users of today. Over 50% of people aged 16-35 use the internet for education and study purposes.62 These days Massive Open Online Courses (MOOCs) are a popular way of getting access to structured learning. Chart 14C highlights the popular MOOCs today, with Coursera leading the way with 45m users. Chart 13C goes on to tell us that undergrads and graduates both think the quality of education received online is better or about the same as in the physical classroom. This bodes well for giving access to high quality education to students wherever they are in the world, and increasing credentials worldwide, normally reserved for the wealthier DM nations, as in the case of the Ivy league.

______________________________________ 62 "2020 consumers: the story so far", Global Web Index, August 2020.

71

Thematic ● Global November 2020

Story and key trends for experiential infrastructure 1. Rise of digital content: gaming, music, movies, education

Every age has its storytelling form, and video games is a huge part of our culture. People are enthralled with video games in the same way other people love the cinema or theatre



Andy Serkis, performance capture actor

Gaming is the new social

Gaming a gateway into digital content… Gaming has come a long way from the days of arcade systems like Atari’s Pong in the 1970s. One could argue that the arcades of yesteryear were social interaction hotspots for the youth of the time. Today that core premise is no different for modern gamers, where gaming is increasingly seen as a social activity – a place to meet and hang out with friends virtually.

Chart 2C. Gaming viewed as a new social activity (2019)

Gaming Source: HSBC, Global Web Index

Baby Boomers (aged 56-64) 4% Gen X (aged 37-55) 25%

To relieve boredom

To progress my skills

To chat/keep up with friends

Bullying, discriminatory or hateful behaviour

The lack of actual human connection

70% 60% 50% 40% 30% 20% 10% 0% It doesn't allow me to bond properly with my friends

35% 30% 25% 20% 15% 10% 5% 0%

Chart 3C. The generation game: gaming demographics 2020

Gen Z (aged 16-22) 23%

Millennials (aged 2336) 48%

Social Media Source: Global Web Indix

Charts 2C (grey bars) shows us that a key motivation of gaming is to have fun with people they know and to chat with friends. Compare this with the red bars on the same chart which highlights that with social media, people find it frustrating in terms of the bullying behaviour on the platforms and the lack of human interaction. Knowing this context, it makes more sense that in 2019, the global games market generated USD150bn. This is more than the global movie box office (USD40bn) and global music industry (USD19bn) combined!60 Remember gaming is interactive and social, whereas movies and music can be viewed a passive activity.

______________________________________ 60 "Video game industry silently taking over entertainment world", Ejinsight, October 2019.

68

Thematic ● Global November 2020

7% Of blockchain projects in industry have gone from pilot to production so far…

Virtualisation: 

Virtual reality (VR) and augmented reality (AR): We believe that virtual and augmented reality technology can become the next mass computing platform, like the PC and smartphone before it. This technology enables people to share experiences with other people virtually. Examples include: work in a shared immersive virtual space with colleagues, attendance at conferences, attendance of “live” virtual concerts and sporting events, education via virtual classrooms, virtual fitness programs and more with zero physical travel. The price for the latest wireless VR headset has dropped to USD299 in October 2020. We believe VR is in the “real applications” phase of our disruptive framework – and will soon be ready for both the consumer and enterprise markets. However, the outlook for AR is somewhat different; due to the technology form factor available today like with Microsoft’s HoloLens, we believe it’s mostly for the enterprise the market, and we place AR in the “backlash” window for now. Some companies involved: 

Asia: HTC (VR/AR)



EEMEA: STC, Etisalat (VR/AR)



US: Unity, Autodesk (3D modelling). Facebook, Sony, Microsoft (VR/AR)

USD299 Cost of Oculus Quest 2 wireless 6 degrees of freedom VR headset from October 2020

67

Thematic ● Global November 2020

Most things that can be virtualised and digitised have been, or are in the process of being carried out. This transition has been massively disruptive for businesses all around the world. This digitisation process has therefore naturally also forced companies to change their business models to survive and enabled a new host of disruptors to thrive. We believe that the next category ready for virtualisation might be experience itself, through virtual and augmented reality. There’s still a lot of innovation iteration and business models to be figured out for the success and growth of the technology but we believe we are on the edge of VR/AR disruption today. It’s likely to be the most disruptive technology we’ve seen in a long time, potentially having many unintended and unforeseen consequences on travel, energy, real estate, spending habits, work, entertainment, health, privacy, re-defining the meaning of human interaction and the perception of reality itself. There are significant implications for long-term investing. Digital content:  Gaming going to cloud

Movies and music more physical to digital

Movies have been streaming back catalogue films for a number of years but the pandemic has the potential to disrupt the movie making business model further. For example, due to cinemas struggling to stay open during the current crisis, a number of Hollywood studios have started trialling with various degrees of success PVOD (premium video on-demand) to monetise their new releases, which normally would hit the cinema run first. Music streaming has been doing very well for a number of years also, with the likes of Spotify and new entrants like Tidal. However, as musicians are unable to sell out rock concert stadiums in the current pandemic environment, they are exploring using music streaming sites to sell live-streamed concerts. 

Social media today is the digital playground, for friends and strangers to interact, share digital content from IMs, photos, videos and news – although we have to note that these platforms face increasing regulatory risks from things like fake news and cyberbullying. We place music, movie and social media digital content in the “new normal” part of the framework. However, as we will explore later the future of the socialisation aspect of social media, concerts, and movie-going could be in VR… which could enable them to change business models to monetise further.



The pandemic has forced many things online, and education is no exception. Today 50% of those ages 16-35 use the internet for education and studying. Massive Open Online Courses (MOOCs) are popular today. We place online education on the “real applications” phase and the pandemic is likely to push this toward the “new normal”.

Social media, the digital playground

Online education

Entertainment, socialisation and education: In the modern age, computer or video games are a substantial business, generating over USD150m annually and are seen as a social activity among the younger generation, to hang out virtually with their friends. This factor is prompting some companies like Tencent try to monetise this trend. They are set to explore building esports cafes to cater to this demand, blending virtual pastimes into physical businesses, perhaps finding more uses of physical retail space in the digital content world. With the advent of platforms like Amazon Luna and Google Stadia, the next frontier for gaming is cloud. Today we position gaming in the “new normal” part of our framework but we place cloud gaming a little further being in the “real applications” phase.

Here are some companies involved with this theme: 

Asia: NetEase, Tencent, Huya and Douyu - are exposed to streaming and video games. IQiyi, Tencent Music – movies/music streaming. Tencent, Weibo – social media. Tal Education, GSX Tech EDU, New Oriental Education (online exposure much less, relative to TAL) – online education.ByteDance (social media)



Europe: Keywords Studios (KWS), Team17, Ubisoft (game publishing)

65

Thematic ● Global November 2020

Chart 4C. Gaming is global in 2020

100%

86%

84%

Chart 5C. Gamers overlap with sports fans in 2020 NHL

83%

76%

80%

73% MLB

60%

40%

MLS

20%

NFL

North America

Europe

Middle East and Africa

Asia Pacific

Latin America

0%

Source: Global Web Indix

NBA 0%

20%

40%

60%

Source: HSBC, Global Web Indiex

Considering this significant market size and opportunity in games, we are also seeing the music and movie industry moving their content into gaming platforms, to grab audience and demographic attention. For example, Fortnite, the battle royal computer game, hosted a virtual concert by rapper Travis Scot (attended by 12m people concurrently and 28m people overall) and they premiered the Warner Brothers Tenet trailer (USD200m+ time bending movie) this year.61

Chart 6C. The app tax: what do different app and game stores charge the app developer?

PC STORES EPIC GAMES STORE

STEAM

CONSOLE STORES HUMBLE STORE

30%

25%

12%

25% After USDm10 earned 20% After USDm50 earned

PLAYSTATION STORE

XBOX GAMES STORE

30%

30%

(INCLUDES LICENSING FEE)

(INCLUDES LICENSING FEE)

NINTENDO eSHOP

15% to Humble 10% to Charity or Back as store credit

ITCH.IO

GOG

DEVELOPER’S CHOICE

30%

MICROSOFT STORE

30%

30%

MOBILE STORES APPLE APP STORE

GOOGLE PLAY STORE

30% (INCLUDING IN-APP PURCHASES)

(INCLUDES LICENSING FEE) PREVIOUSLY 35% FOR WIIWARE

PHYSICAL STORES GAMESTOP

AMAZON

BEST BUY

WALMART

30%

Source: HSBC, IGN

Who is gaming more today?

The distribution of gamers over different age groups is shown in chart 3C, where we see unsurprisingly it’s the younger millennial cohort (aged 23-36) who make up nearly 50% of the gamers. However, this survey only looks at people older than 16 years old.

______________________________________ 61 "How much money did Travis Scott make from Fortnite?", Sports Skeeda, July 2020.

69

Thematic ● Global November 2020

Experiential infrastructure 

Experiential infrastructure is trend of replacing physical consumption with digital goods by businesses and consumers alike



We look at key trends enabling growth in experiential technologies through the rise of digital content, digital backbone infrastructure and virtualisation sub-themes within our disruption framework and list 50 companies exposed to the themes



We outline 20 1st tier, 2nd tier, and ESG implications from our themes

Welcome to the matrix… Everything is moving from physical to digital and disrupting business models

Over the last couple of decades, things have been moving from physical to digital. Physical letters became emails and IMs, physical printed newspapers and books exist in websites/ebooks formats, music and movies went from CDs/DVDs in HMV/Blockbusters to streaming services like Spotify/Netflix, gaming from CDs/cartridges to downloads (soon to be cloud gaming), sports like Premier League went from Sky satellite dishes to NowTV, BT Sports and Amazon Prime online, interactions between friends and strangers moved to social media and we are migrating from physical notes/coins to digital payments via the smartphone. Everything is transitioning from atoms to bits and bytes.

Gradient of estimated expectation vs. reality

Chart 1C. HSBC Disruption Framework: Experiential infrastructure

Source: HSBC

64

Digital backbone

Digital content

Blockchain,

Gaming, eSports, movies, television,

cryptocurrencies,

social media, music, education

fintech Next gen

Virtualisation

Quantum computing,

Virtual reality, augmented reality,

brain-computer interface

mixed reality

Early disruption

Hype mania

Backlash window

Real application

New normal

Thematic ● Global November 2020



EEMEA: Naspers (via Tencent), Mail Ru (video gaming/social media).



Japan: Nintendo, Sony (games company)



LatAm: Arco Educacao, Yeducs, Cogna, Anima (online education)



US: Activision, Electronic Arts, SciPlay, Take-Two Interactive (game pu...