As pre-seed investors in the world of gaming (both studios and infrastructure) at Remagine Ventures, we stay up to date on the trends and new developments in the world of gaming. There are numerous publications, reports and newsletters filled with content on gaming, so it would be hard to do the category justice by reducing it to five links, in this post I tried to break down the category trends as we all deal with information overload. Where appropriate, I also mentioned specific investments we’ve made in the space.
1. Gaming is the leading form of entertainment for under 50s in the US
A report by GWI on trends in Entertainment in 2022 confirms the growing influence of gaming as a leading form of entertainment for under 50’s in the US.
Here are some stats about the gaming industry that might surprise you
- There are 3.07 billion people globally that play games in 2022. That figure is expected to grow by 5.6% CAGR.
- Mobile gaming is by far the most dominant category. 34% of gamers have played/ downloaded a freeto-play game in the last month. At Remagine Ventures we invested in Sneaky Panda, a mobile gaming studio founded by serial gaming entrepreneurs pioneering a new genre – Luck Puzzler.
- The global games and services market is forecast to reach $188 billion in 2022, a 1.2% forecasted decline year on year according to research from Ampere Analysis after two years of massive growth.
- The portion of women who play games has increased (+5%), with almost as many women playing games as men – 85% vs 81%, respectively (source)
- Gaming is expanding – companies who didn’t traditionally do gaming (like Netflix) have understood that it’s a key activity for their customers time spent outside of work. Others like Peloton, also experimenting with adding gaming as an engagement mechanism with their customers.
2. Gaming investment and M&A activity in H1 2022 on the rise
Investment bank Drake Star Partners published a report on the gaming investment and M&A activity in the first half of 2022.
Below are some of the highlights:
- The first half of 2022 has seen more than 651 deals announced or closed with a disclosed value of $107 billion, compared to 635 deals in the first half of 2021 with a total value of $60 billion. All of 2021 saw only $85 billion in deals.
- $68.5 billion is attributed to the pending Microsoft acquisition of Activision Blizzard
- Besides Activision Blizzard, the big deals included Take-Two’s purchase of Zynga, Sony’s acquisition of Bungie, and the ESL and FaceIt acquisition by Savvy Games Group
- Mobile was the most active segment with 47 deals. And a record-breaking $7 billion was invested through venture capitalists and strategic investors in private gaming companies during the first half with 11 large rounds that exceeded $100 million.
- Private financing market continued to see strong deal activity with $3.6B in total financings in Q2, surpassing Q1 total through 169 deals.
- Multiple new funds focused on gaming/blockchain were announced in Q2 including by Andreessen Horowitz ($4.5 billion for blockchain and $600 million for gaming), Binance ($500 million), Immutable ($500 million) and Konvoy Ventures ($150 million) and are actively looking to deploy the new capital.
- The M&A market for gaming is expected to continue to heat up in the second half of 2022. The merger of Unity and Ironsource (a $4.4 billion transaction) took place in Q3 and gaming giant EA is rumoured to be looking for an acquirer.
3. The impact of rising inflation and potential recession on consumer spend in gaming
We are not in a full blown recession yet, but analysts are sounding the alarm that the rising inflation and reduced consumer spend will not skip the gaming industry. In previous downturns, and particularly during the pandemic, gaming faired well as people seek escapism, but there are a few clouds in the horizon.
NPD reported on Friday that consumers spent 10% less in the first six months of 2022 than they did during the same time period last year, with game industry revenue down to $26.3 billion in H1 2022, a 10% drop year-on-year, with subscription being the only category experiencing growth compared to 2021.
Data from Sensor Tower Q2 2022 report reveals that iOS users in the United States spent more in non-game apps than games for the first time ever last quarter.
Mobile games earned $41.2bn globally during H1 2022. While mobile game revenue was down 6.6% year-over-year, downloads were up 0.4% as they reached 28.1 billion (source)
In addition, several gaming companies announced layoffs, including Unity and Niantic and many others froze hiring.
Despite the negative forecasts in 2022, the outlook for the gaming industry is bright:
“After two years of huge expansion, the games market is poised to hand back a bit of that growth in 2022 as multiple factors combine to undermine performance. Even so, the year will end well ahead of pre-pandemic performance, and the outlook for the sector as a whole remains positive, with growth forecast to return in 2023”
Pierce Harding Rolls, Ampere Analysis (source)
4. Metaverse and gaming as its entry point
The Metaverse took the cover of Time magazine this week with an article by Matthew Ball about the potential of Metaverse and Web3 to fundamentally change the way we live, work and socialise.
Metaverse = massive, interoperable 3D virtual world that is persistent (still there when you log off), synchronous (everyone experiences it the same way) and support of unlimited users who can have their own identity, virtual objects and access to payment systems.
It so confusing – on the one hand, there’s so much talk about the metaverse and its potential, and on the other hand, in the current stage we’re at, it’s hard to say what it exactly is (or isn’t). With the crypto winter and general negative tech backlash it’s easy to dismiss the plans for the Metaverse as tech jargon, but I wouldn’t discount the potential, given the trends, quality of talent and the volume of capital being invested into the space by VCs and corporations alike.
I’ve written more about that in my post Investing in the pillars of the Metaverse – which I highly recommend you check out. It’s hard to predict the future, but I predict that gaming will continue to grow and become ever more social and immersive. As spend follows attention, the assumption is the people will spend much more in these games and virtual worlds: on commerce, digital assets and experiences and perhaps in the future also health, education, dating, etc.
We are in the experimentation stage, where brands, IP, communities, are testing the waters for relevancy, connection with the younger fans, and new income potential. Some headlines from the just the past week:
- The Bored Ape Metaverse by Yuga Labs invites 4,300 beta-testers
- Manchester City to launch metaverse experience on Roblox
- Nike debuts Smart Hoodies that come alive with AR
- Atletico Madrid announce launch of virtual island, “Atletiverse”
- Skateboarding legend Tony Hawk enters the metaverse . Tony Hawk has teamed up with the Sandbox to build the “largest virtual skatepark ever made”
- AMGI Studios is developing a metaverse game that bridges Web3 and Hollywood
At Remagine Ventures, we invested in Toya, a company creating experiences for girls starting with Roblox. Toya partners with IP holders to create engaging experiences, like Miraculous Ladybug Role Play, which has just won the Best Alternative Game 2022 by Kidscreen.
On that note, I recommend Joost van Dreunen’s review of Matthew Ball’s new book on the Metaverse.
5. The rise of Blockchain gaming
Over half of financing deals in gaming went to blockchain gaming companies in H1 2022. Private blockchain / NFT gaming companies raised more than $2.5 billion in Q2 2022 with over half of total amount raised by early-stage companies. Gaming activity makes up 52% of all Unique Active Wallets (UAW), with nearly 1.1 million UAWs in Q2. Why is blockchain gaming so attractive? because it has the potential to change the economics of the industry.
Typically, a large percentage of the funding raised by gaming startups goes to marketing. The games, especially mobile free-to-play, are then required to recoup the acquisition costs, typically monetising with ads (which hurts user experience) or in-app-purchases. The big challenge is retention, as users get bored and flock to the next game.
In blockchain gaming, the focus is on building a strong community even before launching the game, with a much lower marketing spend. Players are able to buy NFTs that could increase in value, and earn tokens by playing and succeeding in the game. They are then able to sell their digital goods and make money, thus improving retention and increasing referrals. More on the future of crypto gaming in this new report by Delphi Digital.
With that said, blockchain gaming is still a tiny market in comparison to free to play or web2 gaming. The main hurdle for blockchain gaming lies in crypto adoption and the complexity of installing a crypto wallet, buying tokens/crypto, purchasing NFTs, etc. This is likely to improve with new initiatives underway to create simpler ‘gaming wallets’ that dramatically reduce the complexity for the player. In addition, it’s controversial in the gaming community. The latest company to come out against NFTs in games is Minecraft.
At Remagine Ventures, we invested in Rebelbots, a blockchain gaming studio that attracted investment from Ubisoft, Overwolf and Animoca Brands.
Final thoughts – picks and shovels
In order for gaming companies to create, distribute and monetise their content, they require solid tools and infrastructure. The gaming infrastructure landscape ranges from in-game advertising to 3D content management in the cloud.
At Remagine Ventures, we invested in Echo3D, a CDN and CMS for 3D content in the cloud that enables developers to significantly reduce the size of their apps and ingest dynamic content. The company announced a $5.5M round earlier this month, led by Qualcomm Ventures.
Overall, Gaming as a category is thriving. By 2024, Newzoo’s Global Games Market Report 2021 predicts that the games industry will hit $218.7 billion with a sustained growth of 8.7% per year.