“Video games will move to the center of the entertainment and pop-culture universe next year”
Axios, Future of media: Gaming
Over the past two days, I had a chance to attend the Pocket Gamer Connects (PGC) London and meet and greet game developers, execs, studios, investors and service providers to the gaming industry. It’s the first big gathering of the year, a small sibling to the much larger Game Development Conference (aka GDC) taking place in San Francisco in March. First and foremost, PGC it’s a meeting palooza – I received over 40 requests for meetings, mainly from game studios all over Europe.
One trend that was prominent at the conference was the rise of generative AI in gaming. In one of the sessions I attended the room was packed with developers, and in the web3-focused session, most of the chatter was not on NFTs or Play to Earn, but on the potential of generative AI to reduce costs, increase productivity and test various aspects of the game creation value chain from ideation, to development and marketing of games.
The potential of AI in gaming was also mentioned In the latest quarterly gaming report by Quantum Tech Partners:
“We will begin seeing early concept stage development, art, generative characters, NPCs and putting creation in the hands of non-developers assisted with AI applications”
Another trend that was discussed at the conference was the growing importance of live operations in mobile gaming. Live operations refer to the ongoing management and maintenance of a game after its initial launch, and can include things like events, updates, and community management. With the increasing competition in the mobile gaming market, developers are recognising the need to keep players engaged and invested in their games for longer periods of time in order to drive monetisation and retention. Alumni of companies like Playtika or other ‘social gaming’ companies are well aware of the potential for live ops platforms to increase ROI and retention.
Putting gaming in context in 2023
While 2022 was the first year that saw mobile gaming revenue shrink by 5%, the number of downloads was overall up and session times remained the same, as I mentioned in my post on the state of Israeli gaming in 2023. When it comes to M&A however, 2022 was a record breaking year with $127 billion invested across 1,250 deals, according to the latest 2022 state of gaming report by Drake Star.
Highlights from the report:
- Global gaming industry saw record year with over 1300 deals and $127B in disclosed deal value.
- Over $102 billion in M&A deal value with some of the largest ever gaming M&A deals this year (Activision/Microsoft, Zynga/Take-Two, ironSource/Unity)
- More than $11B was raised in 900+ financing rounds of private companies. When comparing venture investments only, 2022 saw a 40% decline in gaming investments compared to 2021 (according to CB Insights). Q4 2022 was particularly brutal, with a 83% decline in gaming funding. Unfortunately, the layoffs didn’t skip the gaming industry as companies look to improve unit economics. Unity, Riot Games, Microsoft, Google and Playtika, are just some of the recent companies who announced layoffs, affecting thousands of jobs.
There is light at the end of the tunnel as the growth is expected to return in 2023 and revenues for the gaming industry are expected to grow from $184 billion in 2022 to $283 billion in 2027, representing a nearly 9% CAGR. In the current market conditions, where growth is hard to find, this is very attractive.
And when it comes to M&A, 2023 already opened with a bang as Playtika made a bid to acquire Rovio entertainment, the maker of Angry Birds in a deal valuing the company at approximately $900 million USD. As more non-traditional gaming acquirers enter the market (like Netflix, Meta, Amazon) the M&A trend in gaming is likely to continue.
Another thing that changed in 2023 in addition to the bigger market of potential acquirers is dry powder for gaming funds, which raised a record of $3.45 billion in 2022. Gaming is a sector that traditionally struggled to attract venture capital investment in the early days, as mentioned by Mitch Lasky and Blake Robbins in the Gamecraft podcast. Various factors changed that dynamic and made gaming into a hugely sought after investment opportunity: the penetration of smart phone and rise of mobile gaming, the move from packaged goods to free to play, and the growing M&A market for gaming to name a few.
At Remagine Ventures I, our first fund, we’ve been active investors in the gaming space, including 4 gaming studios (Sneaky Panda, Toya, RebelBots, Novos and soon Zoog, who is launching their first games for families) to date as well as 3D content infrastructure like Echo3D, which offers 3D asset management in the cloud. For Remagine Ventures II (launching in 2023), we’re expanding our investment coverage geographically and will start investing in UK / Europe as well. We are bullish on the future of gaming as the leading form of entertainment for anyone under 50 and are excited about the potential that new technology like generative AI or blockchain has on the future of the gaming industry.
Overall, the Pocket Gamer Connect conference provided a fun get together of the gaming industry and a valuable look at the trends that are shaping its future.