Digi-Capital has published its Global Games Investment Review 2014.
Commenting on the Review, Digi-Capital Managing Director Tim Merel said,
“Mobile games could drive total games software industry revenue to ~$100B by 2017. The mobile and online games sectors combined could grow to ~$60B revenue (23.6% CAGR 11-17F), and take 60% games software market share by 2017. Competition for growth is intensifying, as the new kids on the block harness the energy in the cycle to take them to the summit. However this is an elite marathon not a sprint, so long term engagement performance is just as important as short term success.
Mobile and Asia drove games M&A to a historic record $5.6B in 2013 ($7.9B including the $2.3B management led portion of Activision-Blizzard/Vivendi excluded from the total). M&A value grew by 29% from 2012, with average M&A deal size growing 23% from 2012 to $63.8M. Mobile dominated M&A by transaction value (67%) and volume (36%), with clear valuation trends emerging. While many deals were focused on growth, there was considerable consolidation for pivot and turnaround strategies.
Asia is becoming the biggest growth driver of economic value in mobile/online games, with the best games companies’ revenue growth and profit margins being the envy of foreign competitors. Asia and Europe combined could take >80% global revenue share for mobile and online games. 9 of the top 10 games M&As of 2013 had Asian buyers, continuing the trend from 8 out of 10 in 2012. Global and pan-regional M&A deals were significant in 2013, and pan-regional relationships and profile remain critical for entrepreneurs selling via trade exits and for major corporates buying games companies. 13 out of 15 games IPOs in 2011-2013 were by Chinese, Japanese or South Korean companies, although there are also attractive IPO prospects in Western markets. Everyone is searching for the next Unicorn.
Games investment from VCs, corporate venture funds, angels and Kickstarter/crowdfunding recovered slightly in 2013, returning to 2010 levels. Investment value grew 16% from 2012 to $1B, but the early stage games investment gap remains. Metrics and analytics have become increasingly significant in fundraising. Average investment deal size grew 14.8% from 2012 to $6M. Mobile games and tech/gamification dominated investment in 2013.
Games dominated mobile app usage and revenue in 2013, with Over-the-Top messaging apps (“OTT”) a new disruption. Games took 32% of 2013 mobile app usage (blended iOS/Android tablet/smartphone), and accounted for 67% of tablet usage. Games took 72% of mobile app revenue and ~40% of mobile app downloads in 2013. Asian OTT platforms are beginning to disrupt mobile games, with Kakao Talk, WeChat and LINE taking significant share of top 100 app store ranking in domestic markets.
The 8th generation console cycle is beginning to address the decline of recent years, but questions remain about potential new installed bases, transition from the 7th generation and mobile cannibalization.
Where 2013 was a year of transition, we anticipate 2014 to be a year of both growth and disruption for the games market.”
Read the full Global Games Investment Review 2014.