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What do investors think about the current video game industry?
The video game industry has grown in recent years and there are more studios that are born, expand and are bought. The level of investment in video game companies over the past decade has even accelerated during the pandemic, leading to multiple multi-billion dollar acquisitions last year. However, the cost of producing video games has increased. What does this mean for the investors who have poured vast sums of money into the video game industry?
For Spiker Laurie, partner and co-founder of the investment fund Hiro Capital, “it is the second best time in history to found a studio and create games.”
“The last two years have been the golden era for founders. If you have a PowerPoint presentation and you’re making a game on the blockchain or in the metaverse, you get $5 million, a $25 million valuation, and no one asks. They’ve created a monster and all they ask for is feedback…it’s crazy.”
According to Laurie, the success of games on the Unity engine and others developed by Supercell lead to the main places of investment. “Anyone who has worked at Riot or Blizzard or King, in any capacity, anyone who has an idea for a game, they can ask for $5 million and the investors will agree.”
As a result of this, Laurie continues, many bad companies have been formed. No one now does basic errands in business and they lose their money as a result. Like the recent case in the cryptocurrency and FTX business. Although Laurie sounds critical of the outlook, he’s not sure if it’s a good or bad situation.
“Don’t know. Is it bad that anyone who is an entrepreneur and wants to start a business can do it?»
the game has changed
Nick Gibson, director of Games Investor Consulting, cites the combination of several difficult elements such as the months of the global pandemic, problems in supplying ‘hardware’ and the always volatile macroeconomic winds as causes of uncertainty. Especially for those investors who are not specialists in the video game industry.
“There is a higher level of risk awareness, if not aversion, when it comes to investing in games during 2022 and 2023”Gibson points out.
For Gibson there has been a strong flow of investment in video games during the last five years. This attracted more investors and the cycle continued. The challenges have reduced the “foam” in video game valuations and this leaves the focus on the fundamentals: finances, people, intellectual property and technology. It can be said that the companies that currently suffer from floating in the ecosystem are those that were not supported in the correct way.
“What really happened is that all these investors who were full of games, made stupid deals with no less stupid valuations on projects around Roblox, the metaverse and ‘blockchain’, have stopped. These companies have run out of money because they were spending $350,000 on a developer who worked three days a week.”
According to Gibson it’s no one’s fault because it was a great time to be founders. However, smart studios still have more than a year to stand on their own. The companies were ahead of the game because the macroeconomic market was so good. These companies are now experiencing difficulties and need to be more structured. RealEsports Extrasyour expectations about what is normal.
But there is a positive investment outlook
Spike Laurie says that there are still many investors interested in the video game industry. “It’s actually a great time to be an investor. It’s a really interesting time to be venturing into the video game business, because the environment has calmed down. But yeah, the last two years were the best time to be a game investor. Now is the second best time in history to start a studio and make games. It’s a good place to be.”
For Patrick O’Donnell, a senior equity analyst and gaming specialist at brokerage firm Goodbody, there is some uncertainty but the mobile market is also up in the air. China has had some concern and the regulation on loot boxes in some countries is a major obstacle. “Investors certainly don’t see the sector as recession proof, so there’s the mobile market.”
“Our best hope says O’Donnell. It’s a flat year. When you think about what it means for the entire market, we’re probably going to see a low level of growth in the next few years. My perception is that the sector is in a stable place, but investors don’t want uncertainty right now. The overall view towards the industry remains positive.”
The video game industry is global and there are consoles that up to now – three years later – are more widely available to the public. Added to subscription services, you can see a strong competitive market in the coming years.
“Not everything is darkness and doom, because there is a huge long-term growth plan. You just have to see how far the industry has come in the last ten years. Some investors can think short term, so you have to point to the events of the next few months to encourage them to come back.”
Source: Game Industry
