The Panel on Investing and M&A in the Games Ecosytem, one of the sessions on the first day of the 3-day LA Games Conference run by Digital Media Wire, offered some first hand views of investment in the sector now and predictions for the future.
The five panel members came from US investment funds with a particular focus on the games sector. For most, series A funding is the sweet spot but one focused on early stage investments, and others offered full cycle investment. One was primarily interested in the music tech sector.
All agreed that the games industry had thrived during the lockdown, with more engagement as people had more time and used games as means of social interaction with friends, and – so far at least – more revenue. Behaviour patterns established during lockdown were likely to continue even when restrictions eased. However some doubted whether the revenue level was sustainable given the levels of unemployment and expected impact on the economy generally. Businesses whose revenue was based on advertising or sponsorship were experiencing much greater challenges.
None of the participants had yet funded a business where they had not met the founders personally before lockdown, and most found it hard to imagine writing a large cheque to a team with whom they had not spent time in person. Investments were likely to be smaller until real-life meetings could start again. Although everyone was making the best of the current circumstances, it was agreed that there was still a place and a need for face to face contact and to work together in teams.
The panel was surprised by a poll showing the audience thought there would be enough investment capital available for early stage investees in the next 12 months. There are only a few funds which focus on this sector and, with 1/3 of the world’s population playing a game every day, a huge demand for funds. Some family offices which had been investing in this sector were pulling back. Early stage funding in this sector is already hard, and games companies typically take longer to come to the market. If inability to meet founders in person slows or reduces the size of earlier stage investments, this challenge is only likely to increase.
The audience thought that the greatest investment in the next 12 months would be in streaming and broadcast, but the panel expected it to be in studios (content development and publishing). Streaming and broadcast were however agreed to be another key area, particularly in relation to the social aspect of games and incorporation of music. The panel expected big value investments in the studios, particularly in mobile games, which was justified by the growth potential.
There were great opportunities for integrating music with games. No artist could perform to an audience of 12 million with a live show, but could reach this number of viewers via a game. The skins market is currently entirely visual, with rights and royalties presenting a challenge to integrating an audio element, but this was seen as an area with big potential. The line between games and music is blurring rapidly. One challenge is to capture the emotion of the live audience, with interaction between remote viewers, the live audience and the artist the ideal – and one which we should see in the near future. User generated music content is another powerful area to enhance the user experience. The biggest platforms are looking at the top 1% of artists, but there is plenty of scope for smaller platforms to deal with other artists.
Narrative and story telling offered an opportunity to engage with more serious gamers and non-gamers, while still offering casual play to keep the games widely accessible.
A true “metaverse” – a collective virtual shared space, where physical, augmented and virtual reality converge with a level of physical persistence, and enjoyed by many concurrent people each with a consistent identity – was still some way off. A lot of businesses are trying to develop this, but it would require considerable competitive effort. Although the current players will drive this forward, the panel expected that the breakthrough would come with a new player on the block.
Watch – and listen – to this space!
The games industry thrived during the lockdown, with more engagement as people have more time and are using games as means of social interaction with friends, and – so far at least – more revenue. Five funds discuss how they are continuing to invest in the sector and the next developments in the sector, including the big potential for games, skins and artists offered by integration with live music