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Gaming was once considered a niche thing enjoyed by a few people, but it has quickly become a large part of American life. Whether played on the latest and greatest consoles, PC, or mobile phones and tablets, gaming is becoming a part of many people’s daily lives. According to data, the video game market is expected to reach $282.3 billion in revenue this year and is expected to grow at an annual rate of 8.76% from now until 2027.
Of course, investors have long been attracted to this sector and the promise it holds. But like many other industries, the company has struggled over the past year with slow investment and depressed valuations. PitchBook recently released its Q4 2023 Gaming Report, which examines the gaming VC ecosystem at the end of last year. Interestingly, the firm reported an increase in deal count and deal value in the fourth quarter of last year, with $1 billion invested across the industry for 126 deals. However, if you look at the YTD and YOY numbers, these numbers are still declining.
We believe that much of what is happening right now across the industry is a return to normalcy, a return to a more realistic level of activity than the record numbers seen in the years of the pandemic. We discuss this in our blog post and PitchBook agrees that this is the case. For the game field.
They point out several factors here. For example, “tourist” investors who were drawn to the sector during the peak we experienced from 2020 to 2022 when the hype around Web3 and the Metaverse was high. We also overcame the low interest rates and rush to purchase games and gaming systems that occurred during the lockdown.
Many investors also realize that developing a hit game can require huge amounts of capital, not to mention time, and is far from a sure bet. This means that many of them are starting to change their focus. PitchBook points out that investor interest is shifting away from traditional game development studios and towards different business models. These include backend-as-a-service, developer tools, and more pick-and-shovel plays like anti-toxicity and content moderation tools.
Content continues to attract investor attention by deal volume, with $438.4 million invested in 71 deals in the fourth quarter. However, development startups (comprising services, developer tools, and game engines) ranked him second with $288.7 million in his 29 deals, with the highest pre-money valuation of the tracked segment. did. Similar to other industries, investment in growth and late-stage companies continued to underperform investment in early-stage companies last quarter.
While we may not be stuck at home playing video games like we were during the pandemic, there is certainly still a global demand for video games. There are an estimated 3.3 billion active video gamers worldwide, and continued advances in the field, particularly in AR/VR technology, generative AI, and, to a lesser extent, new IP, will expand the audience. There is a possibility. Create new experiences, leading to further growth and engagement. It’s no surprise that investors continue to target the gaming sector. Still, only the bravest investors may remain focused on content as the industry recalibrates to fit new economic and technological conditions. In contrast, some companies are moving to new platforms and infrastructure to prepare for the next wave.
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