During “Paris Games Week” on October 31, 2017, gamers play the video game “Star Wars Battlefront II”.
Publicly traded gaming companies are sitting on a $45 billion pile of cash and cash equivalents – and that could lead to greater consolidation in the $188 billion video game market, says a new report from venture capital firm Konvoy, exclusively was shared with CNBC.
People like Activision Blizzard, Electronic ArtsSingapore seaJapan Nintendo And Bandai NamcoSouth Korea Nexonand China NetEaseThe company currently has $45.1 billion in cash and cash equivalents, according to Konvoy, which cited these companies’ most recent public reports.
State-owned gaming companies currently have $45.1 billion in cash and cash equivalents, according to a report by venture capital firm Konvoy.
That would give them more than enough financial clout to explore potential acquisition targets that could help them expand their intellectual property and products.
In particular, gaming companies are looking to keep players engaged longer with live service games that add more content over time, as well as paid subscription packages that offer a certain number of free games and access to cloud gaming or the ability to play games to play over, offer the cloud instead of downloading it to their machines.
Publicly traded gaming companies had a pretty rosy year overall in 2023.
The VanEck Video Gaming and eSports ETFAccording to Konvoy, which tracks the MVIS Global Video Gaming & eSports Index, it is up 20% year to date. The blue chip S&P 500 In contrast, the index is up almost 12% year-to-date.
The performance of public gaming ETFs since the beginning of 2023.
The Global X Video Games & Esports ETFwhich aims to track a modified market capitalization-weighted global index of video gaming and esports companies, has not performed well, down 0.4% since the start of 2023.
Big Tech has its eye on video games
According to Konvoy, large technology companies also have enough money to consider further gaming deals.
The VC firm said this is among the world’s largest technology companies Amazon, MicrosoftGoogle, Apple, Meta, NetflixChina’s Tencentand Japan Sonyhave a total of $229.4 billion in cash on their balance sheets to deploy on potential deals.
Josh Chapman, a partner at Konvoy, said the company expects the Microsoft-Activision deal – which saw the Redmond, Washington-based tech giant pay $69 billion for US games maker Activision Blizzard – likely to lead to further mergers and acquisitions Acquisition activities would lead and a company would create new generation of gaming companies.
“As active gaming investors, we believe gamers and gaming startups will benefit from the deal as it improves the value proposition for gamers and creates a vibrant M&A environment for completing other deals,” Chapman told CNBC in via E Comments sent via email.
Cloud gaming is a key area for Microsoft as it adds Activision to its growing portfolio of game publishers. With the subscription product Xbox Game Pass, the company is pushing its cloud gaming service, which makes traditional consoles such as the Xbox Series X or the PlayStation 5 from Sony superfluous.
Chapman said this would lead to “new opportunities for emerging game developers, infrastructure companies and gaming platforms.”
Microsoft’s blockbuster acquisition of Activision Blizzard was approved by the UK’s Competition and Markets Authority earlier this month.
The $69 billion deal will see Microsoft gain ownership of some of the most lucrative video games, including the massive Call of Duty franchise, Candy Crush, Crash Bandicoot, Warcraft, Diablo and Overwatch.
Collapse of the VC deal
According to Konvoy’s report, venture capital investment in video game companies plunged 64% year-over-year in the third quarter of 2023.
Total venture funding in the video game industry fell 9% sequentially to $454 million in the third quarter of 2023.
This is a sign that the industry’s boom times in 2020 and 2021 have waned, despite the boost to the industry from Microsoft’s groundbreaking deal.
Gaming startups raised a total of $454 million globally in the three months ended September, down 9% from the previous quarter and down more than 64% from the same three-month period last year.
Still, Konvoy’s Chapman expects things will look brighter for gaming VCs and startups next year as the dire conditions for venture capital investment begin to improve – although funding for gaming companies has become a “sustainable new Normality has returned, which will continue at the current pace for the next few years.
“As the global venture market recovers, we expect gambling, which was somewhat spared from the initial impact of the economic downturn, to follow suit,” Chapman told CNBC. “We expect gaming VC funding to see a slight increase over the next few quarters as the industry grows at a similar rate to pre-pandemic.”
“Currently, VC deal volume and funding is comparable to pre-pandemic levels, and while we may not see the exponential growth of 2021, we are pleased to see a robust venture funding market in the gaming space for continued value creation in the Industry.” “
Video game publishers are grappling with worsening macroeconomic conditions as high inflation and rising interest rates dampen consumer appetite for discretionary spending.
While consumers had plenty of cash in 2020 thanks to loose monetary conditions, times have become more difficult in 2022 and 2023 as central bankers have raised interest rates to curb rising prices.
Still, the video game player base continues to grow and, according to Konvoy, the global player base now stands at 3.381 million.
The video game market is still huge and is expected to reach $188 billion in total revenue in 2023, according to Konvoy. This figure is a modest 3% higher than last year, when gaming revenue was $183 billion. But growth has accelerated slightly since 2022, when gaming sales rose just 2%.
This came after the outstanding year of 2021.
According to Konvoy’s research, gaming revenue reached $180 billion this year, up more than 8% from $166 billion in 2020.
In 2020, the industry experienced even greater growth – more than 9% year-on-year. Back then, pandemic lockdowns were in full swing and people had more time to play video games indoors.
However, Konvoy predicts long-term growth for the gaming industry in the coming years. The company said it expects a compound annual growth rate of 9% over the next five years, with the industry reaching a whopping $288 billion in total revenue by 2028.