The video game industry, already booming, received a boost from the pandemic as kids and adults alike were forced to stay home and find sources of entertainment. Sales of games and consoles saw a significant spike, and supply chain issues led to a limited supply of new consoles, creating even greater hype. As a result, people were paying well above retail prices to get their hands on the latest and greatest consoles.
It’s not surprising that the gaming sector has continued to be an area of interest for investors while many other industries have struggled due to economic factors over the past several months. Pitchbook recently released their Q4 2022 Launch Report on Gaming, which examines investment in the gaming sector last year. The results spotlight an area that continues to attract investors, despite ongoing economic hurdles.
The research indicates that there were some drops in deal value and activity in the video game industry last year, but overall deal activity remained robust. With global VC deals dropping from $16.6 billion in 2021 to $13.3 billion in 2022, there was a contraction in this sector for the first time in five years. Nevertheless, the total deal value is still historically high, nearly quadrupling the total in 2019.
As with most sectors, exit value for the video game industry was down in 2022. Pitchbook points to a “difficult regulatory climate” as a contributing factor, but exit options were limited across the board. We are seeing lower valuations in most industries, and many companies have had to dramatically shift their plans or put them on hold.
One highlight of the report is the projected growth of the gaming industry’s market size. According to Pitchbook, the market is expected to grow from $447.3 billion to $563 billion by 2026. In particular, the development segment of the industry is expected to expand to $33.9 billion by 2026. This growth potential should continue to draw the attention of investors who are looking for companies that can best weather economic storms.
Gaming has long been at the forefront of adopting and mainstreaming novel technologies. It is creating massive digital worlds to explore with AR/VR, providing a friendly user interface and use case for blockchain technologies and cross-game NFTs, and unlocking new platforms to populate with ads. Gaming has also contributed to the development of ever more intensive graphics processing units, which have had incredible impacts on recent developments in artificial intelligence and autonomous vehicles. It’s not a far reach to say this will certainly lead to advances in presently unforeseen applications, creating new technologies for which the gaming industry will again lead adoption. Additionally, gaming has been ground zero for insights into markets with in-game economies, testing new monetization models, understanding user behavior, advances in cybersecurity through the constant battle between cheaters who exploit games and the developers who patch them, and better approaches to community and content moderation.
No industry is completely impervious to today’s global volatility. The gaming sector, however, has been faring better than others, and its central role in the technology ecosystem bodes well for its continued strength.