Friday, 9 December 2011

The Economist special review: video games (Part 2)

This article was first published in The Economist on 9th December 2011

The business of gaming

Thinking out of the box: consoles are no longer the only game in town

THE IDEA BEHIND video games used to be simple. Nintendo, Microsoft, Sony, Sega and others sold consoles at a loss and made their money from the boxed games they produced for them. The punters, mostly young technophile men, bought the games from a shop, played them for a few weeks and then put them away.

Those customers are still around, but they have been joined by a plethora of others. New, more casual sorts of games are being picked up by a mass audience that would previously not have played at all. “In the past few years two things have changed,” says Mr Moore of Electronic Arts. “The first is the proliferation of platforms [on which to play games], and the second is that it’s become so much easier to call yourself a gamer.”

So the industry has branched out into a bewildering variety of sub-sectors and niches. At one extreme, companies in the traditional sector are still charging $50 or $60 for high-end console games with ultra-realistic graphics and cinematic game play. At the other, a shoal of smaller firms is developing simpler, more casual games aimed at a much larger and more diverse group of customers. In between, a mix of established firms and start-ups are testing new ways to develop games and new business models for selling them.

The Economist special review: video games (Part 1)

This article was first published in The Economist on 9th December 2011.

All the world's a game

Video games will be the fastest-growing and most exciting form of mass media over the coming decade, says Tim Cross

IN NOVEMBER 2010 “Call of Duty: Black Ops” was released. Fans in many countries queued round the block to get their hands on a coveted early copy. A lucky few had won tickets to invitation-only release parties which were broadcast live to viewers across the internet. The event had been advertised on billboards, buses and television for weeks. Chrysler even produced a commemorative version of its Jeep. In the event the reviews were mixed, but no matter: the publishers, Activision, notched up worldwide sales of $650m in the first five days. That made it the most successful launch of an entertainment product ever, and people kept buying. A month later the total stood at over $1 billion.

“Black Ops” is not a film or a book: it is a video game. For comparison, “Harry Potter and the Deathly Hallows Part 2”, the current record-holder for the fastest-selling film at the box office, clocked up just $169m of ticket sales on its first weekend. “Black Ops” stole the crown from its predecessor in 2009, “Call of Duty: Modern Warfare 2”. The latest instalment, “Modern Warfare 3”, released on November 8th, set a record of its own with $750m in its first five days.

Monday, 31 October 2011

Games Investment and M&A to Q3 2011 pushing towards double 2010

This article first published on GamesBeat, Gamasutra and

Games investment bank Digi-Capital has just released the Q3 transaction update of its 2011 Global Games Investment Review (free download at Commenting on transactions this year, Digi-Capital Managing Director Tim Merel said, “As we expected at the start of the year, games investment and M&A have accelerated again. Even though Q3 2011 has just finished, global games investment so far this year is pushing towards double that of 2010, and global games M&A more than double the level of 2010. There have been blockbuster transactions like EA/PopCap, but there have been many other investments, mergers and acquisitions across sectors with increasing deal sizes. In terms of where the action is, social, mobile, social-mobile, browser based MMO and cloud gaming are leading the charge, and as we expected there has been significant activity originating from China, Japan and South Korea, as well as the US. Companies have been generally less forthcoming on how much they are paying for M&A targets this year, which may indicate that not just the headline games deals continue to have strong valuations. While the macro-environment remains challenging, the fundamental growth in online/mobile games continues to drive games investment and M&A forward. We still believe that now is a great time for the strongest independent online/mobile games companies to either invest for growth, or take advantage of the market to look for strategic exits. In that regard, we’re increasingly taking equity stakes in great games companies that we believe have global potential, as well as our traditional games fundraising, investment and M&A advisory work.”

Thursday, 14 July 2011

Investors on where the smart money will go in social games

This article, written by AJ Glasser was first published on Inside Network on July 13, 2011.

Late yesterday at GamesBeat in San Francisco, game company accelerator YetiZen led a panel with top social and mobile game investors on the evolving dynamic of funding in the space. Norwest Venture Partners’ Tim Chang, Digi-Capital Managing Director Tim Merel and TinyCo CEO Suli Ali characterize an industry that’s both converging and expanding on a global scale.
“[Developers] need to think globally from day one,” says Merel. As an investor, he looks for developers that either offer a portfolio of existing games or that already have access to various channels in different countries. These companies have proven traction and very likely also have plans for multiple revenue streams beyond in-game virtual goods sales. He describes the potential behind Rovio’s Angry Birds, which now has a line of t-shirts and stuffed animals generating revenues in addition to actual paid downloads of the game. He also describes the nature of game concepts that can succeed in international markets versus those that have limited appeal due to cultural association; like the various Chinese multiplayer games based on the Three Kingdoms historical period that fail to find traction with Western audiences.
“There is a danger of false positives,” warns Chang. He talks about how many developers create a “red herring” for investors by basing annual revenue expectations on peak traffic months when there are no guarantees that the developer can retain those users, let alone monetize them. This is especially true of copycat games or developers that reskin their original game without investing resources into distribution channels.

The road ahead in mobile games

This article, written by Dean Takahashi, was first published in VentureBeat on July 13, 2011.

Mobile gaming is the wide-open battleground of the entertainment industry. While Zynga dominates social games and big publishers rule console games, the global smartphone game market is still up for grabs.
Since there are potentially billions of users in this market, mobile gaming could become the largest game market of them all. Who will win it?
Smartphone games have been growing as a market since 2007, when Apple’s iPhone debuted. Tablet games have been growing since the spring of 2010, when Apple launched the iPad. Now the fastest-growing mobile market is based on devices running the Android operating system. With triggering events such as the success of Angry Birds, the hit Rovio game that has been downloaded more than 200 million times, mobile game companies are raising tens of millions of dollars. Mobile game companies have garnered significant valuations, particularly overseas.

Tim Merel, managing director at Digi-Capital, says, “The time to act is now.”

The potential of mobile games


Mobile games could be a $13 billion market in 2014, according to Merel. Mobile and online games together could be a $44 billion market, or 50 percent of the global $87 billion market in 2014. Today, mobile games are around $8 billion, a small slice of the overall game market, which is still dominated by console games, web games, and Facebook games. (IDC estimates mobile games will grow to $5 billion in a few years; Gartner says that mobile gaming was $6.7 billion, or 10 percent of the $67.4 billion game market in 2010; the estimates vary, but few doubt mobile games will have a great growth rate).
How will a huge mobile game market come about? That’s one of the questions we’ll explore at GamesBeat 2011 on Tuesday and Wednesday at the Palace Hotel in San Francisco. We’ve got 80 of the game industry’s finest minds focused on the evolution of mobile gaming. We all want to figure out how to connect the dots in mobile games.

Thursday, 7 July 2011

The great games market split: the Big V

We are entering a world where the games market is fundamentally splitting in two, like the media market of a decade ago. Back then what we now call "old media" scoffed at "new media" upstarts for giving away content, bizarre business practices, and products and services which made no sense to the wise old birds. "They'll destroy more value than they'll create," was the mantra.

Well welcome back to the future.

Today's games market is fundamentally splitting into "Value" and "Volume" markets, both by sector and geography. The two-speed market this is creating may have more rapid and profound effects on the games market than it did on the media market, with meteoric rises for some and slow going for others.

Thursday, 16 June 2011

Global Video Games Investment Review 2011 – June Transaction Update

Games investment bank Digi-Capital ( has just released a quarterly transaction update of its Global Video Games Investment Review 2011 Commenting on the update, Digi-Capital boss Tim Merel said, “As anticipated, games investment and M&A dealflow has accelerated again. We’re seeing some interesting trends emerging so far this year:
  1. MMO M&A is increasing in scale, with Summit Partners/TA Associates/Bigpoint ($350M), Changyou/Shenzen 7Road Technology ($100M including earn out) and Perfect World/Cryptic ($50M) continuing the trend kicked off earlier in the year by Tencent/Riot (est. $350-400M);
  2. Social games investments are increasing in both volume and scale, such as Kabam ($115M in two rounds since January), Wooga ($24M), Crowdstar ($23M) and Funzio ($20M);
  3. There has been a significant increase in social-mobile games M&A, such as Gree’s acquisition of OpenFeint ($104M), and investment, including Papaya Mobile ($18M) and TinyCo ($18M). In non-social mobile games, Rovio impressed the market with its $42M investment;
  4. Chinese, Japanese and South Korean games companies are increasingly seen by Western firms as leading industry consolidators, so critical when companies are selling themselves;
  5. The gambling/social games overlap is bringing companies from either side into each others’ markets, such as Caesars/Harrah’s/Playtika ($45M) and Zynga/DNA Games/Market Zero; and
  6. Console sector consolidation has been increasingly focused on repurposing quality console developers to online/mobile games markets.
Our global dealflow leads us to expect these trends to continue through H2 2011, and we remain very bullish on online and mobile games growth and investment - now is a fantastic time. We are seeing significant appetite from Chinese, Japanese and South Korean games companies to acquire and invest in strong Western online and mobile games companies, but as our Chinese operating partner often reminds us building the right relationships remains critical. Market innovation continues across the piece (particularly in social-mobile games), with US, European and Asian companies developing great businesses built on great games. We’re also privy to a groundswell of games IPO activity poised to come to market in the next 12-18 months. As people have come to expect, we remain long term bears on the pure console market, despite recent and anticipated hardware launches.”
Tim will be discussing the social-mobile games market and investment at both GamesBeat/MobileBeat (together with Norwest Venture Partners) in San Francisco and Casual Connect (together with Playfish, TinyCo and W3i) in Seattle in July.

Thursday, 14 April 2011

The Games Middleware Investment Opportunity

This article was first published on on 14 April 2011. 

“Middleware?” you cry.  “Isn’t that the really boring stuff that game developers don’t want to do?”
And that’s the point.
The reason we like middleware is because it is the really boring stuff that game developers don’t want to do. And before anyone gets hot under the collar, we actually don’t think it is boring stuff either.
Let’s start by defining what we mean by middleware.
There are any number of dictionary definitions for middleware: “software that occupies a position in a hierarchy between the operating system and the applications, whose task is to ensure that software from a variety of sources will work together correctly” (Oxford), “software that mediates between an application program and a network” (Webster) etc.  In relation to games, middleware typically means a games engine, providing tools for rendering (2D or 3D), animation, physics, collision detection/reaction, artificial intelligence, sound, networking, streaming and so on.
For our purposes, what we mean by middleware is anything which makes it possible to develop, manage and commercialise games. Simple.
Actually before the rise of online and mobile games, middleware did look like a relatively simple part of the market. But today the middleware market has become more diverse and fragmented, which together with high growth in online and mobile games has created a great opportunity for the company that gets it right.

Sunday, 27 February 2011

Video games fundraising talk and meetings at GDC San Francisco (1-3 Mar)

Digi-Capital's Tim Merel will be talking about video games fundraising at GDC in San Francisco, then following up with high growth video games companies afterwards. Interested companies can contact Tim at tim.merel @

Friday, 25 February 2011

Why China could rule the new age of games

This article written by Dean Takahashi was first published by VentureBeat on February 25, 2011.

As the games business transitions from console and PC titles to social and mobile games, China is set to take away the United States’ leadership in the business.

That’s the bold prediction from Tim Merel, who has made a splash analyzing the video game market in the past couple of years as the managing director at investment bank Digi-Capital. Merel believes that in 2010, video game investment and acquisition activity changed fundamentally and accelerated in a way that it never had in the industry’s decades-long history.


This interview was first published in China on Techweb on 22 February 2011 , as well as in the People’s Daily and others.

Digi-Capital是一个针对高成长数字技术公司的投资银行,并刚刚发表了2011年全球电子游戏投资报告(请见。有关这个报告的主要结论,我们采访了Digi-Capital的常务总监Tim Merel先生。



Tuesday, 22 February 2011

Financial Times article: China's got game

This article was first published by Tim Bradshaw of the Financial Times on 22nd February 2011.

Powered by social networks and mobiles, Chinese video games are set to topple America’s lead as the world’s largest gaming market, according to research by Digi-Capital, a boutique investment bank.
Its new report predicts that revenue from online and mobile games will grow from a third to a half of the industry’s total revenues, at around $44bn, by 2014.

Global Video Games Investment: China, Online, Mobile Ascendent

This interview was first published by Gamasutra on 22nd February 2011.

Digi-Capital, an investment bank focused on high growth digital companies, has just published its 2011 Global Video Games Investment Review (available at or We interviewed Digi-Capital’s Managing Director, Tim Merel, about their major conclusions.

Question: From a video games investment perspective, what trends do you see?

As we anticipated in our 2010 Review, video games activity accelerated and changed fundamentally during 2010. VC games investment approached 2007 levels in 2010 in terms of funds raised, although the number of investments declined. The top 10 investments accounted for ~60% of total games investment in 2010, with a fundamental shift to online/mobile games company investments. However general VC market weakness and limited knowledge and relationships across complex, fast moving online/mobile games sectors still make generalist VC games investment challenging.

Tuesday, 15 February 2011

CCTV (China State TV) Biz Asia interview

Digi-Capital's Managing Director Tim Merel was interviewed by CCTV's (Chinese State TV) Biz Asia program about video games investment in China, as well as Chinese games companies investing internationally. The segment gives an insight into what is driving games in China, and some of the companies focused on its rapid development.

The segment can be seen here at 14:30 in the video.

Friday, 14 January 2011

Banquet for Chinese Vice Premier Li Keqiang

I was grateful to be invited to the banquet in honour of Chinese Vice Premier Li Keqiang (who many feel may become the next Premier) on 11th January at the Royal Courts of Justice in London. Also attended by UK Foreign Secretary of State William Hague and Business Secretary of State Vince Cable, the impressive Chinese delegation of Government and Business representatives made a strong impression.

Vice Premier Li Keqiang spoke eloquently about China’s objectives in the forthcoming 12th Five Year Plan, and I am particularly encouraged by the increased focus on Chinese companies growing and investing internationally. Combined with plans to grow the digital creative industries’ share of Chinese GDP substantially, this appears to represent a clear endorsement of Chinese digital companies’ domestic and international growth potential. From direct discussions with high growth Chinese digital companies, it is an opportunity which they are pursuing very seriously.