Digital investment bank Digi-Capital has published its Global Games Investment Review 2013.
Commenting on the Review, Digi-Capital Managing Director Tim Merel said, “The games investment market is in transition in 2013.
Online/mobile games continue to deliver strong growth and returns. Online/mobile games could grow total video games market size to $83B and take >55% revenue share at $48B in 2016F (12.2% CAGR 12F-16F). Games market M&A + IPO returns delivered > 6x investment value return on investment (ROI) between 2005 and 2012. Games IPOs have followed a 2 year cycle since 2005, with potential in 2013/2014 after no substantial games IPOs in 2012.
Games M&A beat all records in 2012, with record $4B M&A in 2012: +18% transaction value, -27% transaction volume (83 transactions), +60% average transaction size ($49M) vs prior record 2011 ($3.4B). Games M&A transaction value was led by MMO (38%), Mobile (27%), Social/Casual (18%), Middleware/Gamification (13%), Console/PC (4%) and Advertising (<1%). Games M&A transaction volume was led by Mobile (28%), MMO (20%), Social/Casual (19%), Middleware/Gamification (19%), Console/PC (12%) and Advertising (1%).
There could be a games investment gap in the medium term. There was $853M investment in 2012 (similar to 2010): -57% transaction value, +9% transaction volume (165 transactions+), -60% average size ($5M) vs record 2011 ($2B). Games investment transaction value was led by Middleware/Gamification (35%), Mobile (31%), MMO (18%), Social/Casual (7%), Console/PC (7%) and Advertising (1%). Games M&A transaction volume was led by Mobile (39%), Middleware/Gamification (29%), Social/Casual (10%), Console/PC (10%), MMO (9%) and Advertising (2%). The decline of >$1B in social games investment equals 94% of the decline from 2011, as VCs abandoned social games investment (excluding mid-core & social gambling). Some prior VC games investors exited the market completely after the social games investment bubble of 2011 burst. We think this has created a disconnect between fundamental online/mobile games market growth and investment.
Kickstarter emerged to complement, not replace, VC, amounting to less than 6% of all video games investment ($49M – video games only, excluding board games), and was concentrated on PC games (63%) and hardware (23%), with 87% of value in ~7% of projects.
There was significant games public market volatility during 2011/2012. Digi-Capital’s Global All Games Index declined to 87 (31 December 2010 base = 100) from the start of 2011, with Console Index decline countering positive online/mobile Indices growth. There was significant volatility across individual Digi-Capital Game Sector Indices (high/low – 31 December 2010 base = 100): Mobile/Tablet (179/80), Social/Casual (141/86), MMO (137/96) and Console (103/61). There is potential for mispricing of both public and private games market assets in 2013.
Games consolidators are changing towards Asia and a new generation of acquirers. 7 of the 10 largest games M&As in 2012 were made by Chinese, Japanese or South Korean buyers, and today’s growth companies could become tomorrow’s consolidators. However, knowledge and relationship gaps remain for M&A/investment between Asian/Western markets and across games market sectors. We are actively working with companies to bridge the gap between Asia and the West, as well as across sectors globally.
Industry dynamics are changing at an unprecedented rate. Free-to-play could deliver 55% of mobile/tablet app revenue and 93% of mobile/tablet app downloads in 2016F. The basis of competition across games market sectors is moving towards free-to-play and communal (competitive/collaborative) games and business models. Gamification is attracting significant early stage investment, although much development remains for that market to achieve its potential.
There is a consolation prize, as the 8th console cycle could start to reinvigorate the console sector in 2013. The console games sector declined in 2012, but the 8th console cycle could start to revitalise the sector if Sony and Microsoft join Nintendo in 2013. The basis of console games competition could become more free-to-play, communal (competitive/collaborative) and cross-platform than the current 7th generation. Our Strategic Review work with console games companies has given us a keen insight into the potentially substantial opportunities which the coming generation might bring for the console sector and the games industry more broadly.
We see great opportunities during this transitional year, taking us and our games clients into new markets and ways of doing business in 2013.”
About Digi-Capital: Digi-Capital is a digital investment bank focused on games across America, Asia (China, Japan, South Korea) and Europe. Digi-Capital’s Managing Director Tim Merel could be contacted at tim.merel @ digi-capital.com
-----------------
Disclaimer: This document has been produced by Digi-Capital Limited and is furnished to you solely for your information and may not be reproduced or redistributed, in whole or in part, to any other person. No representation or warranty (expressed or implied) is made as to, and no reliance should be placed on, the fairness, accuracy or completeness of the information contained herein and, accordingly, Digi-Capital Limited does not accept any liability whatsoever arising directly or indirectly from the use of this document. In particular, the inclusion of any financial projections are presented solely for illustrative purposes and do not constitute a forecast. The recipient should independently review the underlying assumptions of the financial projections. This document is intended for initial contact with individuals and entities known to Digi-Capital Limited. This document is intended for use by the individual to whom it is sent, it is confidential and may not be reproduced in any form, further distributed to any other person, passed on, directly or indirectly, to any other person or published, in whole or in part, for any purpose without the prior written consent of Digi-Capital Limited. In the event that you are not the recipient indicated and you have inadvertently received this document, please delete it immediately. This document does not constitute or form part of, and should not be construed as, an offer, solicitation or invitation to purchase, subscribe for, or otherwise acquire any securities nor shall it or any part of it nor the fact of its distribution form the basis of or be relied upon in connection with any contract or commitment whatsoever. Any investment decision should be made solely on final documentation, and then only after review of the diligence materials and consideration of all relevant risks. Digi-Capital Limited does not have any responsibility for the information contained herein and does not make any representations or warranties, express or implied, as to the adequacy, accuracy or completeness of any statements, estimates or other information contained in this document. The information contained herein, while obtained from sources believed to be reliable, is not guaranteed as to its accuracy or completeness. This document may include forward-looking statements, including, but not limited to, statements as to future operating results and potential acquisitions and contracts. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as “anticipates”, “aims”, “could”, “may”, “should”, “expects”, “believes”, “intends”, “plans” or “targets”. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. No assurances can be given that the forward-looking statements in this document will be realised. Digi-Capital Limited does not intend to update these forward-looking statements. No securities regulatory authority has approved or expressed an opinion about Digi-Capital Limited’s business prospects or any related securities. Any such securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act"), or any other state or federal securities laws and may not be offered or sold in the United States of America absent registration under the Securities Act or an exemption from the registration requirements thereof. Digi-Capital Limited and any entity referred to in this document have not and will not be registered under the United States Securities Exchange Act of 1934, as amended or the US Investment Company Act of 1940, as amended, and any related securities may not be offered or sold or otherwise transferred within the United States or to, or for the account or benefit of, U.S. persons except under circumstances which will not require Digi-Capital Limited or any associated entity to register in the United States in accordance with the foregoing laws or any other law. Digi-Capital Limited is authorised and regulated by the Financial Services Authority. Digi-Capital Limited is the copyright owner of this document and does not grant you any licence to copy, adapt or distribute it, in whole or in part, without Digi-Capital Limited’s written permission to do so.
