Mobile apps to hit >$70B revenue driven by explosion of diversity

Digi-Capital, an investment bank for mobile apps and games, has just published its Mobile Apps Investment Review Q1 2014 (www.digi-capital.com/reports). Commenting on the Review, DigiCapital Managing Director Tim Merel said:

“Everyone knows that mobile apps are hot, and that games have taken the lion’s share of revenue so far. We think the balance is going to change, with other app categories using new approaches to win. We’re already seeing SaaS-like App as a Service models emerging, and we can’t wait to see what happens next.

We forecast that mobile apps could reach >$70B revenue globally, with non-games apps to double revenue share from 26% to 51% by 2017 (61.3% CAGR 13-17F).

Dramatic mobile app usage growth is disrupting incumbents, with mobile usage having grown 5x in 4 years to ~20% of media consumption last year (50% CAGR 09-13).

The Digital Capitalist has moved to www.digi-capital.com in the "Blog" section 

The 2014 Global Games Investment Review and the 2014 Mobile Apps Investment Review (and all future updates) are now available there.

Digi-Capital Global Games Investment Review 2013 – Q2 Update

Mobile has fundamentally disrupted the games market

Investment bank Digi-Capital has published the Q2 2013 Update to its Global Games Investment Review (free Executive Summary at www.digi-capital.com).

Commenting on the Review, Digi-Capital Founder Tim Merel said,

“Mobile has fundamentally disrupted the games market across sectors globally.

Mobile internet is the most disruptive technology today. Mobile internet could create up to $11 Trillion in value globally by 2025 (across all industries, not just games), built on a well developed mobile tech stack. Mobile internet connected devices, mobile broadband subscriptions, mobile data usage and mobile apps growth are driving disruption across all tech related markets. For games, the transition to free-to-play and communal gameplay is changing sector dynamics, delivering  up to 10x-20x revenue uplifts for market leaders.

Digi-Capital Global Games Investment Review Q1 2013 Transaction Update

The Connected Games Investment Gap

Games investment bank Digi-Capital has published the Q1 2013 Update of its Global Games Investment Review.

Commenting on the Q1 2013 Update, Digi-Capital Managing Director Tim Merel said, “The top line is that there is a significant connected games investment gap, despite strong underlying growth, exits and returns. It’s something we’re looking at very closely.

As we anticipated, the games investment market showed clear signs of transition in Q1 2013. Connected games revenue continues to grow across mobile and online, with the highest growth in high engagement mobile/tablet games. The games investment market stabilised to levels similar to 2012 after last year’s dramatic decline, with mobile/tablet and enabling tech/gamification dominating. Games M&A was similarly robust compared to 2012’s record, with non-US acquirers accounting for 6 of the top 10 games M&As to date this year.

Digi-Capital Global Games Investment Review 2013

Games Investment Market Transition in 2013

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.

Global Games Investment Review Q3 2012 Transaction Update - Games M&A beats all records

Digital investment bank Digi-Capital has just published the Q3 Transaction Update of its Global Games Investment Review 2012.

Commenting on the Update, Digi-Capital Managing Director Tim Merel said “Games M&A for 2012 is at a run rate 40% higher than 2011 (the previous record year), having delivered 105% of the transaction value of all of 2011 by the end of Q3 2012. As we anticipated, 6 of the 10 largest games M&A transactions to Q3 2012 were made by Chinese, Japanese and South Korean acquirers. The broader games investment and M&A trends from H1 2012 have continued through Q3 2012, with new emerging trends which could be borne out during Q4. Our prediction that the Zynga IPO might have been the high water mark for Social Games 1.0 investment has been validated, with the VC market moving sharply away from that sector. For public companies, the Update also details how companies in some sectors and geographies are trading at 12 month highs, while others are not enjoying the same level of appreciation by investors. The combination of accelerating M&A, changing investment and valuations has seen an acceleration in our Strategic Review and transactional work for games companies, including strategic pivots across sectors/geographies, sell and buy side M&A, and fundraising/investment to accelerate growth.

Digi-Capital Global Games Investment Review 2012 – Q2 Transaction Update

ConsolidationVille gets bigger, faster

This article first published in GamesBeat, GamesIndustry International and PocketGamer in July 2012.

Digital investment bank Digi-Capital has just published the Q2 Transaction Update of its Global Games Investment Review 2012.

As anticipated when the Review was published earlier in the year, 2012 is proving to be a bumper year for games M&A globally. Although we are only 6 months into 2012, games M&A has already reached 88% of the transaction value of all of 2011 (the previous record year). The first half of the year has also borne out our prediction that the Zynga IPO might be the high water mark for Social Games 1.0 investment. More than ever, now looks like the time for strong independent and larger, more established games companies to consider their strategic options.

Does console have a future?

(This article first published on GamesIndustry.biz, GamesBeat and Gamasutra)

While recent headlines such as “Game sales crash!” and “Games retail collapses!” don’t paint a rosy picture, we believe the report of the death of console games is an exaggeration. Yet an uncertain future faces those console games companies that choose not to evolve rapidly.

The great games market split: the Big V revisited

In early 2010 there was strong reaction to our views that some console games publishers were "going down a very risky path...in the long term...they run the risk of becoming like traditional media companues. Cash generative, but declining and cost driven." So we were not surprised by the even stronger reaction last year when we said that "the games market had fundamentally split 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.” We called it the “Big V”:

Q1 Transaction Update of Global Games Investment Review 2012: ConsolidationVille accelerates

(This article first published on AllThingsD, People's Daily (China), GamesBeat, GamesIndustry International and Gamasutra in late April 2012)

Digital investment bank Digi-Capital has just published the Q1 Transaction Update of our Global Games Investment Review 2012 (available at http://www.digi-capital.com/reports.html).

As anticipated in our Global Games Investment Review published earlier in the year, 2012 is proving to be a year for strong consolidation and investment across the games market. Although we only have one Quarter of data for 2012, trends are emerging compared to 2011.

The consolidation we anticipated in Social Games 1.0 has begun, and we are seeing substantial dealflow (both completed and in progress) of social games companies looking to sell themselves through the course of 2012. If the number of investors and management teams asking for our help is an indication, there could be major consolidation this year.

When you look at our Review, there are compelling reasons why this is happening. We think of total Daily Active Users (“DAU”) as a general proxy for revenue, and average DAU per game as a general proxy for profitability for social games companies. While this is open to interpretation, our comparison of the top 50 Facebook games companies below (see this chart with individual companies named in the full Review) indicates that some social games companies continue to do well in terms of revenue, profitability or both (e.g. Zynga, Wooga, King, EA, Peak Games). However our analysis also indicates that many social games companies might be struggling on one or both measures, which could be the catalyst driving consolidation in the sector.

ConsolidationVille: Social Games 1.0 M&A in 2012

(This article first appeared on TechCrunch, GamesIndustry.biz, Gamasutra and VentureBeat on 28th February and 1st March 2012)

Digi-Capital has just published its Global Games Investment Review 2012, and the free Executive Summary is available here. The complete 102 page review and individual sector reviews (mobile/tablet, social/casual, MMO, console, middleware and advertising) are available here.

Online/mobile games are forecast to grow the total video games software market in the 2015 financial year to $82 billion and take 50 per cent revenue share at $41 billion (14% CAGR 11F-15F). The acceleration in games investment and M&A also looks set to continue, driven both by underlying growth and fragmentation. However we see the big story as Social Games 1.0 M&A in 2012 - exit or consolidate (or you might miss the boat).

Games investment and M&A more than doubled in 2011

Games private placements grew value by 96 per cent to $2 billion, volume by 67 per cent to 152 transactions, and average fundraising round size by 17 per cent to $13 million. Together with Zynga ($1bn+) and Nexon ($1.2bn) IPOs, games investment value nearly quadrupled in 2011. Games M&A grew value by 160 per cent to $3.4bn, volume by 88 per cent to 113 transactions, and average transaction size by 38 per cent to $30.4 million.

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.

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

This article first published on GamesBeat, Gamasutra and GamesIndustry.biz

Games investment bank Digi-Capital has just released the Q3 transaction update of its 2011 Global Games Investment Review (free download at www.digi-capital.com). 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.”

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.

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.

Global Video Games Investment Review 2011 – June Transaction Update

Games investment bank Digi-Capital (www.digi-capital.com) has just released a quarterly transaction update of its Global Video Games Investment Review 2011 http://slidesha.re/dJwTaX. 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.

The Games Middleware Investment Opportunity

This article was first published on www.gamesindustry.biz 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.

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 http://bit.ly/hgZupz, then following up with high growth video games companies afterwards. Interested companies can contact Tim at tim.merel @ digi-capital.com

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.