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As an important part of the global entertainment business, gaming is looking pretty good and the uprising trend of this sector is showing signs of slowing down for the near future as people living the digitalized world are seeking for more entertainment. Global venture capital firm Atomico released a report to shed some light on the latest changes in the sector.
2016 has witnessed some remarkable tipping points of the gaming industry, according to the report. Firstly, the field has become a global industry with games revenue exceeding USD$ 100 billion. To put the number into perspective, this means that the gaming industry is now worth three times as much as movies worldwide.
The surge in revenue is in line with the increasing player base, which broke 2 billion for the first time last year. Mobile has become the most lucrative segment after years of continuous growth.
Atomico’s bullish views towards mobile gaming are shared by many research agencies. Newzoo made a bold prediction that the mobile segment will account for 42 percent of worldwide sales this year and to over half of the total games market by 2020.
Image credit: Atomico
China, the home to world’s top gaming developers like Tencent, is taking a fair share of this boom. The report shows that 11 out of 24 gaming companies worth more than US$ billion have come from China. Europe took the runner-up position with 6 companies
While investors have more confidence in publicly listed companies, the enthusiasm is also felt by private gaming firms. Of the total private investments, Europe is taking an increasing share of global games funding rounds, with Chinese acquirers playing a big role.
The top twenty largest games M&A transactions of the last five years have created US$ 46 billion in exit value, of which European targets accounted for 70% of the value. Looking at the origin of the buyers, 55% of deal value came from strategic Chinese acquirers, illustrative of growing interest from China.
This interest is only set to increase in 2017 and beyond, as the growing appetite for fresh content from Chinese gamers leads to investors seeking to exploit this through selective investment in European studios, the report noted.
The analysts attribute this surge to two reasons. For one, although the surge in listed entities has allowed VC communities to see increasing markups, they are often only on paper. Games companies are more than twice as likely to achieve liquidity as $B+ companies from other tech categories.
Additionally, Europe’s unique culture, as well as technical and commercial factors, have helped the region to become a world leader in mobile game development. Many of these are subtle points, such as the region’s rich, centuries-old history of storytelling and creativity, or, its deeply connected communities of passionate individuals that came together through the region’s mod and demo scenes, creating fertile ground for mobile game development.
Most importantly, European studios were developing for mobile before it even became the “mobile” that we think of today, learning their craft building games on Java and optimizing for Nokia or Motorola feature phones, a world away from the mobile devices and games we recognize today.
On the other hand, the prosperity of European game development finds its root in rising demands from the world, of which China is an important market gaming studios can’t ignore. It’s now not only the world’s largest market of gamers – with over 600 million – but also it’s most valuable by spend, eclipsing the US and even the whole of Europe combined.
“There are unique opportunities. Almost 90% of the 24 billion dollar games companies founded in the last 15 years have achieved liquidity, proportionally more than any other sector – so games studios, especially in Europe, are a good bet. As the Chinese market continues to thirst for content, and continues to expand in size, we expect to see an uplift in Chinese interest,” Mattias Ljungman, Partner at Atomico said.
