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.