For the second straight year, investments, IPOs, and mergers and acquisitions in the video game sector set records for transaction volume and value, according to statistics compiled in DDM Games Investment Review and released today. The huge wave of dealmaking was driven substantially by new investors hoping to grab a piece of the newly emergent blockchain game subsector.
“We were impressed by 2020,” the report reads. “We are blown away by 2021.”
Indeed, 2021’s totals were bigger than the previous six years combined, said Joe Minton, president of Digital Development Management, a Northampton, Mass.-based business agency that provides investment advice, consulting, representation, publishing services and more to the games sector.
Total game-related investments jumped from 406 deals worth $13.2 billion in 2020 (both records then) to 765 deals totaling $38.5 billion, according to DDM’s year-end report.
Initial public offerings were up be even more than other kinds of deals, jumping from $20.6 billion raised in 10 IPOs in 2020 to $109.4 billion for 35 public exits in 2021.
The report debuted later than usual because of the huge influx of blockchain-related game investments, particularly in the last quarter, that required DDM to add another 800 investors to its database of dealmakers, Minton said. But even without all the blockchain money, it still would have been a record year in the industry.
“The key headline finding for me here was that over 50 percent of all the transactions in gaming last quarter were investment transactions for blockchain gaming,” Minton said. “Coming from six months before that, a year before that, it’s astonishing. And that’s with this huge volume. It’s not like there’s a small volume and a weird aberration (in the totals).”
Also of note is the deals now involve a much larger pool of investors for each deal. Where traditional gaming investments in the 13 years DDM has tracked the space averaged just 1.9 investors per deal, that number if “about 15” in blockchain projects, Minton said.
The report focuses on North America, Europe and other Western markets, and doesn’t quantify additional deal-making happening in those booming markets such as East and South Asia and nearby regions.
The dealmaking is almost certain to continue at prodigious levels in 2022, Minton said, given that major deals such as Take Two’s $12.7 billion acquisition of Zynga, Sony’s $3.6 billion purchase of Bungie and especially Microsoft’s
“Bolstered by record pandemic revenues, accelerated by record-levels of consolidation, no acquisition target seems to be too large and 2022 is off to a stunning start,” the report says.
At the same time the biggest companies are trying to scale up, a counterpoint movement is fracturing the industry’s creative side as game designers flee overly big or toxic studios to go make the games they want to make for themselves, Minton said.
Creative talent at huge studios are increasingly striking out on their own to create new development studios, and finding the investment capital they need to launch. In some cases, that backing comes from a traditional studio, especially a second-tier one looking to flesh out its offerings. In other cases, it’s a straight investment, Minton said. Unlike a few years ago, those startups are finding plenty of cash to back their projects.
And then there’s the huge wave of investors, many from outside of games, trying to take advantage of the sector’s blockchain moment.
“We have raised so much money for blockchain gaming…and that’s where actual utility and benefit can be provided for, in a much wider way and (with) collectibles, that it’s not going away anytime soon,” Minton said. “So money’s gonna be deployed. It’s going to be a very busy year, and the…drama around it will continue and probably even further intensify.”
Blockchain gaming as a sector has blown up dramatically in recent months, with publishers such as Ubisoft, Jam City and Zynga announcing blockchain divisions and even titles.
This week, for instance, mobile publisher Jam City will release 10,000 blockchain-based characters called Champions who will have a crucial role within Jam City’s first blockchain game, Champions: Ascension, even helping develop the lore and direction of the title, which is expected to debut later this year.
But blockchain-based titles have also sparked pushback in some quarters (the “drama” Minton referred to). Some gamers remain wary of add-ons with even a whiff of the widely reviled “loot boxes” that were a short-lived industry trend a few years back. Many have an antipathy to economic models that allow players to buy strategically powerful assets rather than earn them through gameplay.
Minton said that distress is most common among “I’ll just use the words traditional gamers” who’ve never been comfortable with business models such as “free to play,” which now dominates the mobile game industry. That discomfort has extended to “play to earn” models, NFT collectibles and other strategies enabled by blockchain tech. The gamers’ concerns have been further amplified by fraud, theft and other issues affecting the entire blockchain sector far beyond gaming.
“Right now, there’s so much Wild West, there’s a lot of people abusing (the system), and so, we’re focused on real games with real developers, where there’s real benefit working with platforms and infrastructure that’s not environmentally destructive,” Minton said. “And that will find its way through all of the insanity over time.”
The crucial shift for blockchain-based titles, Minton said, will come when the small group of big-spending “whales” who provide the vast majority of revenue for free-to-play titles realize that blockchain mechanisms in other titles can allow them to build up an asset they can resell if they choose to no longer play the game.
“That, to me, is going to be the ‘a-ha’ moment,” Minton said. “It doesn’t take 100 percent of the audience to go, ‘a-ha.’ It takes the folks who are actually paying to go ‘a-ha.’ And then I think the free-to-play games have an awkward (decision to make). There will be a sea change in a very fast period of time, towards games that are the same kind of game, the same kind of play patterns, everything like that, but for that one change, and that will be a key happening within the next year.”