Investors on the state of video games: "We are investing, but the bar is so much higher"

19.02.2024 - 17:35 / gamesindustry.biz

It's been a perfect storm.

The global economic situation is tough, interest rates have risen, people's disposable income has taken a hit, and there has been economic damage caused by the COVID-19 pandemic. Meanwhile, the dream of globalisation has been ended with destabilisation in Eastern Europe and the Middle East.

And then in games, sales are falling, the number of launches has risen, the big live service titles are sucking up hours out of the market, there was too much venture money spent on part-funding new studios, there has been significant amounts of hiring going on, and publishers were spending huge sums on games that have not delivered.

Add all that up, and you've got the current industry crisis, resulting in game cancellations, mass redundancies and business closures.

The result of this is that investors are being significantly more cautious on what they're backing.

"This might be one of the hardest times that the game industry has known," says Eliana Oikawa, COO of Wings, which is a fund that specialises in financing games by diverse teams.

"The conjunction of the end of the COVID bubble, the crisis, the inflation and high interest rates have led to a macro economic situation where investors and publishers are extremely cautious."

Spike Laurie, partner at VC Hiro Capital, adds: "The bar is super high right now. Before, a great game idea plus a great team used to cut it. You could walk out and get a couple of million dollars from a West Coast VC pretty easily with that. Now, it's about how are you validating this? What can you show me… have you made a trailer? And do you have a Discord community that really loves the concept? Are you using companies to play test so you can validate and get real feedback?

"There is a lot more scrutiny. There has always been scrutiny, but there is just a lot more."

Patrick O'Donnell is the video gaming analyst at Goodbody Equity Research, and specialises in the UK public sector, covering companies such as Devolver Digital, TinyBuild, Team17, Keywords and Frontier Developments. All companies who have seen a sharp downturn in share price over the past 12 months.

"It is no understatement to say 2023 was probably the toughest year for indie and AAA publishers in a very long time," he explains.

"And just given the number of top successes of blockbuster IPs and sheer proliferation of launches. Adding into that a consumer who remains squeezed given inflation, a rising number of titles on Steam – in excess of 40 titles a day – and other platforms, a marked increase in player standard/needs in new titles… there probably has never been a harder period to launch a game."

"This might be one of the hardest times that the game industry has known"

He says there is a lot of scepticism