Video Gaming

Sparks are flying with all the consolidation in the gaming industry

The boom in investments, acquisitions and consolidation of gaming studios already in 2021 is unprecedented. The first half of the year alone witnessed double the number of investments and acquisitions as compared to all of 2020 and the growth trend is showing no signs of slowing.

Changes are happening in gaming industry

The onset of COVID-19 and people spending so much time at home has had a significant impact on the rise of home gaming, making the gaming industry even more lucrative than it had been and driving it to become the leading segment in the entertainment sector, ahead of music, film and video. In 2020, there were 2.7 billion gamers globally. This year, the number is even higher and continues to rise. Mobile is the leading platform with 49% ($86 billion), followed by console with 29% ($51 billion) and finally PC with 21% ($37 billion).

Even with the boom in the video game industry, though, developing games has been and continues to be a risky proposition. Customers can be fickle, development costs have grown exponentially, and ideas that seemed unique early in development may become ubiquitous three or four years later by the time a game is ready for launch.

The gaming landscape can be challenging to navigate, too, even for the most successful independent game developers. Following an acquisition, an indie may get folded into a larger studio and find themselves trying to balance autonomy while benefiting from the larger set of resources available across the wider organization. That said, indies that were stable on their own, like Gearbox (acquired by Embracer) and Insomniac Games (acquired by Sony), show signs that getting acquired could be beneficial to their growth trajectory.

It’s not just indie studios being consolidated

As multiplayer games became the perfect way to maintain interaction with others and even serve as a way to communicate with others around the globe during lockdowns and social distancing, even large publishers began getting acquired. One large acquisition was Microsoft’s purchase of Zenimax, the parent company of Bethesda Softworks, for $7.5 billion. In another big move, Tonic Games Group, the parent company of Mediatonic, was acquired by Epic, one of the richest game companies in the world. This came after Mediatonic struggled to maintain momentum for their popular game, Fall Guys. Rather than risk further player drop-off and potential financial uncertainty, the studio’s top executives sold the group to Epic. The move is expected to lead to faster, more regular updates for Fall Guys than Mediatonic could have executed on its own.

Conserving creativity

Consolidation seems like a win-win. Sellers can guarantee themselves stability, while buyers get more content to serve an existing fanbase hungry for new games. But there are also costs. An industry dominated by a handful of big companies could eventually lead to creative stagnation and other symptoms of monopolization, like limited choices and higher prices.

One way to protect the industry and maintain future innovation may be to run the acquired studios independently from the new parent. For example, the Embracer Group recently acquired eight studios for an approximated $313 million. But the deal also includes an incentive for continued growth by the acquired companies with an additional $232 million to be paid to the studios if they meet their objectives and milestones over a period up to eight years. Embracer has been on an acquisition spree lately also boosting their support services with their latest moves with SmartPhone Labs, Demiurge Studios and Fractured Byte. M&A Advisory firm Quantum Tech Partners said Embracer is the top game company acquirer so far in 2021 with 10 acquisitions this year alone.

One of the studios acquired by Embracer is Ghost Ship Games, which the new owner group plans to make a sister company of the Coffee Stain studio. Coffee Stain will be an indie group focused on continued organic growth, creativity and M&A, while the newly acquired studio Easy Trigger will fall under Coffee Stain and operate as an internal studio.

How studios can choose to consolidate or go it alone

With the significant rise in engagement in gaming in 2020, investors are keen to invest in the industry. There is now more funding in the gaming industry than ever before which offers indie studios more opportunities to attract investors.

If a studio is looking to connect with an investor, it’s important to consider what an acquisition will mean for them including what the partnership would look like and what it means for the direction and future of their studio and games.

Here are some questions studios should consider when determining what type of a partner they want or if they even want one:

  • Are you looking for deep, gaming focused funding? This type of funding can offer some of the most extensive networks in the industry and they restrict their investments to gaming companies.
  • Or are you looking for a more of a platform fund? These firms manage billions of dollars and help companies throughout their multi-stage lifecycles and to find suitable partners. They tend to be more generalist in nature and may not offer deep knowledge about gaming.

It’s also important to consider what the potential partner or investor wants in return. In this article Tips to connect with investors that are right for your studio, Amy Wu offers studios advice on finding investment partners that is beneficial for all parties involved.

To each their own

There are no set rules as to what works for each studio. Whether a studio decides to consolidate or remain independent, both have their perks and drawbacks. The balance of juggling dreams and ambitions with what is realistically financially possible is a common concern for both AAA and indie studios. If a bad decision is made in AAA game, it can be costly, but if an Indie game makes a mistake, it could ruin the studio completely. It’ll be interesting to see how this shapes the games industry in the next few years.

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