Konvoy has estimated that the public gaming companies currently have a total of $45.1 billion in cash and cash equivalents. It is also expecting that Microsoft's purchase of Activision for $69 billion will likely cause more merger and acquisition action in the games industry, and ultimately form a new generation of gaming companies. The venture capital firm's report, made available exclusively to CNBC, also disclosed that there was a 64% decrease in investments in video game firms during the third quarter of 2023.
The gaming industry is in possession of $45 billion in cash and cash equivalents, according to new information obtained exclusively by CNBC from venture capital company, Konvoy. This could be the source of larger consolidation trends within the $188 billion video games industry. Compiling its figures from the recent public records of firms like Activision Blizzard, Electronic Arts, Sea (Singapore), Nintendo and Bandai Namco (Japan), Nexon (South Korea) and NetEase (China), the Konvoy report revealed that these gaming companies have a total of $45.1 billion in cash and cash equivalents.
The resources available to them would give them the ability to consider potential acquisitions that could contribute to building up their intellectual property and goods. Notably, gaming firms are seeking to keep gamers entertained and active longer, through games with living services containing extra material over time, also paid membership packages that grant some free games and access to cloud gaming, which permits playing games via the cloud as an alternative to installing them on their machines. Generally speaking, publicly held gaming firms had a prosperous 2023. The VanEck Video Gaming and eSports ETF, aiming to track MVIS Global Video Gaming & eSports Index, had risen 20% in the current year by Konvoy’s measurement. Despite this, the prestigious S&P 500 index had grown nearly 12% in the same time period.
Since the beginning of this year, the Global X Video Games & Esports ETF, designed to track a modified market-cap-weighted global index of companies in the video games and esports sectors, hasn't fared well - down 0.4%.
Konvoy VC asserted that technology giants, such as Amazon, Microsoft, Google, Apple, Meta, Netflix, Tencent (China), and Sony (Japan), have a joint total of $229.4 billion available in their coffers to finance prospective transactions.
Josh Chapman, a partner at Konvoy, acknowledged that Microsoft's $69 billion purchase of U.S. game publisher Activision Blizzard is likely to induce other mergers and acquisitions in gaming and establish a new generation of gaming companies. He commented to CNBC in an email, "As gaming investors, we view this as an advantageous situation for gamers and gaming startups, since it increases the value-proposition for gamers and spurs an energetic M&A environment for more deals to go through."Microsoft adopted cloud gaming as a focal point when it got hold of Activision, a move that will eliminate the requirement for old-fashioned consoles such as their Xbox Series X or Sony's PlayStation 5, through its Xbox Game Pass subscription. According to Chapman, this will bring about "opportunities for upcoming game developers, infrastructure companies, and gaming platforms."The U.K.'s Competition and Markets Authority gave the okay to Microsoft's noteworthy purchase of Activision Blizzard earlier this month. The deal is valued at $69 billion and will give the technology giant ownership of some of the most acclaimed and prosperous video game properties, including famous titles like Call of Duty, Candy Crush, Crash Bandicoot, Warcraft, Diablo, and Overwatch.
Konvoy's report indicated an alarming 64% decline year over year in venture capital funding to video game firms in the third quarter of 2023.
The $454 million raised globally by gaming startups during the three months to September is indicative of the waning of the industry's boom times in 2020 and 2021, in spite of the Microsoft transaction that gave the sector a lift. This quarter-over-quarter decrease of 9% and year-over-year drop of 64% demonstrate the lack of growth.
Konvoy's Chapman believes that the outlook for gaming VCs and startups may be more optimistic in 2021, as venture capital investments begin to feel the effects of the economic recovery. He went on to explain that investment in gaming firms has returned to a "sustainable new normal," which is expected to stay at the same pace for the next couple of years. Chapman remarked, "As the global venture market rebounds, we expect gaming, which was not as heavily hit initially, to do the same. We anticipate gaming VC funding to experience a moderate raise in the upcoming quarters, while the sector will keep growing steadily, just as it did before the pandemic." Moreover, he concluded that "right now, VC deal volume and funding are on par with what they were prior to the pandemic, and even though the growth will not be as significant as it was in 2021, we remain certain that the venture capital market in gaming will remain stable, allowing for the industry to generate value."
As economic conditions have weakened, video game publishers are feeling the impact of high inflation and interest rates that are dampening consumer spending. Compared to 2020, when easy monetary policy filled consumers' pockets, the current climate of rising rates has grown more difficult. Nonetheless, the video game player base continues to expand, with a worldwide count of 3.381 million people, according to Konvoy. The video game market is huge, and is expected to reach $188 billion in sales in 2023, marking a 3% uptick from the previous year's total of $183 billion. The preceding year (2022) saw a more modest growth of 2%, while 2021 was a defining year for the industry, with a total revenue of $180 billion—up 8% from $166 billion in 2020. Things looked even brighter in 2020, when gaming sales rose more than 9% from the prior year amid widespread pandemic lockdowns. Looking to the long term, Konvoy predicts a 9% compound annual growth rate for the video game industry in the next five years, putting the total sales at a staggering $288 billion by 2028.
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