Restrictive financial conditions continue to exert pressure on the games industry; in early 2023, businesses were more risk adverse and generally less willing to invest. The overall volume of investments in Q1 2023 continued the gradual downturn observed in 2022 at 121, down 2% quarter-on-quarter (123) and 40% year-on-year. Globally, investment value dropped by 74% from $3.9bn in Q4 2022 to $1bn in Q1 2023; however, the share of deals without a disclosed value reached its highest point since Q1 2021 (39%). Year-on-year deal value declined dramatically from $91.7bn in Q1 2022, but this was a standout quarter for games industry investment activity due to Microsoft’s as-yet-to-be-closed acquisition of Activision Blizzard, which is valued at $68.7bn.

Saudi Arabia steps up its investment activity

In a bid to diversify and transition away from an oil-dependent economy, Saudi Arabia has committed to investing $38bn into the games industry. Saudi Arabia has its sights set on becoming a global hub for gaming and esports, and has increased its investment activity to achieve this. Saudi Arabia’s Public Investment Fund, for example, increased its stake in Nintendo three times in Q1 2023. The Fund initially raised its stake in January from 5.1% to 6%, only to further increase the share in February to 7.1% and 8.3%, closing the quarter as Nintendo’s largest external investor. As one of the world’s most recognisable gaming brands, Nintendo offers Saudi Arabia a stable investment and a way to raise its profile.

In February 2023, Savvy Games Group - a subsidiary of Saudi Arabia’s Public Investment Fund - invested $265m in VSPO, a Tencent-backed esports company based in China. This follows the company’s acquisition of ESL Gaming, a leading Western esports organiser, and FACEIT (competitive gaming) in 2022. China is currently the largest market for esports globally, making it the natural next step in extending Savvy’s presence in major markets. Savvy is increasingly turning its attention to games development and publishing companies. It acquired mobile games company Scopely for a substantial $4.9bn in April (more on that deal below).  

Savvy’s Scopely acquisition inflates deal value in early Q2 2023

At just over halfway through the second quarter of 2023, the industry is showing signs of increased deal value versus the first quarter. Value has already exceeded Q1 by over four times, largely due to Savvy’s acquisition of Scopely for $4.9bn - the sixth largest acquisition ever in the games industry. Headquartered in the USA, mobile games company Scopely is well-known for its licence-first approach to its business. Examples of its games include Marvel Strike Force, Stumble Guys, and Star Trek Fleet Command. This is Savvy’s first mobile games company acquisition and how it will transfer and extend Scopely’s expertise to influence the local Saudi games industry remains to be seen; perhaps one of Scopely’s future development studios will be based in the country.  

In general, investors are becoming increasingly hesitant to enter the mobile games sector as growth has slowed, privacy changes have disrupted user acquisition strategies and competition remains incredibly high. However, mobile is the gaming platform with the largest global addressable audience, and even for multi-platform gamers, Ampere Games Consumer data indicates that mobile is typically the most-used device.

AI solution companies focused on the games sector emerge as early-stage investment targets 

Artificial intelligence (AI) is swiftly gaining traction in the games space, with industry leaders such as Microsoft, Epic Games, and Unity demonstrating commitment to AI technologies. Unsurprisingly, startups with a focus on developing AI tools for the games sector are starting to emerge, and Ampere expects this to continue throughout the year. AI has a variety of use cases in the industry, and there are already examples of gaming companies that use AI sourcing capital:

• Led by Play Ventures, Scenario raised $6m in January 2023 for its generative AI-powered art engine. The tool is trained by the game’s artist to create style-consistent art, potentially cutting hours off development time and saving money
• Israel-based Playstream raised $2m for its AI-powered clip generator in January 2023. The tech sifts through hours of livestreams - analysing gameplay, video, and audience behaviour - to create short clips encapsulating the key moments

Microsoft and Activision: Biggest games acquisition ever hits stumbling block

The UK Competition and Markets Authority (CMA) made the decision to formally block the proposed acquisition due to concerns it would impact the future of the cloud gaming market, leading to “reduced innovation and less choice for UK gamers”. Remedies offered by Microsoft focusing on the cloud gaming market were considered insufficient, partly because of the need for ongoing monitoring of the market for an extended period. However, the competition authority of the European Commission has approved the deal, accepting these same remedies, which include giving cloud gaming services access to Activision games and adding the right for owners to stream the games via cloud gaming services. Microsoft has now appealed the CMA decision. You can read more about the implications of Microsoft’s commitments to cloud gaming here.

Note: Ampere Games – Markets’ database of deals counts values at announcement, not at closing