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Investment data and research firm PitchBook has released its first market report on the gaming industry. The report focuses on Q4 2022 and provides an overview of the games market, venture capital activity and growth opportunities.
Venture capital deals up, but exits down
Like many peers, PitchBook’s data shows that 2022 was a corrective year for the games market. Deal activity and exits trended down from 2021’s highs, they but have still grown from pre-COVID levels. 2022’s total deal value is nearly quadruple that of 2019 and 1.5x its total deal volume.
However, most of this activity occurred in the first half of 2022. “Q1 and Q2 accounted for $9.6 billion in deal value and 855 deals, compared with $3.7 billion in deal value and 451 deals in the third and fourth quarters,” PitchBook reported. This means that 72% of deal value and 65% of deals occurred in H1 of 2022. This could signal that the downturn in activity will continue into 2023.
PitchBook reports that broader macroeconomic trends and regulatory scrutiny have weighed heavily on both deal and exit activity. IPOs have struggled in recent months so most exit activity is a result of M&A.
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While North America continues to be the largest source of capital for gaming, Europe, Asia and the Middle East are becoming more active in recent years. Europe’s funding has fluctuated since 2018 but has generally grown. Asian deal value has grown more consistently. While the Middle East and Africa are not the largest source of funding, the region is growing rapidly — nearly doubling its deal value compared to 2021.
| Region | Deal Value in 2022 | % of 2022 Total |
|---|---|---|
| North America | $7.1 billion | 54% |
| Asia | $2.7 billion | 20% |
| Europe | $2.4 billion | 18% |
| Middle East and Africa | $900 million | 7% |
Market size
PitchBook estimates that the overall gaming market value to be $447.3 billion in 2022, reaching $562.3 billion by 2026. This is much higher than other industry estimates, which generally range from $180 billion to $215 billion for 2022. PitchBook’s methodology differs from other estimates as it incorporates revenue that is excluded by competitors, such as ad tech services, esports platforms, gaming hardware and peripherals and gambling.
From a growth perspective, PitchBook’s estimates are in line with other reports. Its expected CAGR of 5.9% is between other reports which expect CAGRs of 4.6% and 8.4%. PitchBook concludes that international expansion, infrastructure and computing improvements, the promise of Web3 and generative AI will fuel future growth.
As of 2022, Content — which includes publishers, developers, studios, games and gambling — represents the 61% of the gaming market at $274.0 billion. This is followed by Access (18% at $79.5 billion) — including hardware, distribution and esports platforms — and Operations (14% at $64.4 billion) — which covers analytics, monetization and financing and talent acquisition tools.
Key Takeaways
In the full report, PitchBook provides detailed analysis for each of its five revenue segments: Development, Operations, Access, Content and Experience. This includes market sizing, industry drivers, opportunities, and risk factors for each segment.
“Prominent tailwinds include mobile gaming growth, international expansion, user-generated content, and hybrid monetization strategies. Headwinds include low adoption in web3, cloud and VR/AR gaming, intense competition, macroeconomic conditions, regulatory scrutiny, and security concerns,” confirmed Eric Bellomo, Pitchbook’s emerging technology analyst.
While each sector has its own opportunities and challenges, there are some consistent factors that will drive the entire games industry:
- Increased smartphone access and improved internet infrastructure will change the center of gravity within the games industry. Companies will need to tailor their strategies to reach these new consumers.
- Supply chain issues, anti-trust concerns and regulatory scrutiny and challenging working conditions have been major headwinds for the gaming industry.
- Generative AI, low code development and third party tools will make coding and development easier than ever, but this will lead to increased competition as the barrier to entry is lower.
- The creator economy and user-generated content will grow the reach of games, foster community building and accelerate development, but IP owners will need to find ways to manage and moderate this content at scale.
- Emerging and maturing technologies like Generative AI, the Metaverse, Web3, virtual reality and augmented reality (VR/AR) represent major growth opportunities, but providers will need to improve access and communicate the value to consumers.
Deeper analysis, including sector level trends, can be found in PitchBook’s full Launch Report: Gaming for Q4 2022.
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