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Data and investment research firm PitchBook has released its first market report on the gaming industry. The report focuses on the fourth quarter of 2022 and provides an overview of the gaming market, venture capital activity and growth opportunities.
Venture capital goes up, but goes down
Like many peers, PitchBook data shows that 2022 has been a corrective year for the gaming market. Activity and deal exits have eased from 2021 highs, but are still up from pre-COVID levels. The total deal value in 2022 is almost quadruple that of 2019 and 1.5x the total deal volume.
However, most of this activity occurred in the first half of 2022. “Q1 and Q2 represented $9.6 billion in deal value and 855 deals, compared to $3.7 billion in deal value and 451 deals in Q3 and Q4,” PitchBook reported. This means that 72% of value trades and 65% of trades took place in the first half of 2022. This could signal that the slowdown in activity will continue into 2023.
PitchBook reports that broader macroeconomic trends and regulatory scrutiny weighed heavily on deal activity and exits. IPOs have struggled in recent months, so most exit activity is the result of mergers and acquisitions.
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While North America remains the biggest source of gaming capital, Europe, Asia and the Middle East are becoming more active in recent years. Funding from Europe has fluctuated since 2018, but has generally grown. Asian business value grew more consistently. While the Middle East and Africa is not the largest source of funding, the region is growing rapidly – nearly doubling the value of the deal compared to 2021.
| Region | Business value in 2022 | % of the total for 2022 |
|---|---|---|
| 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 the overall game 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 $180 billion. 215 billion for 2022. PitchBook’s methodology differs from other estimates in that it incorporates revenue that is excluded by competitors such as ad tech services, esports platforms, gaming and gambling hardware and peripherals.
From a growth standpoint, PitchBook’s estimates are in line with other reports. Its expected CAGR of 5.9% is among other reports that expect CAGRs of 4.6% and 8.4%. PitchBook concludes that international expansion, infrastructure and compute improvements, the promise of Web3 and generative AI will fuel future growth.
As of 2022, content – which includes publishers, developers, studios, gaming and gambling – makes up 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 spans analytics, monetization and financing tools and talent acquisition.
main conclusions
In the full report, PitchBook provides a 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, Emerging Technology Analyst at Pitchbook.
While each industry has its own opportunities and challenges, there are some consistent factors that will drive the entire gaming industry forward:
- Increased access to smartphones and improved internet infrastructure will shift the gaming industry’s center of gravity. Companies will need to adapt their strategies to reach these new consumers.
- Supply chain issues, antitrust concerns and regulatory scrutiny, and challenging working conditions have been major obstacles 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.
- Creator economics and user-generated content will increase games’ reach, promote community building, and accelerate development, but IP owners will need to find ways to manage and moderate this content at scale.
- Emerging and mature technologies such as Generative AI, Metaverse, Web3, virtual reality and augmented reality (VR/AR) represent huge opportunities for growth, but providers will need to improve access and communicate value to consumers.
A deeper analysis, including industry-level trends, can be found in PitchBook’s full launch report: Gaming for Q4 2022.
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