The video game industry recorded an unprecedented level of transaction in the first half of this year and is set for a long-term investment explosion, according to a research note published by Arden Partners plc (‘Arden’), the institutional stockbroking company.
The research reveals that the global video game market recorded a deal flow of $60bn in gaming & e-sports combined, compared to just $34bn in the whole of 2020. Overall, there were 635 completed transactions, including 169 Merger and Acquisition deals and 364 private placements.
The industry is now worth $170bn, significantly higher and outpacing both the music ($20bn) and the film sector ($43bn). Arden believes that while the industry is scheduled for a short consolidation period in the second half of 2021, it is set to record exponential growth over the long-term thanks to the rapid acceleration of the Metaverse and Virtual Reality that is peaking investor interest.
Virtual reality (VR) is the fastest-growing market segment, as UK revenues grew by 31.7 per cent this year and are projected to increase at the same rate over the next five years. In the report, Arden said the rise of virtual spaces where gamers can create and explore with other people through online avatars has led to significant technology conglomerates such as Facebook, Amazon and Google hiring thousands of employees to work on the development and rebrand their purpose towards becoming leaders in the space.
The COVID-19 pandemic and repetitive lockdowns has also helped spark significant growth in the games market, shattering revenues, user, and growth records. Every quarter in 2020 broke its respective revenue record. As a result, the sector has seen a number of AIM IPO’s in the UK, including Frontier Development; Keywords Studios; Sumo; Codemasters; and TinyBuild, and this investment trend is set to continue for some time.
The UK AIM IPO market is buoyant right now, outpacing the main market, and Arden considers Gaming a very attractive sector for new capital. A significant proportion of this capital is likely to be invested in Cloud Gaming. Cloud Gaming-as-a-Service is still relatively in its infancy, and in 2020 was worth $1bn, but thanks to advancements in network data farms, it is forecasted to be worth $30bn by the end of the decade – progressing on a similar trajectory to other sectors adopting cloud technologies such as the banking industry.
Alex DeGroote, Research Director at Arden, explained: “The video gaming industry is set for an explosion of investment over the next decade. The unprecedented growth recorded in 2020, accelerated by the pandemic, has put the sector on a really strong footing and its growth is only set to continue. It’s no surprise that companies want a piece of the pie. By 2025, it is predicted the industry will generate more than $260 billion in revenue as more technological breakthroughs occur leading to further investment of capital.”
Manjot Heer, Analyst at Arden Partners, said: “Our report highlights how significant technological developments in Cloud Gaming, Virtual Reality and the Metaverse are laying the foundations for a new era of personalised gaming that will see the advent of new companies challenging the likes of Facebook that are trying to reform and rebrand their business model to take advantage of the potential returns from the gaming-industry and virtual reality space.”