GamesBeat

Five things that drove $12.5B in game company acquisitions in the past year

Above: Digi-Capital explains game consolidation.

Image Credit: Digi-Capital

In the past 12 months, more than $12.5 billion in game company acquisitions have been announced, according to a report by game advisory firm Digi-Capital.

London-based Digi-Capital said in its second-quarter report that mobile led the way with $4.6 billion in deals in the past year, followed by $4.0 billion in massively multiplayer online game deals, $2.5 billion in game technology deals, and $1 billion in console deals. There are five drivers to this “consolidation crush,” said Tim Merel, managing director at Digi-Capital.

Tim Merel of Digi-Capital

Above: Tim Merel of Digi-Capital

Image Credit: Digi-Capital

Here they are:

1. Mobile growth. Acquirers are buying into a large, high-growth market. Digi-Capital forecasts that mobile games will generate $33 billion in revenue by 2017, after growing from $4 billion in 2011 to $16 billion in 2013. Such fast growth is rare, so corporate buyers are scooping up mobile game companies. China’s Tencent bought 28 percent of C J Games for $500 million; Ourpalm bought Playcrab for $285 million.

2. Mobile cannibalization. In this case, acquirers are stopping mobile insurgents from disrupting them. Mobile has cannibalized other media usage, as print media has seen a 33 percent decline, online has fallen 23 percent, radio is down 14 percent, and TV is down 10 percent (based on 2012 and 2013 figures). Digi-Capital forecasts that mobile games will drive two-thirds of all games software market growth. The whole game market will hit $100 billion in total software revenue by 2017. But PC, console, MMO, social, and web games are being cannibalized by mobile games. As an example, Zynga bought Natural Motion for $527 million to head off a threat from Supercell, maker of Clash of Clans and new mobile gaming contender.

3. Regional realignment. The acquirers in this case are leveraging their strength to dominate at home and abroad. Mobile and online games are expected to hit $60 billion by 2017, with $38 billion in Asia and $13 billion in Europe. North America remains important, but its historic position from the heyday of consoles is waning. China, Japan and South Korea boast multi-billion dollar games companies that Westerners hadn’t heard of five years ago. Tencent has become the most valuable games company on the planet with a market capitalization of more than $150 billion, or more than Intel. Nine of the top ten buyers of game companies in 2013 were Asian companies.SoftBank invested in Supercell and GungHo Entertainment as part of an effort to create a pan-regional game giant.

4. Legacy pivots. The buyers who grew up in older markets are now purchasing newer companies to catch up with the times. Pivoting to address disruption has become standard operating procedure for survival. Facebook did this in a surprising way when it agreed to acquire Oculus VR for $2 billion. That was after Facebook was accused of being slow to respond to mobile growth. In Asia, online game companies are pivoting into mobile. And traditional telecom and book publishing companies are also pivoting into games.

5. Market cycle. Acquirers are taking advantage of the current phase in the investment cycle. Many publically traded games companies are at significant discounts to 12-month valuation highs. Valuations for games M&A have softened in 2014, and only $472 million was invested in games in the first half of 2014 (vs $2 bilion for the full year 2012). King managed to go public, but some think that game companies are undervalued. Giant Interactive, for instance, went private for $1.6 billion..

 

 

More information:

Digi-Capital advises mobile internet, games & digital clients across America, China, Japan, South Korea and Europe... read more »

Tim Merel is Managing Director with Video Games, Digital Media, Technology and Telecoms experience in industry, direct investment, financial services, growth company development and turnaround, across Europe, USA and Asia Pacific, with... read more »

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5 comments
Tim Merel
Tim Merel

@jason smith


Thank you for your question. 


We have a great deal of respect for Gartner. Others, including ourselves, continue to see mobile's impact on the mix of game players, usage and revenue. There was another VentureBeat article recently on this point, in which NPD (who we also respect) states that the largest gamer group in the US is mobile only (29%), followed by multi-platform (including mobile) gamers at 22% http://venturebeat.com/2014/07/09/smartphones-are-making-console-only-gamers-rarer-despite-ps4-and-xbox-one/ 


If you read our Review (www.digi-capital.com/reports), you could see that we forecast total games software growing to $100B by 2017, with growth for console/PC games, and higher growth for mobile/online games. 


We hope that provides more context.

jason smith
jason smith

"But PC, console, MMO, social, and web games are being cannibalized by mobile games."


Can you substantiate this claim please?  According to Gartner this isn't the case.  http://www.gartner.com/newsroom/id/2614915


The growth in Mobile is very impressive and understandably generating the interest right now, but assuming Gartner's figures are correct (which is a fairly safe assumption) - it shows the console industry is still growing at ~10% per year, which is still impressive by any means.


As a side note, the figures also show the console business still generates 2.5 x mobile.  As percentage of handheld and PC games are closely aligned to a console experience; for developers and publishers in the 'console' business - it represents a marketplace with 3 - 4 x mobile revenues.


Sure, there will be some user intersection but in this instance I'm not sure cannibalisation is the right phrase; it's certainly not consuming itself.  Currently the devices offer different experiences for different situations.  They will become closer over time, but the net effect of that is likely to result in introducing many non-console gamers into a more core experience.  Who says mobile won't actually expand the console market over time?


Who says it isn't already?

Nick Stancato
Nick Stancato

'mobile' gaming and freemium is ruining gaming. I really hope this is a bubble that bursts just like FB games and other social games did a year or so ago. It needs to die, and fast

Jason Wilson
Jason Wilson moderator VB Staff

@Nick Stancato Is it? I have more choices on my PC than ever before, most of them paid, not free-to-play. 

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