We had some great discussions at GamesBeat 2012 this year, such as Will Wright’s vision for “personal gaming” and acquiring new users in mobile games. Among the sessions was our discussion, moderated by Martin Rae (head of the game industry group Academy of Interactive Arts & Sciences) about game investments and where the smart money is going. Here’s some takeaways from that session that could guide investors, developers, and big companies as they figure out where to put their money next.
1. This year, venture capitalists have pulled back from heavy investments in social games, which accounted for about half of the money invested in the industry last year, according to Tim Merel, the managing director at Digi-Capital. That’s because only a handful of companies, such as Zynga, are doing really well on Facebook. The exception to this is investment in social casino games.
2. Gamification is still drawing investments and still seems to have a lot of runway left. Gamification refers to the use of game mechanics outside of games, such as gamified sales competitions. Now the gamification plays are getting a lot more sophisticated.
3. Mergers and acquisitions are proceeding ahead of last year’s pace, with 2012’s deals already accounting for 88 percent of last year’s total value, Merel said.
4. Asia has a good base for free-to-play massively multiplayer online games. It continues to expand, and it’s also likely to take hold on a global level. (Free-to-play could especially grow in the West thanks to more MMOs dumping the traditional monthly subscription model. It’s even rumored that Star Wars: The Old Republic, so far the biggest MMO launch in the past year, could go free-to-play.)
5. Discovery is still the key problem for mobile and social games, said Jeremy Liew, the managing director at Lightspeed Venture Partners. Game quality matters, but it isn’t enough when it comes to getting noticed on a platform with hundreds of thousands of apps. Liew says game companies need a “foolproof strategy” for getting apps noticed. Licensed brands may be the way to do this. Another way is buying installs, but that gets expensive. Building a great game isn’t the only thing you need for building a great company, said Atul Bagga, a senior equity research analyst at Lazard Capital. Game executives must learn how to run their studios as Internet companies. And that means running games as services.
6. Console game companies are engaged in pivoting toward social, mobile, and online. It’s not just industry leaders like Electronic Arts doing so. These console companies have “whales” for customers, players who don’t mind spending $60 on a game. But they don’t know how to get those same gamers to spend $60 on a social or mobile game. If these console companies can figure out good cross-promotions, where they can move their users across platforms, it could be very valuable, Merel said. Liew said Riot Games managed to migrate an audience from the Defense of the Ancients mod for real-time strategy game WarCraft III to League of Legends, a popular downloadable multiplayer online battle arena (MOBA) game.
7. Companies that show they can port games over multiple devices and platforms are the ones that will succeed. That requires a lot more resources and investment than in the past. If you can get people engaged with a game by offering it as a perpetual service, then you have a chance to offer it across multiple platforms, Bagga said. Consumers want the capability to play their favorite game on any platform, any time. Meanwhile, Bagga said, consoles are not going to die.
8. Tablets are underhyped as a gaming platform, said Nabeel Hyatt, a partner at Spark Capital. Next year, he believes consumers will buy more tablets than PCs. Game companies haven’t starting focusing on tablets as their No. 1 platform, but they should think about that.
“They are the TV of the next 10 to 15 years,” Hyatt said. “If you think about how important television is to culture, I think the tablet will be that important to culture.”
Liew believes that tablets will be hot, too, but so far most developers are not taking advantage of the platform’s capabilities. Instead, they are taking old iPhone games and are “up-rezzing” them to the tablets. It makes more sense to target a game to the tablet and its capabilities.
9. Social casino games are hot because they stand on the border between social networks and online gambling sites. Once legal barriers change, casino game makers stand to profit, Merel said. Legislative barriers won’t be easy for startups to navigate, though, Liew said. He thinks that means the land-based casino gambling companies will win this competitive battle in the long run.
10. You can bet that next-generation consoles will embrace free-to-play business models, Merel said. This is why Ouya’s Kickstarter project for an open-source Android console is so popular.
[Photo credit: Michael O’Donnell ]