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The outlook for big game investments is mixed, as both demand and fear are rising. That’s one of the observations from a panel of Series A and Series B round (larger institutional investment rounds) investors at our GamesBeat Summit 2020 event.
The panel included Phil Sanderson of Griffin Gaming Partners, Michael Cheung of Makers Fund, Rick Yang of New Enterprise Associates, and moderator Eric Goldberg of Crossover Technologies. Game investments and acquisitions have been going strong, at least in the first quarter, according to data collected by Sergei Evdokimov, an investment associate at Mail.ru Games Ventures.
More than two dozen funds are investing in games these days, but these are some of the most prolific investors who are putting a lot of money into game studios and game-related startups. They invest in game companies that have demonstrated some kind of traction and already received their seed funding. Goldberg opened by asking whether it was the best of times and the worst of times.
“We’re finding the tides are rising, and they are lifting all boats,” said Sanderson, who has made about 35 game investments over the years. “A lot of mobile games and casual games are played in between work sessions in spare time. The bottom line is a lot of people have spare time now. I would say all sectors are doing well in the gaming sphere.”
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As for revenues, Sanderson said that — among his portfolio companies — revenues are increasing, time of play is increasing, downloads are increasing, and average revenue per paying user is increasing across the board. He also noted the cost of acquiring users is down.
“Gaming is about disposable time, not necessarily disposable income,” Sanderson said. “Gaming has been eating into the share of disposable time. And now that people have more disposable time, they’re playing more games. People are spending more money in games, as well.”
Cheung, whose fund has investments across several continents, agreed with Sanderson but added that the big question is what happens after this initial surge of gaming that’s happened during the pandemic. The increase will last for a few months, but he’s watching how the high unemployment rate may trickle down and impact disposable income and game sales.
“We don’t have a good measuring stick from historical recessions or historical events,” Cheung said. “I’m keeping a good eye on in-app purchases, CPMs [cost per thousand impressions] as marketing companies pull their spending on ads, as well as premium titles. Will consumers become more price-sensitive to a $60 premium title or spend $1 or $2 in a free-to-play game?”
He said Europe and the U.S. are likely in the same boat now, awaiting more impact, while China and the rest of Asia are starting on a rebound because they were locked down earlier and are reopening a lot faster.
Goldberg said that advertising revenue has dropped dramatically in every other industry. Cheung said, “We should monitor it.” Brands and other advertisers are likely to cut back, resulting in a drop in costs per install (CPI). But the net change has still been a growth in revenue. The challenge is what happens over the next year, Cheung said. So, he said, anyone offering items for sale in a game will have to closely consider what value they’re really offering for gamers in the next year or two.
Yang has made investments in esports companies such as PlayVS and Gen.G. Those companies rely on sponsorships, and those budgets may get frozen. But esports has also benefited from a rising tide of people being at home and having more time.