Growth in video gaming was already strong and sustained when the COVID-19 pandemic, with its lockdowns and social distancing, gave the industry an additional boost. Now, even with more people returning to public and in-person entertainment options, engagement with games has continued. This is especially true among younger players, who increasingly compete and socialize on multiplayer game services and spend considerable sums on in-game goods and content. Game services, experiences, and business models are innovating, console supply chains are loosening up to meet pent-up demand for next-gen experiences, and many anticipated games that were delayed in 2022 are now set to reach players in the coming year.
Innovation is driving the number of gamers—not to mention revenue—higher. In Deloitte’s 2022 digital media trends survey of 2,009 US consumers, almost all Generation Z, millennials, and even Generation X respondents said they game regularly, averaging 11 hours every week.2 One market research firm anticipated that 3 billion people worldwide will be habitual game players by the end of 2022. Driven by game sales, subscriptions to game services, and in-game purchases of virtual goods and content, game company revenues hit an estimated US$200 billion for the year.3
With the industry doing so well, it’s no surprise that competitors and opportunists are lining up for M&A-driven growth opportunities. Game companies are consolidating, competing for access to gaming audiences and IP,4 and acquiring smaller businesses that provide components and services to the gaming ecosystem.5 Short of M&A, some are buying up shares in key ecosystem providers.6 Many media and entertainment companies are looking to expand their portfolios into gaming to keep younger generations under their roof;7 some of these are buying game companies for their leading franchises, seeking to develop more IP across film, streaming, and games.8 And new Web3-native disruptors are gathering users around their early metaverse experiences. Their blockchain-based games tilted toward the Web3 metaverse have attracted large amounts of funding,9 and could offer acquirers an appealing buffet of emerging technologies, new business models, and rare talent.
If M&A is so attractive to game companies right now, why do we expect 2023’s deal values to fall short of 2022’s? While the volume of deals should be high, large equity declines across the stock market are lowering game companies’ valuations, making them cheaper to buy. This could bring down overall deal value while stoking more acquisitions. However, rising interest rates, looming recessionary pressures, and macroeconomic uncertainty may sideline some potential acquirers, leaving M&A growth opportunities to those with deeper pockets and a longer view of the opportunities. Gaming’s overall resilience may also come into question. In the second half of 2022, revenues from gaming services and in-game purchases began to cool, likely due to a combination of tightening wallets and a renewed interest in live, in-person entertainment in the summer months. Analysts will look for revenues to rebound in 2023, but if service subscriptions and in-game purchases remain down, it may signal that 2021 and 2022’s numbers were a pandemic-induced bump rather than a permanent rise.
Even so, it’s worth noting that some of 2022’s deals were so huge that they would be hard to top under any circumstances. The largest-ever video gaming acquisition took place in Q1 2022 (pending regulatory approval), as did two other highly notable multibillion-dollar purchases; the value of these three acquisitions was greater than the total deal value in all of 2021—which itself saw an estimated US$60 billion changing hands across approximately 600 deals.10 However, such deals may ignite greater competition, consolidation, and concentration as more of the fragmented video game industry is scooped up by a handful of the largest gaming companies—some of which are also the largest hyperscale platform companies.11 Indeed, 2023 may see stronger moves by deep-pocketed tech behemoths taking stakes in gaming.