As the pandemic forces individuals to socially distance, the gaming industry is bringing people together virtually at an unprecedented pace

As the pandemic forces individuals to socially distance, the gaming industry is bringing people together virtually at an unprecedented pace

 

 

COVID-19 containment measures may be disrupting typical social activities around the world, but the gaming industry is bringing people and capital together in new and inventive ways. Back in April, as most of the Western world entered lockdown, North Carolina-headquartered Epic Games – the developer of acclaimed battle royale¹ shooter Fortnite – drew a record 12.3 million concurrent online players for a virtual in-game concert with American rapper Travis Scott. Following the event, Japanese conglomerate Sony picked up a 1.4% stake in the private video game company for $250mn in July, betting heavily on the future of socially immersive digital experiences in a more physically distant world.

A bet that could well pay off. According to a survey by Deloitte, a third of US consumers said they have either subscribed to a video gaming service, used a cloud gaming service, or watched esports or a virtual sporting event for the first time during the COVID-19 crisis. Internationally, market research firm Nielsen reported a staggering 82% of global consumers played video games and watched video game content during the peak of lockdowns, pushing engagement levels to an “all-time high.” This rapid influx of new casual gaming consumers, supported by an increasingly engaged base of long-time gaming enthusiasts, is piquing the interest of private capital investors.

The aggregate value of private equity-backed buyout and venture capital deals for video gaming assets is booming so far this year, Preqin data shows. Compared with the $1.1bn transacted in H1 last year, total deal value has increased more than 45% in H1 2020 to $1.6bn. With a slight fall in the total number of deals in the first six months of the year, average deal size jumped 89% to more than $13mn. As seen in the chart above, North America hosted a majority (41%) of the deals seen in H1 2020, followed by Asia (33%), and Europe (25%).

 

 

The Socialization of Gaming and its Appeal to Investors
Looking closer at this uptick reveals more nuanced shifts at play in the gaming industry. The idea of gaming as a solitary form of digital escapism appears outdated as the industry moves beyond blockbuster titles for consoles. Instead, gaming is developing wide social communities, deep virtual relationships, and addictive digital content – much-needed qualities during the isolation of lockdown. In fact, video game software developer Unity Technologies found that social gaming and networking traffic globally skyrocketed 83% from January to May 2020. In line with this trend, the data shows private capital is increasingly flowing into those industry players focused on making gaming more socially interactive and immersive.

One such example is the largest deal completed so far in 2020, Sony’s $400mn private investment in publicly listed Chinese digital entertainment company Bilibili in April. Bilibili is an online video sharing and streaming platform developer, primarily focused on the multichannel delivery of content around animation, comics, and gaming. As part of the deal the two companies entered into a business collaboration agreement to pursue entertainment opportunities primarily in the areas of mobile games and anime content for the Chinese market.

On the back of this deal, in August Bilibili entered a three-year strategic partnership with California-headquartered video game developer and global esports tournament organizer Riot Games to exclusively live-broadcast the world-renowned League of Legends Esports global events in Mandarin. Commenting on the new partnership, Carly Lee, COO of Bilibili, said that in the past decade the company has witnessed “esports become mainstream and one of the most popular sports among China’s young generations.” Although growing esports viewership globally is not a new trend, awareness of these competitive social events is at an all-time high, and traditional sports clubs, as well as celebrities, are looking to engage viewers in creative new ways during COVID-19.

The second-largest transaction so far this year was Tencent’s $263mn private investment in China’s leading gaming-focused live streaming platform, HUYA, in April. HUYA works with game developers, publishers, and esports organizers to provide a range of real-time social and entertainment offerings to one of the largest gaming live-streaming communities in China. This month Tencent proposed a strategic merger of HUYA and its direct Chinese competitor, gaming-centric live-streaming company DouYu, in which Tencent holds a 38% stake. Together the two social streaming platforms would control more than 300 million monthly active gaming and esports users. 

Other notable deals so far in 2020 include fundraising rounds by California-headquartered mobile-games developer Scopely and online-gaming platform Roblox. Scopely raised $200mn for a Series D extension announced in March, led by privately held US media company Advance and The Chernin Group (TCG). This pushed the company’s post-money valuation up to $1.9bn – setting it up with additional fuel for an ongoing acquisition spree of digital media and gaming brands.

Roblox secured a $150mn Series G round in February from a consortium of investors that included the likes of Andreessen Horowitz, Temasek Holdings, and Tencent. The company’s gaming platform does much more than host a seemingly endless list of free user-created games for people to play. The attraction for about three-quarters of all American children aged 9-12 is the ability to hang out with friends for everything from online competitions to virtual birthday parties. The strategy appears to be working. As lockdowns drove socializing online, monthly active users on the Roblox platform surged to over 150 million in July – up from 115 million in February.

In short, this year’s largest deals all underscore investors’ increasing appetite for sticky digital communities, immersive virtual experiences, and addictive content creation.

The Future of Gaming Is Even More Social
During the coronavirus pandemic, gaming has cemented itself as a social activity that fulfils a deep need for interaction and belonging among many users. Gaming companies are becoming real-time social entertainment platforms, with the capacity to blend immersive multiplayer cooperation and high-stakes competition with multimedia content creation, online and offline special events, and user-influenced game development. 

Looking ahead, deal activity is looking bright halfway into Q3 2020. Data as of 13 August shows the total value of private equity-backed gaming deals has already topped $339mn this quarter, and is on pace to beat the 2019 quarterly average of $649mn. 

 

 

What’s more, Newzoo, a games and esports analytics firm, predicts that the global gaming industry will generate revenues of more than $159bn in 2020, increasing 9.3% on last year, and is on track to surpass $200bn by the end of 2023. Indeed, all evidence points to rewarding new business model opportunities for media companies, game developers, and social media brands that realize the power of co-developing integrated digital content. In an industry that is placing more value in rich, shareable, interactive experiences, it seems that building great games is now only part of the formula for success.

 

¹‘Battle royale’ is an online multiplayer video game genre based on last-one-standing gameplay.