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Investing in Influence: Video Games Industry Memo, 15/02/2024
The video games industry is witnessing a strategic shift toward "investing for influence" rather than traditional internal development or full-scale acquisitions.
- Major media and technology firms are shifting from internal development to an 'investing for influence' model to secure presence in digital ecosystems without the operational burden of managing game divisions.
- Disney’s $1.5 billion investment in Epic Games serves as a primary example of this strategy, allowing the company to gain creative influence over a virtual platform while outsourcing technical complexities.
- The industry is moving toward a model of minority stakes, similar to Tencent’s long-standing strategy, to capture audience engagement and foster connections within dominant 'walled garden' platforms.
Gaming Deals Activity in 2023
The global video game industry experienced a significant contraction in deal-making activity throughout 2023, with both the volume of transactions and total investment values falling by more than 50% compared to the peak period of 2020–2022.
- Global video game deal-making contracted by over 50% in 2023 compared to the 2020–2022 peak, with 567 total deals recorded.
- Excluding the $68.7 billion Microsoft-Activision Blizzard acquisition, total deal value fell 70% year-over-year to $16.4 billion.
- Public offerings generated $4.2 billion in 2023, a significant decline from the $24.5 billion recorded in 2021.
Disney's Epic Games Stake and Valentine's Day Advertising Trends
This analysis examines Disney’s strategic expansion into the gaming sector through its partnership with Epic Games, alongside an evaluation of seasonal advertising trends within the United States confectionery market.
- Disney is investing $1.5 billion for an equity stake in Epic Games to capture younger demographics, as users aged 18-24 spend 71% more time in gaming categories than the general smartphone population.
- Disney reported a 7% year-over-year increase in Disney+ core paid subscribers for 1Q FY24, with the company targeting streaming profitability by 4Q FY24.
- US advertising spend in the confections category grew by an average of 57% week-over-week between January 5 and February 1, 2024, in anticipation of Valentine's Day.
IGN Is Unionizing
Approximately 80 editorial and creative employees at the gaming and entertainment outlet IGN have announced their intention to unionize by joining the NewsGuild-CWA.
- Approximately 80 editorial and creative employees at IGN have moved to unionize by joining the NewsGuild-CWA, with a majority of staff already signing authorization cards.
- The unionization effort is primarily driven by concerns over industry-wide instability, job security risks posed by generative AI, and the financial pressures of living in high-cost urban centers.
- IGN maintains a significant market presence, reporting 479 million monthly readers as of December 2023.
Disney x Fortnite / Heroes of Mavia Launch / WB Live Service Stumbles
The gaming industry is currently undergoing a structural transformation characterized by a move away from traditional standalone development toward interconnected digital ecosystems and community-driven engagement.
- Disney is investing $1.5 billion into Epic Games to integrate its intellectual property into Fortnite, shifting away from internal development to leverage an existing, persistent cross-platform ecosystem.
- The gaming industry is moving toward interconnected digital ecosystems, prioritizing organic player retention and high-quality gameplay over aggressive, top-down monetization strategies.
- Forced live-service mechanics are alienating core audiences, as evidenced by the poor reception of Warner Bros. titles like Suicide Squad: Kill the Justice League and Mortal Kombat 1.
Where Do Disney, Epic and Xbox Fit Into Mobile's Messy Platform Game?
Major industry players including Disney, Epic Games, and Microsoft’s Xbox division are increasingly prioritizing mobile-first strategies to reach broader global audiences.
- Disney has invested $1.5 billion in Epic Games to develop a new mobile-first games and entertainment universe.
- Major industry players including Disney, Epic, and Microsoft are increasingly seeking to bypass the 30% commission fees and restrictive policies imposed by Apple and Google on mobile platforms.
- Microsoft is shifting its Xbox strategy to prioritize multi-platform distribution, aiming to reach a broader audience beyond its traditional console base by expanding onto mobile.
Betting the Kingdom: Disney's $1.5 Billion Push into Gaming and the Future of Entertainment
This analysis explores the strategic realignment of major entertainment and gaming entities, centered on Disney’s $1.5 billion equity stake in Epic Games.
- Disney is investing $1.5 billion in Epic Games to build a persistent 'digital theme park' within Fortnite, marking a strategic shift from a licensing-only model to direct participation in interactive digital environments.
- Microsoft is considering porting major first-party titles like Starfield and Indiana Jones to PlayStation and Nintendo platforms to maximize returns on its ZeniMax and Activision Blizzard acquisitions, despite potential risks to the Xbox hardware ecosystem.
- Roblox reached a record $1.127 billion in quarterly bookings, demonstrating the financial viability of business models centered on user-generated content.
Disney to Invest $1.5B in Epic Games
The Walt Disney Company has announced a strategic $1.5 billion investment in Epic Games to acquire an equity stake in the developer.
- The Walt Disney Company is investing $1.5 billion in Epic Games to acquire an equity stake in the developer.
- The partnership involves a multiyear project to build a persistent, open, and interoperable gaming and entertainment universe integrated with Fortnite.
- The new ecosystem will utilize Epic’s Unreal Engine to allow users to play, watch, shop, and engage with content from Disney, Pixar, Marvel, Star Wars, and Avatar.
The State of AAA Game Advertising
The analysis demonstrates that 2023 marked a peak in AAA game advertising, with live-service titles such as Fortnite commanding the highest spend (US$57 M) and blockbuster launches—Hogwarts Legacy, Diablo IV, and Call of Duty: Modern Warfare III—each exceeding US$25 M. YouTube remained the dominant channel (35% of spend), yet…
- AAA game advertising peaked in 2023, with top live-service titles like Fortnite spending US$57M and major launches including Hogwarts Legacy, Diablo IV, and Call of Duty: Modern Warfare III each exceeding US$25M.
- YouTube remains the primary advertising channel at 35% of total spend, though publishers are increasingly diversifying into Facebook, TikTok, and Instagram to reach broader audiences.
- Activision Blizzard and Epic Games led the market in 2023, each allocating over US$70M to U.S. campaigns for both new intellectual properties and established franchises.
Interactive Entertainment 2025: Global Market Sizing & Forecast
The interactive entertainment market is projected to reach $250.2 billion in consumer spending by 2025, representing a 4.6% year-over-year growth.
- The global interactive entertainment market is projected to reach $250.2 billion in consumer spending by 2025, marking a 4.6% year-over-year growth.
- Mobile gaming remains the industry's largest segment, with forecasted consumer spending of $115.7 billion in 2025.
- Console hardware is experiencing a significant cyclical downturn, with spending expected to decline by 31% in 2024 ahead of next-generation device launches.
Games Investment Review: Q1 2024
The first quarter of 2024 indicates a return to cautious growth for the video game industry, following nearly a year of market turmoil and layoffs.
- Excluding the outlier Microsoft-Activision Blizzard deal from late 2023, Q1 2024 investment and M&A activity nearly doubled compared to the previous quarter, totaling $4.3 billion.
- Investment value reached $2.2 billion across 178 deals, the highest quarterly total since mid-2022, driven primarily by Disney’s $1.5 billion investment in Epic Games.
- New fund announcements rose 36% year-over-year to $13.7 billion, supported by major raises from Andreessen Horowitz and Y Combinator.
Top Games and In-App Events in the United States
This analysis examines the performance of top mobile games and the impact of in-app events within the United States market for the week of December 11 to December 17, 2023.
- Monopoly Go! maintained market leadership for the week of December 11–17, 2023, generating over $12 million in revenue and securing more than 700,000 downloads.
- A collaboration between Grand Summoners and the anime 'Ten-Sura' drove a significant spike in both revenue and downloads as players sought to summon featured characters.
- Disney Magic Kingdoms saw a 1,300% revenue spike following an in-app event featuring a collaboration with The Muppets.