Mobile driving video games revenue to $100B by 2017

LONDON, UK: Games and apps investment bank Digi-Capital published its Global Games Investment Review 2014.

Commenting on the Review, Digi-Capital managing director Tim Merel said, "Mobile games could drive total games software industry revenue to ~$100B by 2017. The mobile and online games sectors combined could grow to ~$60B revenue (23.6 per cent CAGR 11-17F), and take 60 per cent games software market share by 2017."

"Competition for growth is intensifying, as the new kids on the block harness the energy in the cycle to take them to the summit. However this is an elite marathon not a sprint, so long term engagement performance is just as important as short term success," he said.

Mobile and Asia drove games M&A to a historic record $5.6B in 2013 ($7.9B including the $2.3B management led portion of Activision-Blizzard/Vivendi excluded from the total). M&A value grew by 29 per cent from 2012, with average M&A deal size growing 23 per cent from 2012 to $63.8M.

Mobile dominated M&A by transaction value (67 per cent) and volume (36 per cent), with clear valuation trends emerging. While many deals were focused on growth, there was considerable consolidation for pivot and turnaround strategies.

Asia is becoming the biggest growth driver of economic value in mobile/online games, with the best games companies' revenue growth and profit margins being the envy of foreign competitors. Asia and Europe combined could take >80 per cent global revenue share for mobile and online games. 9 of the top 10 games M&As of 2013 Asian buyers, continuing the trend from 8 out of 10 in 2012.

Global and pan-regional M&A deals were significant in 2013, and pan-regional relationships and profile remain critical for entrepreneurs selling via trade exits and for major corporates buying games companies. 13 out of 15 games IPOs in 2011-2013 were by Chinese, Japanese or South Korean companies, although there are also attractive IPO prospects in Western markets. Everyone is searching for the next Unicorn.

Games dominated mobile app usage and revenue in 2013, with Over-the-Top mobile messaging apps ("OTT") a new disruption. Games took 32 per cent of 2013 mobile app usage (blended iOS/Android tablet/smartphone), and accounted for 67 per cent of tablet usage.

Games took a massive 72 per cent of mobile app revenue and ~40 per cent of mobile app downloads in 2013. Asian OTT platforms are beginning to disrupt mobile games, with Kakao Talk, WeChat and LINE taking significant share of top 100 app store ranking in domestic markets. This trend is coming to the West.

"The 8th generation console cycle is beginning to address the decline of recent years, but questions remain about potential new installed bases, transition from the 7th generation and mobile cannibalization."

"Where 2013 was a year of transition, we anticipate 2014 to be a year of both growth and disruption for the games market," Merel added.