2023 Sets New Record with $81.1B in Video Game Deals

Last year marked a record-breaking period for dealmaking in the expansive video game sector, with mergers & acquisitions, IPOs, and investments soaring past $81.1 billion, as revealed by Digital Development Management’s (DDM) year-end Games Review. The fourth quarter also saw unprecedented activity in this regard.

However, these staggering figures were largely driven by a single mammoth deal: Microsoft’s $69 billion acquisition of Activision-Blizzard, which closed in October after nearly two years of regulatory hurdles, constituting a staggering 85% of the year’s total deal value.

Beneath the surface, the industry struggled to maintain the remarkable momentum it had achieved during the pandemic, with a noticeable pullback to pre-pandemic growth levels. Without Microsoft’s acquisition, 2023 would have seen a total of $11.4 billion across 643 investments and M&As, marking an 85% decrease in value and a 45% decrease in volume from 2021’s record-breaking $74.8 billion across 1,250 transactions.

Several factors contributed to the industry’s challenges in 2023. Spiking interest rates made financing M&A deals more expensive, while the stock market’s struggles in a higher-rate environment made IPOs difficult across industries. The allure of ultra-safe bonds with high returns also diverted potential capital from more speculative investments.

Despite these challenges, 2023 still saw a modest increase in deal volume compared to pre-pandemic levels, with 22 more transactions than in 2019, totaling 529 transactions.

Looking ahead, DDM predicts that dealmaking will continue at a similar pace in the first half of 2024, with cautious sentiment prevailing until global economic pressures and geopolitical tensions ease. Saudi Arabia is expected to remain active in the space, with significant funds still available for further investments. Conversely, China’s gaming industry faces ongoing challenges due to government restrictions and political pressures, leading to a long-lasting pullback.

The recent approval of 11 Bitcoin-related ETFs by the SEC may open up new opportunities for makers of blockchain-based video games. The industry is also expected to witness layoffs, closures, and divestitures as companies focus on core offerings. Poland emerged as the IPO capital of the global games industry in 2023.

Despite these challenges, the industry remains resilient, attracting consumers, investors, and buyers. Gaming-related investments, acquisitions, and IPOs are expected to stabilize and increase in the latter half of 2024, assuming no significant geopolitical or economic changes.

Industry observer Matthew Ball has a more cautious view, noting that while the industry appears strong from the outside, revenues are down, leading to layoffs and closures. He highlights the importance of subscriptions like Microsoft’s Game Pass and predicts a shift away from live-service titles towards finished games with fewer add-on development costs.

In conclusion, while the video game industry faces challenges, it also presents opportunities for growth and innovation. Subscription models, generative AI, and user-generated content are expected to play a significant role in the industry’s evolution, along with a potential shift in development focus away from North America and Japan towards emerging markets like India and Brazil.