Latest / The Game Business Show / Video game investors on 2025: "It's tough, but there is optimism"

Transcript

Video game investors on 2025: "It's tough, but there is optimism" · The Game Business Show

0:00
SPEAKER_02: There's been a big shift,
0:01
SPEAKER_02: in my opinion,
0:02
SPEAKER_02: from when I joined and it was all down in the dumps to now.
0:06
SPEAKER_02: It feels a lot more optimistic.
0:08
SPEAKER_02: A lot more is happening.
0:10
SPEAKER_00: I've talked to Roblox studios that are smaller,
0:11
younger teams that are super happy with how they're monetizing
0:15
and how they're able
0:15
SPEAKER_00: to support themselves.
0:17
SPEAKER_00: But on a venture scale, that's a different question.
0:22
SPEAKER_01: Hello and welcome to The Game Business Show.
0:24
We're a brand new business publication all about the world of
0:27
video games.
0:28
SPEAKER_01: If you'd like to hear more about us and to sign up to our newsletter,
0:31
SPEAKER_01: head to thegamebusiness.com.
0:33
SPEAKER_01: Now today's show is all about video games investment.
0:37
SPEAKER_01: About a year ago for gamesindustry.biz,
0:39
I wrote an article that looked at how investors were feeling
0:41
about the games market
0:42
SPEAKER_01: and it made for pretty bleak reading.
0:44
They were predicting a brutal year for the games market with up
0:47
to two years of
0:48
SPEAKER_01: pain for video game companies.
0:50
However,
0:51
there were some investors that were optimistic about how things
0:54
might be in 2025.
0:56
SPEAKER_01: Well, we're a third of the way through that year now.
0:59
The brutal headlines are continuing and analysts are cautious
1:01
about growth in the
1:02
SPEAKER_01: video games market.
1:04
SPEAKER_01: So how are investors feeling?
1:06
SPEAKER_01: Is there any sign of light behind these dark clouds?
1:09
SPEAKER_01: Well,
1:10
SPEAKER_01: We asked them.
1:11
SPEAKER_02: Things definitely picked back up.
1:13
SPEAKER_02: It's definitely very busy at the moment.
1:14
SPEAKER_02: We've got,
1:15
SPEAKER_02: I think,
1:16
SPEAKER_02: we've got three deals that we're doing at the minute,
1:19
SPEAKER_02: which is a bit different to this time last year.
1:21
SPEAKER_02: This time last year, I think we'd only closed one.
1:24
SPEAKER_02: I've only been with LVP for just coming up two years now.
1:28
SPEAKER_02: And there's been a big shift,
1:30
SPEAKER_02: in my opinion,
1:31
SPEAKER_02: from when I joined and it was all down in the dumps to now.
1:35
SPEAKER_02: It feels a lot more optimistic.
1:37
SPEAKER_02: A lot more is happening.
1:39
I definitely think that there was periods of pretty intense
1:42
doom and gloom.
1:43
SPEAKER_00: I would say I've seen a little less doom,
1:46
SPEAKER_00: maybe a little more gloom,
1:47
but it hasn't been like the whole overall thing hasn't felt as
1:50
like heavy.
1:51
SPEAKER_03: Pre-seed and seed deals are happening.
1:56
SPEAKER_03: They're not as easy as they used to be.
1:57
SPEAKER_03: The valuations are tighter.
1:59
SPEAKER_03: People are a lot more questioning.
2:03
SPEAKER_03: Now it is about solid businesses rather than potential growth.
2:08
SPEAKER_03: Are you creating a business that will be self-sufficient at some point?
2:11
Are you creating a business that is going to last for a long
2:14
time and change the games industry?
2:18
SPEAKER_03: But those deals are happening.
2:19
SPEAKER_03: And I know we have a lot of bad news at the moment,
2:22
SPEAKER_03: but there are green shoots around startups,
2:25
SPEAKER_03: angel deals,
2:26
SPEAKER_03: early stage VC deals.
2:29
SPEAKER_01: You heard there from Gus Curley,
2:30
SPEAKER_01: who is an associate at London Venture Partners,
2:32
SPEAKER_01: Kelly Wallach,
2:33
SPEAKER_01: who is partner at OneUp Ventures and angel investor Nick Button-Brown.
2:37
SPEAKER_01: And they all seem relatively bullish about the market right now,
2:39
SPEAKER_01: certainly in contrast to the headlines that we've been seeing.
2:43
SPEAKER_01: But not everyone is feeling as confident.
2:45
Alexei Garavarian is the CEO of indie publisher Kepler
2:48
Interactive and games
2:49
SPEAKER_01: investments fund Kowloon Knights.
2:51
SPEAKER_01: And for him,
2:52
he's not seeing any significant shift in the funding landscape
2:54
in 2025 compared
2:55
SPEAKER_01: with 2024.
2:58
SPEAKER_03: I think it's really difficult to read the tea leaves at the moment.
3:01
SPEAKER_03: There is no immediate reason to believe things will dramatically change.
3:05
I think it's very obvious for everyone that we went from a
3:07
phase of very rapid
3:09
SPEAKER_03: expansion with a lot of money flowing through our sector to a much
3:13
SPEAKER_03: drier patch.
3:15
SPEAKER_03: And essentially,
3:15
I think most folks who used to actively invest in our space
3:19
have kind of stopped.
3:21
SPEAKER_03: We had a lot of VC money flowing in and that kind of is non-existent now.
3:24
We had a lot of the larger investors from China and other
3:29
regions that were also
3:29
SPEAKER_03: very active in investing and that also kind of has stopped.
3:32
SPEAKER_03: I think publishers are being incredibly cautious as well.
3:35
SPEAKER_03: They are not signing as many titles, budgets tend to be very low and
3:41
I think reasonably they're also waiting for things to be very
3:43
far along before
3:44
picking them up and so that really creates a really challenging
3:48
time for studios
3:49
because effectively you need funding to get something off the
3:52
ground you need
3:53
funding to get a project started I think at the moment
3:55
especially for early stage
3:57
funding there really isn't a lot of people able to fund things
4:01
and I'd say if you
4:02
go up certain budgets probably above a million there really
4:05
aren't that many
4:05
SPEAKER_03: publishers either who are able to
4:08
SPEAKER_03: provide capital to develop your projects.
4:11
One of the investors I spoke to last year was Spike Laurie,
4:14
partner at VC firm Hero Capital.
4:16
Last year he told me he had hoped to see the games market
4:18
improve come 2025,
4:19
SPEAKER_01: at least a little bit.
4:22
But now he feels that 2025 will be another tough year for video
4:25
game companies.
4:27
SPEAKER_02: Everything is down, right?
4:28
SPEAKER_02: And especially in the last week,
4:31
we've seen even more economic uncertainty through the Trump
4:36
administration's
4:39
tariffs and the kind of inevitable kind of trade war that that
4:45
brings with China
4:46
SPEAKER_02: and with other countries.
4:49
And a very acrimonious relationship,
4:50
it looks like with Canada straight off the bat,
4:52
right?
4:53
SPEAKER_02: So in uncertain times when interest rates are kind of high,
4:57
SPEAKER_02: it takes very,
5:00
very bold and brave investors to be making speculative bets on
5:04
things like the
5:05
SPEAKER_02: games industry,
5:05
SPEAKER_02: especially as,
5:06
SPEAKER_02: and we've talked about it many times,
5:08
SPEAKER_02: a lot of venture capital funds and also publishers.
5:13
SPEAKER_02: over the last couple of years had not met the investors' expectations,
5:17
SPEAKER_02: had not returned cash or capital to their LPs,
5:21
SPEAKER_02: to their investors.
5:23
SPEAKER_02: And so we're still in a climate where people with money,
5:27
who unfortunately the people that are funding this stuff at the
5:29
end of the day,
5:30
would rather put their money in the bank and sit and wait than
5:35
invest in video games.
5:37
SPEAKER_01: Well, let's dive a little deeper, shall we?
5:39
SPEAKER_01: According to a report from VC Fund Convoy,
5:41
2024 saw a big drop in the number of deals being done around
5:45
video games and an
5:46
SPEAKER_01: even sharper fall in the value of those deals.
5:49
SPEAKER_01: However,
5:49
the 446 VC deals that were done in 2024 is actually more than
5:55
the 434 that were
5:56
SPEAKER_01: done in 2020.
5:57
SPEAKER_01: So when it comes to the quantity of investments,
5:59
SPEAKER_01: particularly those early stage investments,
6:02
SPEAKER_01: we're still seeing growth over pre-pandemic levels.
6:05
Both Gus Curley and Nick Button-Brown cited this data to me as
6:09
evidence that there
6:09
SPEAKER_01: is funding out there,
6:10
SPEAKER_01: and that's hard to dispute.
6:12
SPEAKER_01: There are still stories of new game studios receiving funding,
6:15
SPEAKER_01: certainly not to the level we saw a few years ago,
6:18
SPEAKER_01: but investments are happening and new teams are emerging.
6:22
What's challenging is that there are a huge number of games
6:24
companies fighting over this money.
6:27
And that means the days are over when developers could receive
6:29
investment with
6:30
SPEAKER_01: nothing more than a pretty sales pitch and some mocked up artwork.
6:33
SPEAKER_01: In fact,
6:34
many of the investors we spoke to say they need to see
6:36
something showable,
6:37
SPEAKER_01: even a prototype,
6:39
SPEAKER_01: before they'd consider investing.
6:41
SPEAKER_01: Here's LVP's Gus Curley.
6:45
SPEAKER_02: that they can really get that much out there for very little.
6:49
But what we've sort of seen over the years is that I think one
6:51
of the biggest
6:52
problems in the industry at the minute is the oversaturation of
6:54
content and
6:56
SPEAKER_02: oversupply of content.
6:57
And that's arguably because of the democratization of the tools
7:03
like Unreal Engine,
7:04
Unity...
7:05
SPEAKER_02: Anyone can now create a game which is very different to before.
7:09
And that sort of means that we're now looking for these teams
7:13
that can actually get
7:14
SPEAKER_02: something out to market,
7:15
SPEAKER_02: be quite frugal.
7:17
SPEAKER_01: Last year,
7:18
SPEAKER_01: I spoke to Steel City Interactive,
7:20
SPEAKER_01: the game studio behind the millions selling boxing game Undisputed.
7:24
The three brothers who formed the company made as much of the
7:26
game as they could by
7:27
SPEAKER_01: themselves in their own homes.
7:29
They even put a car on the line in order to secure some licenses,
7:32
all before approaching BCs.
7:35
SPEAKER_01: That meant by the time they went to market looking for investment,
7:38
SPEAKER_01: they were not short of interested parties.
7:40
SPEAKER_01: But those brothers were, notably, not games industry people.
7:43
SPEAKER_01: In fact, they'd never made a game before.
7:45
They were just entrepreneurial people with a love for video
7:48
games and a love for boxing.
7:50
SPEAKER_01: That represents another shift in the investment space.
7:53
SPEAKER_01: Who is getting the money?
7:55
SPEAKER_01: During the peak of the pandemic years,
7:57
I regularly wrote about a former AAA games veteran who worked
8:01
on Battlefield or
8:01
SPEAKER_01: Call of Duty or League of Legends or Overwatch,
8:04
who had secured a multi-million dollar investment deal to form
8:07
a new AAA studio.
8:09
SPEAKER_01: But today,
8:09
the type of founders the investors are choosing to work with
8:12
are a lot more conventional.
8:14
Everyone has seen a lot of new studios getting started by
8:18
well-known veterans and
8:20
SPEAKER_03: with extremely large budget for their first game.
8:22
SPEAKER_03: And in our experience,
8:24
SPEAKER_03: actually,
8:24
the most successful teams tend to go for something more modest
8:27
on their first game,
8:28
SPEAKER_03: try to build up,
8:29
SPEAKER_03: because it's a really challenging thing,
8:31
SPEAKER_03: right?
8:31
SPEAKER_03: If you start a studio,
8:32
SPEAKER_03: you're building a team,
8:34
SPEAKER_03: you're building a company,
8:35
SPEAKER_03: and you're building a video game.
8:36
SPEAKER_03: And you don't really think about those things when you start.
8:38
SPEAKER_03: Like, I have a great idea.
8:40
SPEAKER_03: I have a concept.
8:40
SPEAKER_03: I have a thing that I want to make.
8:42
And I'm going to spend the next three to five years of my life
8:44
doing this.
8:45
SPEAKER_03: But actually, you also have to hire people.
8:48
SPEAKER_03: They have to get along together.
8:49
SPEAKER_03: They have to build up a momentum on how you make the thing.
8:52
SPEAKER_03: Plus,
8:52
SPEAKER_03: you start having to worry about IT issue,
8:55
SPEAKER_03: HR,
8:56
SPEAKER_03: and all the other things that a person running a profit has to do.
8:59
And so the amount of time you spend actually making a
9:01
functional video game shrugs.
9:03
That makes it harder to make something really interesting and
9:05
really good.
9:06
I think it's a different type of founder that's being backed
9:09
now than was before.
9:11
SPEAKER_02: I think a lot of the companies that got funded in 2020,
9:17
SPEAKER_02: 2019,
9:21
SPEAKER_02: 2021,
9:17
SPEAKER_02: were these founders coming from these massive studios like Riot,
9:24
SPEAKER_02: who have worked on major, major franchises.
9:27
SPEAKER_02: But now I think it's moving to much more scrappy,
9:29
SPEAKER_02: previous entrepreneurial experience,
9:32
SPEAKER_02: not necessarily successful by any means,
9:35
but people who have sort of been through it before and can do
9:40
it again and not been
9:41
SPEAKER_02: part of these massive,
9:41
SPEAKER_02: massive teams,
9:42
SPEAKER_02: like been part of a small team and actually ship something.
9:46
That was Kepler's Garavarian and LVP's Curly effectively saying
9:49
the same thing there.
9:51
SPEAKER_01: Now,
9:51
some of the investors we spoke to say they're wary of investing
9:54
in a big name
9:55
SPEAKER_01: developer with a set vision.
9:56
In fact,
9:57
they talked about the importance of making games for an audience.
10:00
SPEAKER_01: For almost 20 years doing this job,
10:02
a phrase I often hear when I interview game developers is we
10:05
just make the games we
10:06
SPEAKER_01: want to play.
10:07
Well,
10:07
in 2025,
10:08
that isn't a phrase that necessarily goes down with investment groups.
10:13
People very,
10:14
very often create what they want to play,
10:16
what they want to create.
10:18
SPEAKER_03: They start a games company not because they want to start a business.
10:20
SPEAKER_03: They start a games company because they wanted their own.
10:23
SPEAKER_03: They didn't want to report to boss anymore.
10:25
SPEAKER_03: They wanted to build the games.
10:26
They always dreamed to play,
10:28
which comes with lots of sorrow,
10:30
which comes with...
10:32
SPEAKER_03: People see, don't look around what happens in the market very often.
10:36
SPEAKER_03: I have so many friends who work in games and so many times when we talk,
10:39
SPEAKER_03: I don't want to say I'm shocked because first of all,
10:42
SPEAKER_03: they have my friends and then second of all,
10:43
SPEAKER_03: I really like some of the games they build.
10:45
But very often they don't look in the market when they decide
10:47
to build a game.
10:48
SPEAKER_03: They don't look, is there a target group for it?
10:50
SPEAKER_03: Is this big enough?
10:51
SPEAKER_03: What's the production time?
10:53
Is there currently a change of platforms coming so it doesn't
10:57
make any sense?
10:58
SPEAKER_03: And that's, I think, where...
11:01
SPEAKER_03: We are very, very different.
11:02
SPEAKER_03: We look very analytical, very data-driven.
11:06
SPEAKER_03: And we try to ask as many other questions before,
11:10
SPEAKER_03: but also,
11:11
SPEAKER_03: and I hate saying that,
11:12
SPEAKER_03: that's one of the favorite things that my co-founder just said,
11:15
SPEAKER_03: we're financially prudent.
11:17
SPEAKER_03: We're very careful when we spend money and how,
11:20
SPEAKER_03: and we try to educate our teams to do so themselves,
11:23
SPEAKER_03: because games have become incredibly expensive to build.
11:27
SPEAKER_01: That there is Oliver Hines of gaming group Aonic,
11:30
SPEAKER_01: which has acquired numerous studios in recent years,
11:32
SPEAKER_01: including Warren Spector's Other Side Entertainment,
11:35
SPEAKER_01: and late last year secured 152 million euros in funding.
11:39
And when it comes to data,
11:41
it's not so much sales figures that he's talking about.
11:43
SPEAKER_01: When it comes to being analytical,
11:45
a lot of the time that involves trawling through YouTube
11:47
comments and reading
11:48
SPEAKER_01: Reddit threads.
11:49
SPEAKER_03: You can read a lot between the lines.
11:51
SPEAKER_03: You know, you can view trailers and you read the comments.
11:55
SPEAKER_03: You read a lot of them.
11:56
If you really,
11:57
really,
11:57
really deep into them and not just see the wild trailers.
12:00
SPEAKER_03: Very often,
12:01
SPEAKER_03: if you start reading a lot of comments,
12:04
SPEAKER_03: you start again feeling which are generic and potentially done by,
12:07
SPEAKER_03: you know,
12:08
SPEAKER_03: marketing companies,
12:09
SPEAKER_03: pure companies to boost the trailer.
12:11
But if you see the longer comments and discussions and the
12:13
follow-up threads on Reddit,
12:15
SPEAKER_03: you can get a big feeling of what's working,
12:17
SPEAKER_03: what's not.
12:18
Nick Button-Brown goes further and says he likes to invest in
12:21
companies that are
12:21
SPEAKER_01: making games in collaboration with the community,
12:24
SPEAKER_01: getting feedback from them as they're making the game.
12:26
SPEAKER_01: And he thinks that's critical in order to stand out in today's market.
12:30
SPEAKER_03: The big publishers can't bulldoze things to success anymore.
12:33
SPEAKER_03: There was always, you could get to a certain number of units.
12:36
SPEAKER_03: If you work the channels,
12:37
SPEAKER_03: if you got the sign off,
12:38
SPEAKER_03: if you got the listings,
12:39
SPEAKER_03: if you did the shows and so on,
12:41
SPEAKER_03: you could get to a certain number.
12:42
SPEAKER_03: That's gone.
12:43
SPEAKER_03: That doesn't happen.
12:45
You are at the beck and call of the market far more than you
12:48
were 10 years ago.
12:49
SPEAKER_03: So that's the companies that are developing things alongside the market,
12:54
SPEAKER_03: where people are supporting it from early on,
12:56
SPEAKER_03: where people are evangelizing what they're doing.
12:58
SPEAKER_03: That's why that's particularly interesting.
13:01
We're building a bit of a picture here of what investors are
13:03
looking for.
13:04
Investors are backing companies and projects,
13:06
but in a different way to before.
13:08
It's not about famous game developers scribbling an idea on the
13:10
back of a napkin,
13:12
but frugal entrepreneurs with a prototype attract record in
13:15
shipping projects and
13:16
SPEAKER_01: the ability to focus on what the audience wants to play,
13:19
SPEAKER_01: not just what the creators want to create.
13:21
SPEAKER_01: What surprises me about all this is it sounds almost sensible.
13:25
SPEAKER_01: Over the years,
13:25
we've seen investors getting overexcited and spending huge sums
13:28
of money on
13:29
SPEAKER_01: whatever the latest industry buzzword just so happens to be,
13:32
SPEAKER_01: often to disappointing results.
13:34
SPEAKER_01: VR,
13:34
SPEAKER_01: Metaverse,
13:35
SPEAKER_01: Web3,
13:36
those are all recent examples of sectors that in the past have
13:38
received a lot of
13:39
investor attention under the hope that they were going to
13:42
transform the market.
13:44
So I asked our panel if there's a hot concept today that's
13:48
getting investors excited.
13:49
SPEAKER_01: And the answer I received was almost universal, user-generated content.
13:54
SPEAKER_01: Now by user-generated content,
13:56
SPEAKER_01: what we're talking about here is Roblox and to a lesser extent,
13:59
SPEAKER_01: Unreal Editor for Fortnite.
14:01
SPEAKER_01: These are platforms where developers,
14:02
SPEAKER_01: whether that's solo creators or entire professional teams,
14:05
can make games that can potentially reach hundreds of millions
14:08
of players using the
14:09
SPEAKER_01: in-game tools.
14:10
Investors are paying close attention to the games doing well
14:13
within Roblox.
14:14
SPEAKER_01: As a platform, Roblox has over 85 million daily active users.
14:18
To put that into context,
14:20
it has more users than PlayStation,
14:21
Xbox and Nintendo combined.
14:24
SPEAKER_01: So investors are backing UGC companies.
14:26
SPEAKER_01: One such company,
14:27
SPEAKER_01: Boldex,
14:27
has been raising millions of dollars from various investment
14:30
groups and just last
14:31
SPEAKER_01: month used some of those funds to acquire the smash hit Roblox game,
14:34
SPEAKER_01: Brookhaven,
14:35
SPEAKER_01: which boasts over 120 million monthly active users.
14:40
SPEAKER_01: However, not every investor is 100% convinced.
14:43
OneUp Ventures has made some investments into UGC companies
14:46
working within Roblox
14:47
SPEAKER_01: and Fortnite,
14:48
SPEAKER_01: but it remains cautious.
14:50
There's a lot of like really like young creative developers
14:53
there and like ideas.
14:55
And it's kind of like a soup of just like wild experimentation,
14:58
which is like awesome.
14:59
SPEAKER_00: Like I love seeing that kind of stuff.
15:00
SPEAKER_00: And so,
15:01
SPEAKER_00: you know,
15:01
SPEAKER_00: if it just ends up being something that it's kind of like the,
15:04
SPEAKER_00: you know,
15:04
the cauldron for like we're the next generation of like game
15:07
developers and game
15:08
SPEAKER_00: design and all that stuff like comes out of,
15:10
SPEAKER_00: that's awesome.
15:11
SPEAKER_00: And,
15:11
SPEAKER_00: you know,
15:12
SPEAKER_00: I've talked to Roblox studios that are smaller,
15:13
younger teams that are like super happy with like how they're
15:16
monetizing and how
15:17
SPEAKER_00: they're able to support themselves.
15:19
SPEAKER_00: But on like a venture scale,
15:20
SPEAKER_00: you know,
15:20
SPEAKER_00: that's a different question than like,
15:22
SPEAKER_00: are you able to like make something that's a hit and,
15:24
SPEAKER_00: you know,
15:24
have fun and and reinvest back into your studio and make more
15:29
content and stuff.
15:29
SPEAKER_00: But then it's like,
15:30
SPEAKER_00: yeah,
15:30
SPEAKER_00: like,
15:30
SPEAKER_00: how do you like,
15:32
are you able to earn enough to kind of get either out of Roblox
15:35
or do something
15:36
that's really going to be like a big hit the way it would be on
15:38
like PC or console
15:39
SPEAKER_00: or something like that?
15:40
SPEAKER_00: And that's still kind of a question mark.
15:42
SPEAKER_00: It's like there's a lot that's really interesting about it and exciting,
15:44
SPEAKER_00: you know,
15:46
SPEAKER_00: but maybe not particularly from like a VC investable angle.
15:50
SPEAKER_01: Meanwhile,
15:50
Hero Capital's Spike Laurie isn't entirely convinced of the
15:53
economics on the platform.
15:55
SPEAKER_02: The UGC space always feels like this kind of,
15:58
SPEAKER_02: this mecca opportunity of,
16:01
SPEAKER_02: because if you can get it right,
16:03
SPEAKER_02: you can really get it right.
16:04
SPEAKER_02: You know, Roblox continues to do super well.
16:08
I think for me,
16:08
the jury's out on the economics of the Roblox model just
16:11
because of how
16:12
SPEAKER_02: much of a take that Roblox takes from the developers.
16:18
SPEAKER_02: But it's still obviously a really interesting space.
16:19
SPEAKER_02: I think UFN was an area where there was a lot of hope,
16:23
but I don't think that's crystallized or I don't think that's
16:26
come to fruition.
16:28
But almost all the investors we spoke to are paying close
16:31
attention to the UGC space.
16:33
SPEAKER_01: Here's Nick Button-Brown.
16:35
SPEAKER_03: You know, on Roblox, you can make a mechanic so quickly.
16:38
SPEAKER_03: You can test it so quickly.
16:39
SPEAKER_03: You can find out whether it works and you can iterate.
16:41
SPEAKER_03: So they're coming out with just a completely different mentality.
16:45
SPEAKER_03: We used to think that we fast iterated.
16:48
SPEAKER_03: They really do fast iterate.
16:50
SPEAKER_03: I mean, they're trying it.
16:51
SPEAKER_03: They've got a game out.
16:53
SPEAKER_03: It's worked.
16:53
SPEAKER_03: It's failed.
16:54
SPEAKER_03: They're on to the next game within a couple of weeks.
16:56
SPEAKER_03: The assumption is that you need to break out of it.
16:59
SPEAKER_03: How do you take it to another space?
17:01
SPEAKER_03: How do you do it differently?
17:02
SPEAKER_03: How do you do it?
17:03
SPEAKER_03: I don't necessarily think that you need to.
17:07
SPEAKER_03: You know,
17:08
SPEAKER_03: there are people that are building great careers,
17:11
SPEAKER_03: great lives,
17:12
SPEAKER_03: great companies who are making content for Roblox.
17:15
SPEAKER_03: Can they make content for UEFN?
17:16
SPEAKER_03: Can they make content for Minecraft?
17:18
SPEAKER_03: Yeah.
17:19
SPEAKER_03: But they don't need to deliver a Steam game.
17:21
They don't need to deliver a console game because their games
17:25
are already played on
17:26
SPEAKER_03: PC and console.
17:29
SPEAKER_03: So just kind of,
17:32
SPEAKER_03: I think there is a new generation that have learned to really,
17:35
SPEAKER_03: really fast iterate on mechanics.
17:37
And it's going to be really interesting to see the kind of
17:39
games that they're
17:41
SPEAKER_03: creating in the next 10 years.
17:42
SPEAKER_01: There are other areas outside of UGC that are turning investor heads.
17:46
Two of the investors we spoke to brought up the return of
17:49
social network games,
17:50
SPEAKER_01: specifically tied to the social platforms Discord and Telegram.
17:53
London Venture Partners tells us that Telegram has an audience
17:56
size that rivals iOS,
17:58
whereas there are game developers reaching tens of millions of
18:00
players through Discord.
18:02
SPEAKER_01: Investors have been stung by social network games in the past,
18:05
but they are watching this space as a potential way to reach
18:07
consumers away from
18:08
SPEAKER_01: the crowded digital stores such as Steam and iOS.
18:13
Another recent area of excitement for investors has been
18:15
artificial intelligence,
18:16
of course.
18:17
SPEAKER_01: However,
18:17
although our investors are excited by the prospect of AI
18:20
in-game creation,
18:21
they were less enthusiastic when asked if they're actively
18:24
seeking AI companies or
18:26
SPEAKER_01: projects to fund.
18:27
SPEAKER_01: Here's Nick Button-Brown again.
18:29
AI was hot,
18:30
then ceased to be hot,
18:32
and we're now on kind of second generation AI.
18:36
SPEAKER_03: But it's not, you know, AI, AI, there's all about AI dev tools.
18:40
SPEAKER_03: It's like,
18:40
SPEAKER_03: well,
18:41
that kind of crest happened and people are ending up looking at
18:46
that going,
18:46
SPEAKER_03: yeah,
18:46
SPEAKER_03: but how do you actually make money?
18:48
And with this realism of the current market is the question is
18:51
how are you actually
18:52
SPEAKER_03: going to make money?
18:53
SPEAKER_03: So AI is...
18:56
SPEAKER_03: Some VCs are still investing heavily in AI.
19:00
SPEAKER_03: I'm interested to see what the next generation of AI companies are,
19:03
SPEAKER_03: where AI is impacting on the content itself.
19:07
We've spent a lot of time talking about what investors are
19:10
spending their money on.
19:11
SPEAKER_01: But what about the other part of that question?
19:13
SPEAKER_01: What are they spending money on?
19:14
SPEAKER_01: And when I asked them, they all said the same thing, AAA games.
19:19
If a team comes to me looking for $20,
19:21
$30 million to get to a vertical slice for a AAA game,
19:26
SPEAKER_02: I'm not the fund, I'm afraid for you.
19:27
SPEAKER_02: And actually,
19:28
the people that were doing those deals have stratospherically
19:32
crashed out of the market,
19:34
SPEAKER_02: right?
19:34
SPEAKER_02: You can think about who those are from a strategic point of view.
19:39
SPEAKER_02: But a lot of those checks dried up and that funding isn't coming anymore.
19:44
SPEAKER_03: I think the whole topic of AAA,
19:46
SPEAKER_03: like 300 million plus devolving cost,
19:49
I don't think we're interested in that right now simply because
19:52
the stress you put
19:54
on yourself and your team in the current market to have a game
19:58
where you need to
19:59
SPEAKER_03: sell 5 million units just to make your money back.
20:02
SPEAKER_03: Um...
20:03
SPEAKER_03: I think just it's not what we want right now.
20:06
SPEAKER_03: It's not what we see is the strong suit in the market right now.
20:09
SPEAKER_03: I'm sure if you have an established IP,
20:12
SPEAKER_03: but if you now try to build a AAA IP from scratch,
20:15
SPEAKER_03: I think
20:16
SPEAKER_03: That's a very,
20:17
SPEAKER_03: very strong battle you have to fight,
20:19
SPEAKER_03: and you need to be prepared that you might lose.
20:22
SPEAKER_03: There will be still AAA units.
20:23
SPEAKER_03: I mean,
20:23
SPEAKER_03: there will be the Assassin's Creed,
20:25
SPEAKER_03: there will be the Call of Duties,
20:26
SPEAKER_03: but the Halos,
20:27
SPEAKER_03: Gears of Wars,
20:28
SPEAKER_03: but they have the IP,
20:29
SPEAKER_03: they have the audience,
20:30
SPEAKER_03: they have the name.
20:31
SPEAKER_03: Building up something new like that,
20:34
difficult it's very difficult to make a return on a triple-a
20:38
game if you're
20:38
building a triple-a game and it's going to cost 80 million then
20:42
to get the kind of
20:42
return which means you can pay money back to the people you've
20:46
got to sell 400
20:47
SPEAKER_03: million you've got to sell and that's
20:49
SPEAKER_03: That is a stretch for any level of optimism to,
20:53
SPEAKER_03: with confidence,
20:54
SPEAKER_03: say you're going to sell that number of gates.
20:56
SPEAKER_03: So AAA is difficult to raise money for.
21:00
SPEAKER_01: You heard from Hero Capital,
21:02
SPEAKER_01: Aonic and Nick Button Brown there,
21:04
that basically all the investors we spoke to say they're simply
21:06
not investing in
21:07
SPEAKER_01: this space,
21:08
not just because of the sheer costs involved in making these
21:10
projects and the risks
21:12
SPEAKER_01: that come with that,
21:13
but also because player behaviours over the last two years
21:15
suggest that AAA isn't
21:16
SPEAKER_01: necessarily what they want.
21:19
Outside of AAA,
21:20
mobile free-to-play is another space our investors are steering
21:22
clear of.
21:23
It's very difficult to succeed in that market when faced with
21:26
the machines of
21:27
SPEAKER_01: companies like Supercell and King.
21:30
SPEAKER_01: However,
21:30
SPEAKER_01: LVP's Curly says there are some opportunities in mobile,
21:33
SPEAKER_01: particularly with user acquisition costs flatlining.
21:37
Now there's one area of the investment world we've not spoken
21:39
about at all so far,
21:41
SPEAKER_01: and that's public companies.
21:42
SPEAKER_01: And to see how the shareholders are feeling about the sector,
21:45
SPEAKER_01: we spoke to Patrick O'Donnell from investment research firm,
21:48
SPEAKER_01: Goodbody,
21:49
SPEAKER_01: who specializes in tracking public video game businesses.
21:52
There's still a lot of trepidation amongst investors in the
21:57
video games industry in general,
21:59
SPEAKER_02: partially because people see a lot more cost pain to come.
22:04
SPEAKER_02: But also because on top of that,
22:07
you've got kind of a consumer that's still relatively
22:12
constrained in terms of
22:13
SPEAKER_02: spending globally.
22:14
SPEAKER_02: Yeah.
22:15
SPEAKER_02: This is affecting, you know, everything from AAA right down to indie.
22:18
SPEAKER_02: So,
22:18
SPEAKER_02: you know,
22:19
for what we're seeing is it's an incredibly competitive
22:21
environment out there for
22:22
SPEAKER_02: publishers and developers.
22:25
SPEAKER_02: And as such,
22:26
SPEAKER_02: achieving,
22:27
SPEAKER_02: you know,
22:29
SPEAKER_02: a strong momentum on a new release is even harder than ever,
22:32
SPEAKER_02: as we've seen from the recent Steam stats,
22:35
SPEAKER_02: you know,
22:35
which are now at sort of record levels globally in terms of the
22:38
number of new releases.
22:39
SPEAKER_02: Yeah.
22:39
SPEAKER_02: So despite,
22:40
SPEAKER_02: you know,
22:41
SPEAKER_02: a very strong kind of concurrent player base on that platform,
22:45
it's now more harder than ever to actually to have a commercial
22:49
success on your title.
22:51
SPEAKER_02: So what we've seen is that's led to,
22:54
SPEAKER_02: I think,
22:55
SPEAKER_02: more stabilized results amongst the publishers in 2024.
22:59
SPEAKER_02: A slightly better backdrop because we had downgrades last year.
23:04
We're getting more in-line stroke marginally positively ahead
23:07
of expectations in
23:09
SPEAKER_02: the UK,
23:09
SPEAKER_02: certainly.
23:10
SPEAKER_02: That seems to be filtering in the same vein globally.
23:14
But we're definitely not in a territory of material upgrades or sentiment,
23:21
SPEAKER_02: huge sentiment improvements.
23:23
SPEAKER_02: I think it's very much...
23:24
SPEAKER_02: Things are getting incrementally a little bit better,
23:27
SPEAKER_02: but there's still more pain to come in the sector,
23:31
SPEAKER_02: you know?
23:32
SPEAKER_01: Patrick points for some positives, at least from a financial perspective.
23:35
The sheer number of layoffs and cost-cutting in the sector has
23:37
helped profit margins,
23:39
SPEAKER_01: with companies at least delivering in-line or ahead of expectations.
23:42
SPEAKER_01: And also back catalogue sales remain very robust,
23:46
SPEAKER_01: although it is coming at the expense of new game sales.
23:49
SPEAKER_02: When we look at 24,
23:50
SPEAKER_02: actually,
23:51
new release was as bad as I've seen it in the seven years that
23:55
I've been covering
23:56
public markets in terms of financial performance right across
24:00
our publisher base.
24:01
SPEAKER_02: I think we're talking like the data hasn't been released yet,
24:04
but we could be looking at 90% plus of revenue coming from back
24:07
catalog across the
24:08
SPEAKER_02: core indie publishers in the UK in 2024.
24:12
SPEAKER_02: They'll release results in the next few weeks.
24:14
But from the data that we've pulled through our own company
24:17
analytics analysis,
24:19
SPEAKER_02: It gets pretty stark in terms of new release and performance.
24:23
One thing he notes is that most of the businesses he covers are
24:26
returning to their
24:26
SPEAKER_01: core competencies.
24:28
SPEAKER_01: There's a lot less risk taking from the major companies.
24:31
They're instead focusing on the types of games they're known
24:33
for and have a track
24:34
SPEAKER_01: record of delivering,
24:35
SPEAKER_01: as opposed to trying things that's outside of their comfort zone.
24:38
SPEAKER_01: And that is being genuinely well received by shareholders.
24:42
One additional thing he notes is that the low valuation of
24:45
companies plus stronger
24:46
bank balances due to all that cost cutting could lead to an
24:49
uptick in mergers and
24:50
SPEAKER_01: acquisitions towards the back end of the year.
24:53
SPEAKER_02: I think we're going to see a flurry of deal flow in 2025, 26.
24:56
SPEAKER_02: Also,
24:57
like publishers that won't have the content to get to platforms
25:01
will need to
25:02
SPEAKER_02: acquire the content.
25:03
SPEAKER_02: And there's cash on balance sheets globally now,
25:06
SPEAKER_02: given the sort of cost cuts that have been done.
25:08
So it's an important point that M&A is going to be an important
25:11
part of the
25:12
SPEAKER_02: firepower for public and private companies,
25:15
SPEAKER_02: but also for strategics.
25:17
SPEAKER_02: And then on top of that,
25:18
SPEAKER_02: you've private equity circling everywhere,
25:19
SPEAKER_02: given the valuation backed up in the industry.
25:22
SPEAKER_02: And so I think you've seen CBC come in and buy Jagex in the UK.
25:28
SPEAKER_02: You know, we expect them to be active again.
25:30
SPEAKER_02: You know,
25:31
SPEAKER_02: you've others,
25:32
SPEAKER_02: you know,
25:33
SPEAKER_02: like Haveli Group in the US who are,
25:35
SPEAKER_02: you know,
25:36
SPEAKER_02: active with the private division,
25:37
SPEAKER_02: et cetera.
25:38
SPEAKER_02: So globally,
25:39
SPEAKER_02: there's a lot of capital around ready to pass once the right,
25:43
SPEAKER_02: you know,
25:43
SPEAKER_02: valuation environment,
25:45
SPEAKER_02: you know,
25:46
SPEAKER_01: comes to pass.
25:48
With public companies playing it safer with established
25:50
franchises that does put
25:51
SPEAKER_01: the onus on the rest of the market to deliver the new things,
25:54
SPEAKER_01: the innovative stuff,
25:55
SPEAKER_01: the games we've not seen before.
25:57
SPEAKER_01: And although investors are cautious,
25:58
they do know that the games and studios that will succeed today
26:01
are not the ones
26:02
SPEAKER_01: delivering things that are already out there.
26:05
SPEAKER_01: Indeed,
26:05
Kepler's Garavarian says his publisher actively seeks games
26:08
that are radically
26:09
SPEAKER_01: different to what everyone else is doing.
26:11
SPEAKER_03: I don't think safe is safe anymore.
26:13
SPEAKER_03: I think we see about 1,200 pitches a year.
26:16
And I think it's natural when you see the sector contract a
26:20
little bit and less funding,
26:22
SPEAKER_03: you kind of have a tendency to say,
26:23
SPEAKER_03: OK,
26:23
SPEAKER_03: I'm going to pitch something that feels safe.
26:25
SPEAKER_03: But actually, safe titles don't perform.
26:27
SPEAKER_03: It's really, really hard.
26:29
SPEAKER_03: And when we are assessing pitches,
26:31
SPEAKER_03: You know,
26:32
our view is always you're trying to throw a can from a movie
26:36
car three hours away
26:38
SPEAKER_03: from now.
26:38
And by the time your game is done,
26:40
the entire space has completely changed.
26:42
And so making those predictions is incredibly difficult,
26:45
I think,
26:45
across the board.
26:46
SPEAKER_03: And so for us,
26:47
SPEAKER_03: we say,
26:48
let's just pick games that if they had released five years ago
26:51
or released in five years,
26:53
SPEAKER_03: wouldn't matter.
26:53
SPEAKER_01: They would be exceptional either way.
26:56
SPEAKER_01: So what's the conclusion?
26:58
SPEAKER_01: Is the investment situation improving in video games?
27:01
SPEAKER_01: Well, improving might be the wrong word.
27:03
Investors remain hugely cautious and are no longer spending the
27:07
levels of money
27:07
SPEAKER_01: they were just a few years ago.
27:09
SPEAKER_01: That was the case in 2024, and that is the case today.
27:12
SPEAKER_01: However, things are crystallizing.
27:14
SPEAKER_01: There is now more clarity over what investors are looking for.
27:18
SPEAKER_01: And in many ways,
27:19
SPEAKER_01: it comes down to what the entire world is being asked to do in 2025,
27:22
SPEAKER_01: whether that's video games companies or the US government.
27:25
SPEAKER_01: Can you deliver more faster and for less?
27:28
SPEAKER_01: If you can do that with a good idea,
27:29
SPEAKER_01: a strong team and a willingness to work with the market,
27:32
SPEAKER_01: there is money to be found.
27:34
I'm going to leave you with wise words from Heroes Laurie,
27:37
LVPs Curly and Nick Button-Brown.
27:39
SPEAKER_02: Venture Capital is looking for outsized returns.
27:42
SPEAKER_02: You will not make outsized returns.
27:45
SPEAKER_02: Making video games in the old tested way, right, of how to make games.
27:51
SPEAKER_02: Just the economics don't work.
27:53
SPEAKER_02: And so,
27:54
SPEAKER_02: you know,
27:55
if you're looking for venture capital or for investors and
27:57
publishers are different,
27:59
SPEAKER_02: you know,
27:59
SPEAKER_02: you shouldn't be approaching them unless you are adapting,
28:03
SPEAKER_02: pivoting,
28:04
SPEAKER_02: using the very latest in marketing.
28:07
production technology really looking carefully at what your
28:10
consumer wants looking
28:11
at the market creating something innovative and new and
28:14
destructive because that's
28:15
how you get outsized returns and and i think that is that's
28:20
where venture capital
28:21
can step in and provide very cheap funding to talented people
28:27
but if you're just
28:28
looking to make games this is how we've always made them this
28:31
is how we're going to
28:31
SPEAKER_02: make them um that's really you should be talking to a publisher
28:35
SPEAKER_02: I think it's a total new normal.
28:38
One of our portfolio companies,
28:40
Bossa,
28:40
Henry,
28:41
just released a really good normal letter.
28:43
And I think people need to adapt to a new environment and not
28:47
expect the abundance
28:50
SPEAKER_02: of capital that was flowing in games.
28:53
SPEAKER_02: We're seeing it with our own studios.
28:55
The terms publishers are giving them are much harder than what
28:58
was before.
29:00
SPEAKER_02: but that's the new normal.
29:02
SPEAKER_02: Now we need to adapt to that new normal or find new opportunities.
29:07
SPEAKER_03: I've heard they survive till 2025, but that is...
29:10
SPEAKER_03: That's oversimplifying it.
29:12
There's this idea that the industry is ever going back to where
29:14
it was three years ago.
29:16
SPEAKER_03: It's not.
29:18
SPEAKER_03: Survive till 2025 is, but accept that the industry has changed.
29:22
SPEAKER_03: You know, there are elements of the industry.
29:25
SPEAKER_03: If you're a AAA studio right now, that is a difficult place to be.
29:28
If you're doing something cool on the cutting edge that's
29:31
really defining the business,
29:33
SPEAKER_03: that's an interesting place to be.
29:34
SPEAKER_03: So it's not survive till 2025.
29:42
SPEAKER_01: Thank you all for listening or watching The Game Business Show.
29:45
SPEAKER_01: We'll be back later in the week with our news and analysis show.
29:48
If you want to make sure you don't miss anything and keep up to
29:50
date on everything
29:50
SPEAKER_01: going on with us,
29:51
head to thegamebusiness.com or subscribe to The Game Business
29:54
Newsletter or indeed
29:55
SPEAKER_01: follow us on any of the social media channels you like to use.
29:58
SPEAKER_01: Until next time, thanks for tuning in.