Games Industry in "Crisis": Biggest Risk & Opportunity in 2022 and Beyond!

To All:

In a famous speech given by then-President John F. Kennedy in 1959, he remarked on the Chinese characters used for the word “crisis” pronounced “wei-ji”:

Since then, scholars have corrected that the second character actually means something more along the lines of “big change” or a “crucial point” rather than “opportunity.”

However, let’s focus on the message President Kennedy was conveying: that certain points in time represent especially dangerous times of high risk but also high opportunity. Today, I believe we are in one such moment in the gaming industry.

Even further, some would argue not only the gaming industry, but America faces a similar critical inflection point of major change today as well. According to William Strauss in his book The Fourth Turning: An American Prophecy:

Biggest Risk + Opportunity Panel

Do you believe we are in a time of “crisis”?

To speak to the major risks as well as opportunities we may be facing going into 2022 and beyond, I spoke with key executives at 1. a major mobile game publisher, 2. a games studio, and 3. the industry’s leading market research and intelligence firm.

This collection of diverse perspectives should give us a very distinct and insightful view of the upcoming market that we face. I wasn’t disappointed, check it out!

Speakers:

• Nadav Ashkenazy, SVP Publishing Solutions, IronSource

• Ron Rejwan, Co-founder/CEO Sneaky Panda, Former Co-founder/CTO of Jelly Button (Pirate Kings)

• Lexi Sydow, Head of Insights, App Annie

Biggest Impact Changes over Next 5-10 Years

Nadav:

• Continued growth and investment in games that will continue to accelerate

• All genres will grow, iOS changes will not impact growth

• More platforms will emerge like Apple Arcade or what Netflix is doing

Ron:

• Also sees continued growth and notes that even during a financial crisis people turn towards entertainment like games

• NFTs are still ripe for future growth, more real implementations to come over time that integrates game mechanics more

• IDFA-like change to Google will have a big impact

Lexi:

• App Annie continues to see tremendous growth in gaming through their data and especially in mobile

• Specific call out for League of Legends Wild Rift which just passed $150M in mobile spend

• Sees bigger migration to mobile from other gaming platforms similar to Wild Rift

• Expects to see budgets increasingly shift to mobile

• Sees big opportunity in Metaverses

• Expects to see more social and multiplayer experiences in mobile games

• App Annie saw dating apps and gaming boom during the pandemic so agrees with Ron

Key Emerging Opportunities

JK | Mid/Hardcore Insurgency

• Risk for larger incumbent companies in high ARPU game genres

• Sees big opportunity with IDFA deprecation, where over time, there will be less moat by big companies to dominate specific high ARPU game categories like social casino or 4X. Incumbents won’t be able to use UA targeting to help build huge UA budgets as a barrier to entry anymore

• Also, the huge M&A wave over the past 5 years have cleared out mid-tier game companies to bigger, slower game companies which may open up opportunities for earlier stage companies to compete against the big guys

Nadav | Services Drive Growth

• Two key trends leading to a huge opportunity for new studios to scale super quickly

• First, access to capital today is easier than ever before

• Second, many supporting services like UA, UA creatives, monetization, etc. surrounding the game become commoditized and easily available by game companies even further turbo-charging growth (Nadav of course notes as examples, Ironsource and Luna Labs)

• We will see a lot of studios crossing a few dozens of millions of dollars in revenue in 2022 more than ever before which will create a more competitive and healthy game industry

Ron | Social, Multiplayer, Crypto

• With the increase in UA and talent, greater opportunity for games that innovate rather than games that jump into red oceans

• Further, games especially on mobile have been even more normalized and the audience has matured leading to a taste for new experiences and innovation

• Sees opportunity primarily somewhere between casual and mid-core

• Multiplayer games will become bigger as the trend towards more social experiences continues to expand

• NFT games are still incredibly young but current implementations aren’t quite there but someone will crack the code and take over the market

Lexi | Metaverse:

• Hyper-casual dominates charts in terms of reach but sees greater opportunity for games beyond hyper-casual

• The Metaverse is here to stay, especially for games that capitalize on immersive nature without the need for a physical device

• A testament to potential future Metaverse is Roblox which in Q3 in the US was #1 in downloads, #1 in consumer spend, and #1 in active-users

• Big opportunity for games that foster active communities that can enable network effects

Key Emerging Risks

JK | Data Wars:

• Big risk around data privacy and what I call “Data Wars” with respect to vertical integration of ad networks and game studios business

• Data privacy touchpoints from UA and Ad Mon will become increasingly strategically important

• If vertically integrated ad networks are able to consolidate more ad supply, companies will have to make strategic decisions that weigh sharing proprietary data with competitors vs. getting access to enough ad supply to scale a company’s game business

Nadav | Chasing Quick Money:

• Companies should be careful not to chase “quick money” which can lead to mediocrity

• A huge transition has come to our industry with consolidation, NFTs, and the like where companies may be quickly acquired, but these decisions may be more short term optimized rather than leading to better decisions for the overall games industry

• We may see fewer companies building towards a long-term, bigger company opportunity instead lured by a quick exit

Ron | Global Financial Crisis:

• The biggest issue is this looming issue around the next major financial crisis that’s around the corner. No one knows when it’s going to happen but everyone knows it will happen

• When the first domino falls, investments will likely freeze up which may impact companies that run out of money and then cause many companies to close down

• Expect to see this first in the NFT space as the biggest gold rush area and the most heavily funded

Lexi | User Acquisition:

• User acquisition will continue to be a major risk for game companies

• The balance between costs to bring users in vs. cost to acquire especially with emerging changes and as it typically has been a challenge for smaller players in the market