Since the creation in the 1970s of Pong, considered to be the first mass market video game, the video game sector has constantly evolved, driven by different waves of innovation.

The video game market currently totals over 170 billion dollars, with average annual growth of over 9% over the last ten years.*

According to Yves Guillemot, the head of Ubisoft, this market should even reach nearly 300 billion dollars by 2030. The sector has effectively been democratised and even globalised. In 2022, the number of players went over the three billion mark*, corresponding to nearly 40% of the global population. As another sign of this boom, the International Olympic Committee has indicated that it is open to the possibility of adding eSport to the 2028 Olympic Games.

However, the sector was disrupted last year by the slowdown in game production due to the shortage of semiconductors, which drastically limited the production of new generation consoles that were eagerly awaited for the launch of associated games. Despite these difficulties, the global video games industry was able to demonstrate its resiliency with a record number of players over the year and an only -5% decline in global revenues. As for 2023, it would appear that the majority of problems on the supply chains have been resolved. In this regard, Sony has indicated that sales of its leading console, the PS5, have accelerated considerably since the beginning of the year. This is a positive signal for the studios, which can now release new games in a significantly more favourable environment.

This dynamic has taken concrete form in the largest deal ever made in the history of the sector, the acquisition of Activision Blizzard by Microsoft for 63 billion euros.

This dramatic announcement has revived the push for consolidation at the established studios and the technology giants, which are seeking to round out digital offers that are increasingly being focussed on subscriber formats. In order to maintain their competitiveness, the acquisition of exclusive intellectual property ranks among the priority areas of development.

The independent studios, which represent 70% of the market, are consequently being targeted.

In this regard, Rovio Entertainment, the owner of the Angry Birds franchise, received two bids, including that from Sega at a 60% premium. Our Mandarine Europe Microcap fund benefited from this. With the valuations of the studios now significantly more attractive due to the context of economic uncertainty, the pace of deals could accelerate, with buyers largely having the financial firepower in keeping with their ambitions.

The Mandarine Europe Microcap and Mandarine Global Microcap funds are benefiting from this extremely fragmented market by investing in independent and innovative studios. We can point to Digital Bros, an Italian studio that owns the well-known “Ghostrunner” franchise, Focus Entertainment, a French games publisher that is developing its proprietary portfolio with the encouragement of its new shareholder, and Team17, the developer of the well-known “Worms” game.

This theme is also represented in one of the four investment pillars of the Mandarine Global Sport fund, which can invest in small niche players as well as leading global industry players (Keyword Studios, Electronic Arts, Sony etc.).

The video game industry is therefore undergoing substantial transformation, ranging from the emergence of esport to the development of cloud gaming platforms in a context of ever-growing mass participation.

This popular success is attracting increasing numbers of investors.

*Source : Newzoo, Global Games Market Report 2023

Video games: a consolidating sector

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