The place did all the cash go? The state of video games funding

Thousands of followers descended on MCM Comic Con at Excel London final week, a lot of them in extravagant costumes, all keen to fulfill their heroes and spend lavishly on tie-in merchandise. But whereas all that was occurring downstairs, when you’d ventured as much as the third flooring and seemed behind the Cosplay Hospital (sure, it is a factor), you’ll have discovered dozens of video games business folks gathered within the greyest room you have ever seen, all speaking about cash and the way greatest to get it.

The GamesIndustry.biz Investment Panel shaped a part of the Investment Summit put collectively by Game Republic at this 12 months’s EGX/MCM Comic Con (the 2 had been mixed in 2024). The stellar panel was made up of Cassia Curran (former head of enterprise improvement at Jagex and founding father of Curran Games Agency), Lirui Ding (principal on the gaming enterprise capital agency Transcend Fund), Simon Byron (managing director of Yogscast Games), and Meg Clarke (sport scouting supervisor at Team17).

The subjects underneath dialogue included alternatives for funding and the long run outlook for the video games business. But first, in my obligation as chair, I had a urgent query for the panellists: the place did all the cash go?

“I think there are probably two parts,” replied Ding. He defined that the primary half is that the video games business attracted a variety of what he known as “tourism capital” throughout its COVID growth years. “These are the people who don’t really know the gaming industry that well: Some of them don’t even play games,” he mentioned. “I think it disappeared because they didn’t know how to invest. […] Lots of the investment unfortunately failed, so that money disappeared.”

The second half is that a variety of the video games business funding has been transferring out of the US and into Europe over the previous few years. “But then from last year, we’re really seeing a lot of money actually going from the US and Europe to other emerging markets,” he defined, “whether it’s China, Turkey, or even Vietnam.”

“I guess for me the money’s not gone,” replied Clarke when requested the identical query. “I believe it is simply diversified and redistributed – clearly you have already touched upon [the money] going to completely different territories, various kinds of buyers. I might say there is a band of funding that has positively dried up and that’s these larger funds triple-I video games. But the wonderful thing about the video games business is it is extremely resilient, and a variety of these individuals which have been laid off after COVID, they’ve began new ventures, they have been capable of increase capital. There’s a great deal of little boutique publishers popping up, a great deal of funds for a lot smaller tasks. […] There’s some huge cash there that may be invested into grassroots tasks and into smaller corporations.

“So there is money there, it’s just not where it was before. There’s a band that’s dissolved and melted down to the smaller projects underneath, and it’s gone a bit wider over the world. So we might feel it a little bit more here in the UK, where our cost of living is a lot higher due to many factors. But some of these smaller territories, these upcoming territories, are [seeing] a lot more investment, because their projects are more affordable to investors, especially new investors.”

Curran emphasised that the COVID funding bubble positively burst some time again. “But at the same time, I also think that we are seeing continual pressure upon not just games, but all sorts of entertainment content,” she mentioned. “There’s just much more of everything. So there’s pressure from TikTok, social videos, streamers, there’s so many free options to entertain yourself.”

In different phrases, it is not simply the video games business that is feeling the pinch: Curran gave the instance of cinema revenues being down in 2024 from pre-pandemic figures. “Also, with games specifically, you used to have a refresh of content with every new console generation,” she continued. “That’s no longer happening, and you’re not only competing with new games, you’re competing with old games – people playing for nostalgia purposes. I think everyone here has got a massive Steam backlog of shame.”

Essentially, as a result of digital distribution means customers aren’t restricted to purchasing what’s on store cabinets, new video games are competing not solely with the opposite video games launched that week, but additionally with video games going again years. “So even if the number of players is still increasing, the amount of content is increasing even faster.”

Byron mentioned that this 12 months hasn’t felt like an enchancment. “I was promised last year that if we survived till ’25, it was all going to be fine,” he mentioned. “Well we’re right here, and it’s fairly tough.

“The money’s still there, right? Publishers need to publish, so there is money there. I think the real challenge is that everything has shifted. If you look at the people that are doing well now, they’re not the people that were doing quite so well two years ago, five years ago – and those foundations that the bigger companies were built on are being eroded.

“You’re seeing companies coming in and finding success by being more agile, more nimble, and just rolling their sleeves up. We delight in seeing games pop off on Steam at the moment, and often they come from people you’ve never heard of.”

In brief, all bets are off. “The old things you used to rely on – these indications of success and the things you thought you had to do – are completely different these days.”

Ding emphasised that the scenario varies by area. Whereas he discovered that individuals had been nonetheless gloomily speaking about “survive to ’25” at GDC this 12 months, he observed the temper was “totally different” at ChinaPleasure, Tokyo Game Show, and Gamescom Asia, which had been buoyed by the successes of video games like Black Myth: Wukong from China and Stellar Blade from Korea.

Opportunities

When it involves discovering alternatives within the present market, Clarke emphasised that builders ought to give attention to making video games that imply one thing to them, moderately than chasing traits.

“I listened to a podcast with Willem Dafoe, and he said something that I keep reusing, which is: ‘Do the thing to do the thing.’ Don’t do things to please other people, because if they don’t like it, you are making something that you hate. So if you make something that you enjoy that’s inspired by things that you receive fun, good vibes from, […] that’s the best start.”

Clarke emphasised that trying to chase traits is prone to see your sport being misplaced in a sea of comparable content material. “Of course, some people see success with genre-chasing,” she certified, “but it really depends how agile you can be, how innovative you can be.”

However, the times of publishers signing new video games on the power of a paper pitch alone are lengthy gone. “We definitely need at least a prototype,” mentioned Clarke, including that that is the case for many publishers she is aware of. “It’s even true for sequels: we still want to be able to see that new mechanic or that new thing beginning to be proven out. So you will need a pitch deck, you will need a production plan, and you will need a prototype.”

Curran highlighted a really particular alternative for builders within the VR area that she mentioned is simply prone to exist for the following 12 months or so. “Free to play on VR is actually breaking out,” she mentioned. Whereas the free-to-play market on PC, console, and cell is at the moment mature and arduous to interrupt into, it is solely simply rising within the VR area via multiplayer titles like Animal Company.

This market is being pushed by a brand new demographic: VR natives. “They’re basically children, really young people, who after school, they go home, put on their headset, and they’re jumping into Animal Company, Yeeps, or Ruffnauts,” she mentioned. All of those video games use comparable locomotion strategies to Gorilla Tag, and all are extremely social. But Curran emphasised that point is working out to hitch this market earlier than it turns into saturated. “This is a very specific niche trend opportunity that will close.”

Ding added that when it comes to funding alternatives, Transcend is on the lookout for each distinctive video games and people who fall into beforehand profitable genres. He gave the instance that Transcend has funded Midsummer, the studio shaped by XCOM artistic director Jake Solomon, which is engaged on an “AI-native” life simulation sport – a sport that “people have never ever seen before,” mentioned Ding. “It took us a while to understand what the game is about.”

On the flipside, Transcend can be funding a co-op shooter made by Ruckus Games, a group led by the previous artistic director on Borderlands 3, Paul Sage. “That’s a very, very proven genre, but we are seeing a lot of innovation within that specific genre as well. So we’re quite flexible.”

The future

Finally, what does the long run appear to be for video games funding? “I think generally it is really encouraging to see a lot of developers reinvesting in the industry,” mentioned Clarke. “We’re seeing a lot of funds and publishers crop up from successful devs. Obviously they will be cutting their teeth in the actual publishing space, but they’ve published their own game before, and now they’ve decided to help others. And I think that’s a really encouraging sign that the money is not being taken away from games and put into other places.”

But she added that funding will not return to the highs we noticed a couple of years beforehand. “I don’t think we’re going to bounce back to COVID numbers – unless a terrible world event happens.”

Clarke suggested builders to entry prototype funds to assist pull a demo collectively for pitching – and to be conscious of budgets within the early levels. “You really need to bring those starting costs down to as low as you can,” she mentioned. “But getting that prototype together is what’s going to sustain the interest of investors.”

“You really need to bring those starting costs down to as low as you can”

Meg Clarke, Team17

She famous that the long run will favour smaller groups. “There was this bubble of really high investment, really large teams, that unfortunately just did not pay off. The sales weren’t there to support that model. But we are seeing loads of success with loads of micro teams and really innovative, fun, exciting ideas.”

Curran mentioned that the video games business hasn’t actually had an inflection level that triggered a model new space of development because the debut of smartphones within the late 2000s. But she thinks there will likely be development in areas of the world that have not but absolutely embraced gaming. “That’s where you’ll see the funding happen.”

Aside from that, she highlighted authorities funding within the UK video games business as a constructive signal, and she or he additionally emphasised that making video games needs to be about ardour first. “There are much easier ways to make money – do not make games just to make money.”

Rather than funding, Curran mentioned the most important drawback video games makers face is advertising – slicing via the noise and discovering an addressable viewers. But she added that this was the place quick, public prototyping can provide advantages, whereby builders can showcase an early, tough and prepared prototype on TikTok. “If it takes off, then they double down on that, and if it doesn’t take off, then they make something else. So actually the first thing they do is prove that there’s market demand for it.”

Byron suggested builders who need to fund a sport to work out precisely what they need forward of time. “I think publishers are simple creatures who want to know what it’s going to be like, how much it’s going to cost, and when it’s going to arrive,” he mentioned, including that some builders come to him and not using a agency funding determine in thoughts. “Just work out what it is that you need, and ask for it.”

“If you’re starting to make a friendslop game now, it is too late”

Simon Byron, Yogscast Games

Again, he emphasised that “publishers need games to publish, so there are opportunities out there,” though he echoed Clarke’s warning about development chasing. “Friendslop is in vogue at the moment, but again, if you’re starting to make a friendslop game now, it is too late. Do what you want to do, make the game that you want to make, and make it fun. Make sure it’s fun for you: if it’s fun for you, hopefully it’s fun for others, too.”

Ding ended the speak on a constructive be aware. “I think the future looks quite bright in my view,” he mentioned. For one factor, he notes that at the moment there is a most of round 4 billion individuals who play video games of 1 type or one other, which implies that there’s nonetheless greater than half the inhabitants of the world to entice into the world of gaming.

He additionally highlighted how video games have change into one of many major social actions for the present youthful era, utilizing his personal youngsters for instance. “Every time I ask them, ‘Do you want to invite your friends over for a play date?’ they say, ‘Can we play video games?'”

Then there’s the rise of AI to think about. “I’m actually a little bit surprised no one was talking about AI in this panel,” Ding mentioned. “I believe there are a variety of issues that individuals can do with AI, to construct a prototype faster and cheaper. There are additionally alternatives within the sense that I really feel the larger potential of AI is just not about value slicing and doing issues faster and cheaper, however to give you new, progressive gameplay experiences.

“My favourite analogy is always inventing a spaceship. The whole point is not to go from London to Edinburgh or to Newcastle quicker. The whole point is to get on that spaceship and take it to new destinations. I feel like there has been a lot of discussion about how you can leverage AI tools to do things quicker, which is great, but what about the other side of the coin? Have you thought about how we can use AI to build a new innovative, immersive game experience that could make players be more engaged, or even convert some of the non-players into players?”