PitchBook publishes its first gaming investment report covering Q4 2022

Investment data and research firm PitchBook has released its first market report for the gaming industry. The report focuses on Q4 2022 and provides an overview of the gaming market, venture capital activity and growth opportunities.

Venture capital trades, but exits to the downside

Like many others, PitchBook’s data shows that 2022 was a corrective year for the gaming market. Deal activity and exits have declined from 2021 highs, but are still up from pre-COVID levels. The total transaction value of 2022 is almost four times that of 2019 and 1.5 times its total transaction volume.

However, most of this activity occurred in the first half of 2022. “The first and second quarters accounted for $9.6 billion in deal value and 855 deals, compared to $3.7 billion in deal value and 451 deals in third and fourth quarters,” PitchBook reported. This means that 72% of deal value and 65% of transactions occurred in the 1st half of 2022. This could signal that the decline in activity will continue into 2023.

PitchBook reports that broader macroeconomic trends and regulatory scrutiny have weighed heavily on both deal and expense activity. IPOs have struggled in recent months, so most exit activity is the result of mergers and acquisitions.

While North America is still the largest source of gambling capital, Europe, Asia and the Middle East have become more active in recent years. Europe’s funding has fluctuated since 2018, but has generally increased. The value of deals in Asia has grown more steadily. While the Middle East and Africa is not the largest source of funding, the region is growing rapidly — nearly doubling its deal value compared to 2021.

Area	Deal value in 2022	% of 2022 Total
North America	$7.1 billion	54%
Asia	2.7 billion dollars	20%
Europe	2.4 billion dollars	18%
Middle East and Africa	900 million dollars	7%

The size of the market

PitchBook estimates that the total value of the gaming market will be $447.3 billion in 2022, reaching $562.3 billion by 2026. This is much higher than other industry estimates, which generally range from $180 billion to $215 billion by 2022. PitchBook’s methodology differs from other estimates in that it incorporates revenue excluded from competitors such as ad tech services, esports platforms, gaming hardware and peripherals, and gambling.

From a growth perspective, PitchBook’s estimates are in line with other reports. The expected CAGR of 5.9% is among other reports expecting CAGRs of 4.6% and 8.4%. The PitchBook concludes that international expansion, infrastructure and computing improvements, the promise of Web3, and genetic AI will fuel future growth.

As of 2022, Content — which includes publishers, developers, studios, games and gambling — will account for 61% of the $274.0 billion gaming market. It’s followed by Access (18% to $79.5 billion) — including hardware, distribution and esports platforms — and Operations (14% to $64.4 billion) — covering analytics, monetization and financing tools, and talent acquisition.

Basic Takeaways

In the full report, PitchBook provides detailed analysis for each of its five revenue segments: Development, Operations, Access, Content and Experience. This includes market size, industry drivers, opportunities and risk factors for each segment.

“Prominent tailwinds include mobile game development, international expansion, user-generated content and hybrid monetization strategies. Headwinds include low adoption in web3, cloud and VR/AR games, intense competition, macroeconomic conditions, regulatory scrutiny and security concerns,” confirmed Eric Bellomo, emerging technology analyst at Pitchbook.

While each sector has its own opportunities and challenges, there are some consistent factors that will drive the entire gaming industry:

• Increased access to smartphones and improved internet infrastructure will shift the center of gravity in the gaming industry. Companies will need to adapt their strategies to reach these new consumers.
• Supply chain issues, concerns about antitrust and regulatory scrutiny, and difficult labor conditions have been major headwinds for the gaming industry.
• The advent of artificial intelligence, low-code development, and third-party tools will make coding and development easier than ever, but this will lead to increased competition as the barrier to entry is lower.
• The creator economy and user-generated content will increase the reach of games, foster community building, and accelerate development, but IP owners will need to find ways to manage and moderate this content at scale.
• Emerging and maturing technologies such as Generative AI, Metaverse, Web3, Virtual Reality and Augmented Reality (VR/AR) represent great growth opportunities, but providers will need to improve access and deliver value to consumers.

Deeper analysis, including sector-level trends, can be found in the full PitchBook: Gaming Q4 2022 Release Report.