The global video game industry generates more revenue annually than movies and music combined, but it hasn’t been immune to economic challenges. Layoffs have hit major gaming companies, and venture capital (VC) funding for gaming startups dropped to a five-year low in 2023, raising just $2 billion—down from $9.9 billion in 2021 and $6.7 billion in 2022. Despite this, venture capitalists are optimistic about the sector's recovery in 2024.
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While many startups across industries face financial struggles, gaming might defy the trend. Notable successes in 2023, such as Baldur’s Gate 3 and Hogwarts Legacy, each selling over 22 million copies, demonstrate the sector's resilience. The gaming industry is projected to grow into a $229 billion market by the end of the decade.
The industry is also evolving. As friction over Apple’s App Store fees grows, there’s a shift from mobile games—which historically dominated VC funding—to cross-platform games. These are more costly to develop but offer greater revenue potential. Meanwhile, artificial intelligence (AI) is emerging as a transformative force, promising to reduce game development costs and lower barriers to entry.
Josh Chapman, co-founder of Konvoy Ventures, predicts the industry will return to normal growth in 2024. He noted that the exodus of pandemic-driven investors and reduced interest in web3 gaming has cleared the way for organic growth. “Web3 gaming largely evaporated last year,” Chapman said, adding that other subsectors have remained strong.
Ilya Eremeev of The Games Fund highlighted the availability of top developer talent, a result of widespread layoffs in 2023, as a major opportunity for startups. He also noted a rise in corporate involvement, particularly from Asia, where firms are targeting growth opportunities in Europe and the U.S. These companies are increasingly open to high-risk, early-stage investments.
AI stands out as the most significant trend to watch in 2024. While the broader tech industry experienced an AI surge in 2022, its impact on gaming has been more gradual. AI could revolutionize game creation, making high-quality PC games—which were traditionally expensive and time-consuming to develop—more accessible for venture funding. Generative AI could also enable games to become more interactive, allowing players to control elements like NPC behavior, though this would require careful oversight.
Interestingly, augmented reality (AR) and virtual reality (VR) weren’t cited as key areas of growth for 2024. However, with major releases planned and Disney acquiring a 15% stake in Epic Games, there’s reason for optimism. Chapman believes the challenging environment could inspire groundbreaking innovations. “Tough times produce incredible companies,” he said, referencing iconic games like Halo (2001) and League of Legends (2009) born during past downturns.