The global video game industry generates more revenue annually than movies and music combined. However, the sector has not been immune to the macroeconomic impacts of recent years, with gaming companies experiencing substantial layoffs and a decrease in venture funding for the industry in 2023. Despite this, venture capitalists remain hopeful for a turnaround in the coming year.
According to a report from video game-focused VC Konvoy Ventures, gaming startups raised $2 billion last year, a significant decrease from previous years. This has led many VCs to predict potential challenges for startups in 2024, with the industry not expected to return to normalcy until 2025.
Regardless, there were several positive milestones for the sector in 2023, with multiple titles released that attracted huge audiences and the continued projection of industry growth to reach $229 billion by the end of the decade.
The industry is also undergoing significant changes, creating opportunities for startups to innovate alongside new trends. This includes a shift away from mobile games towards cross-platform games, as well as the early stages of AI integration in video games.
While challenges remain, industry experts predict a return to organic growth in 2024. Despite a drop in deal flow due to the lack of web3 gaming companies, many non-web3 gaming companies have remained resilient. The availability of talent and decreased compensation for positions is also seen as a potential advantage for startups.
Corporate involvement in the industry remains active, particularly in Europe, where there is a growing opportunity for growth. Additionally, the emergence of AI in video games is expected to have significant implications for game creation costs and the overall venture model for gaming startups.
Despite the challenges, there is optimism among investors about the potential for AI to lower barriers for gaming development, particularly for high-quality PC games with long-form creation cycles. The potential for generative AI embedded in games to create more interactive experiences is also an area of interest.
Investors are cautiously optimistic about the outlook for the gaming industry in 2024, with the potential for emerging opportunities. The industry’s history has shown that tough times can produce incredible companies, providing a glimmer of hope for the future of video game startups.
