State of The Gaming Industry And Why VCs/Entrepreneurs Should Care

People often ask me:

"VC Whisperer, what is the state of the gaming industry and what are your thoughts?"

I was fortunate enough to spend the first few days of the month at the 2011 Montreal International Game Summit (http://sijm.ca/2011/). It was a tremendously enlightening conference, with thousands in attendance. And it was a clear sign of the vibrant state of the gaming industry, not only in Montreal, but around the world.

Here were some of the big takeaways for me:

Mainstream success is both the best and worst thing about the gaming industry. The gaming industry is a $66 billion business this year, growing to $81 billion in 2016. That's billion with a b. Gaming is no longer exclusive to fringe/nerd culture. It has officially achieved widespread and mainstream success. Everyone is a gamer these days. However, because of gaming's mainstream success, the focus today is very much on making money. That doesn't necessarily drive the best creative process. Also, it used to be that if you were making a game for you, it would be successful. The mainstream success of the gaming industry has made this untrue today. Many different demographics of people are playing games and the reality is that many game designers are making games they don't even play themselves and for people they don't understand.

The gaming industry has become a sequel driven business. Much like the film industry, game producers are having to pour more dollars into increasingly larger productions ($50-$75M budget for a hit game). Therefore, they're taking fewer gambles. They would rather bet on an established franchise. The result is many fewer "new" games and many more sequels.

Video games killed reading. Fewer and fewer kids are reading books these days. However books are often the source of creative material for many games. Because of this, "a game may be the only book they ever play".

Gaming is now a "4 screen" business. People are no longer just playing PC games. The industry has moved to many screens: phone, tablet, PC, TV (console). This is creating lots of opportunity for new game studios to emerge and capture market share. It's also creating many new classes of games.

So what does this all mean for VCs and entrepreneurs. Well, the blockbuster console games will likely stay the exclusive realm of large established game studios. They are the only ones who can afford the hefty budgets. However, there is a huge opportunity to address the new player demographics and new platforms with all new types of games. VCs will continue to pour money into gaming companies, and entrepreneurs should take advantage of this trend.