According to a recent report from venture capital firm Konvoy, publicly traded gaming companies are holding a substantial $45 billion in cash and cash equivalents, potentially paving the way for further consolidation in the $188 billion video games market. Key players like Activision Blizzard, Electronic Arts, Singapore’s Sea, Japan’s Nintendo and Bandai Namco, South Korea’s Nexon, and China’s NetEase collectively possess $45.1 billion in liquid assets, as per Konvoy’s analysis of their latest public reports. This financial strength positions them to consider acquisitions aimed at expanding their intellectual property and product offerings.

In particular, these gaming companies are focusing on strategies to enhance gamer engagement, such as live-service games that provide ongoing content updates and paid subscription packages offering free games and access to cloud gaming. This approach allows players to enjoy games via the cloud, eliminating the need for traditional downloads.

Overall, publicly listed gaming companies experienced a successful year in 2023. Konvoy notes that the VanEck Video Gaming and eSports ETF, which tracks the MVIS Global Video Gaming & eSports Index, has risen by 20% year-to-date, surpassing the S&P 500 index’s 12% year-to-date growth.

Additionally, Big Tech giants like Amazon, Microsoft, Google, Apple, Meta, Netflix, Tencent, and Sony are well-positioned with a combined $229.4 billion in available cash for potential gaming-related deals.

Konvoy anticipates that the recent Microsoft-Activision deal, where Microsoft acquired Activision Blizzard for $69 billion, will stimulate further merger and acquisition activity in the gaming industry, potentially giving rise to a new generation of gaming companies. This move strengthens Microsoft’s presence in cloud gaming, which is set to open doors for emerging game developers, infrastructure companies, and gaming platforms.

Venture capital investment in the video game sector faced a 64% year-over-year decline in the third quarter of 2023, signaling a slowdown compared to the industry’s booming period in 2020 and 2021. Gaming startups raised $454 million globally during this period, down 9% quarter-over-quarter and more than 64% from the same period a year ago. Nevertheless, Konvoy expects a brighter outlook for gaming venture capital and startups in the coming year as investment conditions improve. Although funding for gaming companies is returning to a sustainable new normal, it is expected to continue at a similar pace for the next few years.

The gaming industry has faced challenges due to macroeconomic conditions, including high inflation and rising interest rates impacting consumer discretionary spending. While 2020 witnessed robust growth in the gaming sector, 2022 and 2023 have been more challenging as central banks raised interest rates. Despite these economic headwinds, the global player base continues to grow, reaching 3.381 million players worldwide, according to Konvoy.

The video game market remains substantial, with projected sales of $188 billion in 2023, a 3% increase from the previous year. Long-term growth prospects for the industry look promising, with Konvoy forecasting a compound annual growth rate of 9% over the next five years, leading to overall sales of $288 billion by 2028. This projection suggests that the gaming industry will continue to thrive in the years to come.