Tim Merel has spent the last year trying to reset game industry expectations after 2014 delivered a mind-blowing $24 billion in game company acquisitions and IPOs.
Back in January, Digi-Capital, the advisory service founded by Merel, forecast that the industry would grow at a compound annual rate of 8.8 percent. While that is still a respectable rate of expansion, Merel pointed out that “in markets with single digit growth, a rising tide no longer lifts all boats.”
Compared to some other analysts, Merel’s somber predictions looked optimistic. The accounting firm PWC predicted that video game revenue would rise at a compound annual rate of 5.7 percent through 2019 and that traditional gaming hardware revenue would grow at a rate of 4.9 percent.
In June, Merel noted that game investment was down 25 percent from a high in 2011 and that deals during the first half of the year had fallen 89 percent. If the trend continued through the end of the year, the game industry would collect a mere $800 million in investment and record only $2 billion in mergers and acquisitions—the same level as in 2006. The last time the games deal market dipped, it took four years to recover, Merel warned.
On Tuesday, Merel announced his dire forecast was indeed coming to pass. “The first nine months of the year were brutal for games deal makers,” he wrote in a blog post. The total deal value was down 82 percent compared to 2014. Games investments were down at least 35 percent. And the IPO market was virtually dead.
What this means for the industry is that the days of easy money are over for at least the foreseeable future. Gaming is expected to continue to grow, but everyone from programmers and designers to employees in marketing and human resources might want to brace themselves for an era in which costs are closely scrutinized and new jobs are harder to come by.
Photo by Tracy Hunter.