Following the COVID-19-driven gaming boom, gaming market growth slowed somewhat, actually contracting 4.3% year-on-year to US$184.4bn in 2022.1 However, in 2023 it returned to growth, increasing to US$188bn, supporting projected annual growth of 8.94% through to 2028.2
While the sector grew in 2023, with M&A activity (including private equity, growth equity and venture capital)3 recovering to pre-pandemic levels, the market for public listings of private gaming companies has remained subdued.4
The mobile gaming sector has out-performed the sector as a whole - accounting for 49% of revenues in 2023,5 reaching US$92.6bn, and is projected to account for up to 55% of total gaming revenue by 2026.67
Key growth drivers of mobile gaming include:
- Broader global access to smartphones and free-to-play games.
- Increased investment from the Middle East driving M&A volume.
- Converging mobile and PC/console games.
However, mobile gaming continues to face challenges stemming from:
- Uncertainty created by Apple’s introduction of App Tracking Transparency (ATT), and Google’s Privacy Sandbox, impacting on user acquisition and monetisation.
- Saturation in developed economies and increased competition, leading to increased costs in user acquisition.
- Growing competition for gamers’ attention from short-form video apps, such as TikTok.8
Deals: M&A trends in mobile gaming
From an M&A perspective, the fragmented mobile gaming sector continued to consolidate in 2023.9 For example, Sega Sammy’s acquisition of Rovio Entertainment (the company behind ‘Angry Birds’) for US$776m in August 2023 was largely driven by Sega’s desire to leverage Rovio’s know-how in live service mobile game operations.10
Middle East-backed purchasers have emerged as a significant force in the mobile gaming sector as the region seeks revenue diversification. Mobile gaming in the Middle East continues to grow rapidly, with 60% of the region’s population gaming, and mobile games accounting for 50% of all app downloads in the region.11 In 2023, Savvy Games Group acquired US-based mobile game developer, Scopely, for US$4.9bn.12
Power up: Growth drivers in mobile gaming
In 2023, the biggest mobile game genres were ‘Party’ (i.e. Monopoly Go), ‘Match’ (i.e. Royal Match) and ‘Action’ (i.e. Arena of Valor), which all saw year-on-year increases in downloads and in-app purchase revenues.13
The growing technical capabilities of mobile devices has supported the development of PC and console companion games for mobile use. For example, 2023 saw further success of titles such as ‘League of Legends: Wild Rift’ and ‘Diablo Immortal’ – these are games developed using the IP also exploited in the ‘League of Legends’ and ‘Diablo’ PC and console games, respectively.14
Increased smartphone penetration in less economically developed countries has boosted mobile gaming revenues. This is illustrated by ‘Mobile Legends: Bang’, published by Moonton, released in Indonesia in 2016, now with 69.7% penetration (192.15m users).15
Status effect: Challenges to mobile gaming
In April 2021, Apple launched ATT which meant that tracking identifiers for advertisers (IDFAs) became opt-in only, so that each app had to request user consent in order to track the user’s IDFA number. Because advertisers use IDFAs to track and identify users, the efficacy of personalised advertising and user acquisition strategies were compromised.16 As of 2022, only 45% of iOS customers had opted-in to tracking.17
While Apple’s SkAdnetwork enables developers to measure return of advertising investment, it does not enable upfront ‘targeting’.18 Developers have also ‘fingerprinted’ (i.e. collected and combined basic device information, including device model, user settings, IP address, and service provider) to identify a unique device.19 However, from 2024, Apple will restrict the use of fingerprinting by requiring developers to declare their reasons for using APIs that collect user device data within a ‘Privacy Manifest’ property list.20 Google is also in the process of implementing its ‘Privacy Sandbox’, which will re-cue advertising optimisation.21
Looking ahead, given that advertising revenues comprise 50% of total mobile gaming revenue, the ability of developers to target advertising will continue to have a significant impact on the sector’s growth.22
Next level: Predictions for 2024
In the European context, Apple and Google as ‘gatekeepers’ under Regulation (EU) 2022/1925 (Digital Markets Act) will have to comply with obligations relating to their apps stores from 7 March 2024. The Digital Markets Act aims to increase fairness by, among other measures:
- Enabling user access to alternative app stores and app interoperability.
- Requiring Apple and Google to enable alternative in-app payment processing systems.
- Allowing developers to notify users of offers, and to access services or content outside of an app.
- Prohibiting Apple or Google from using, in competition with mobile gaming publishers and developers, non-public data that is generated or provided by those developers or publishers in the context of their use of the app store.
- Providing app developers/publishers with free and continuous access to data generated through the use of the App Store and Google Play.
It remains to be seen how Apple and Google will implement the requirements of the Digital Markets Act, and this is likely to be a key factor in influencing mobile gaming revenue and user acquisition capabilities.23 For more information on the Digital Markets Act, see our publication, Digital Markets Act.
Generative AI is also expected to have an impact on mobile gaming by accelerating game development and providing developers with tools to generate speech, characters and environments.24
Based on a survey conducted by the VC firm Andreesen Horowitz, 87% of studios are currently using AI, with Activision Blizzard already rolling out patented tools to leverage generative AI.25 ‘Justice Mobile’, a multi-player mobile game featuring AI-powered dialogue and NPC behaviours, which was developed by NetEase and launched in July 2023, generated revenue of US$113m in its first month of release, serving as an early indication of the potential for developers.26
For more information on generative AI and AI more generally, see:
Save point: Our take
2023 has seen mobile gaming return to pre-pandemic levels of activity, and while new opportunities have been created through Middle Eastern private investment and increased capabilities of mobile devices, the sector continues to face monetisation challenges through Apple and Google’s app store restrictions, and potential mobile gaming saturation. The Digital Markets Act and generative AI are expected to have a significant impact on the sector in 2024.
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