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$1.7 billion invested into Online Games and Related Entertainment in years 2007-2008

Posted by Alan O'Dea | Nov 26, 2008 | Filed under News, Research

Many investors simple don’t understand the significant differences between the traditional video game industry i.e. selling boxed products through established retail channels with publisher funding and the inherently bad financial returns that these products reward video game developers and the online model where if successful an operator/publisher can enjoy significant and sustainable financial return.

These two industries in the minds of uneducated investor’s seem to fall under that same catagory of traditional video games but could not be further apart. This is bad for online game operators as the traditional video game industry has a notorious status within the investment community and is something that they avoid.

I have always considered these two industries entirely separate and spend a lot of my time educating investors, companies and publishers about the significant differences between the two business models and the risks and rewards inherent to each.

Raising money is always hard and certainly the present economic climate is making that already tough job even tougher. This is compounded by the fact that virtual world, online and social game operators\publishers have an ongoing job of educating investors about the differences commercially, financially and operationally of the online game industry and the traditional video game industry.

I just had to repost a few articles that featured on Jussi Laakkonen’s and Adam Martin’s blogs. Jussi and Adam have been running a fascinating commentary with a breakdown of the investment within the various virtual worlds, online and social games sectors which clearly demonstrates the massive interest these sectors have received from the investment community.

Alan O’Dea

The original article is reprinted from http://jussilaakkonen.wordpress.com/2008/11/17/17-billion-invested-into-online-games-and-related-entertainment-in-years-2007-2008/

$1,7 billion invested into Online Games and Related Entertainment in years 2007-2008

The Online games and Related Entertainment segment has amassed a truly astounding $1.7 billion of VC investments in years 2007-2008. Of this staggering figure $625 million was invested into the “Virtual Worlds, Casual MMO, Social games and Casual games” sector, $712 million was invested into core gaming MMORPG sector and a further $326 million into related companies (e.g. technology and payment providers).

The diagram below shows the distribution of investments over the years 2007-2008 and the three sectors:

The $712 million invested into MMORPG developers/publishers reflects the high cost to play in this space. The cost of the development of a Triple A core gaming MMORPG starts at $50 million, but can easily skyrocket. The reason these high risk investments continue to be made are the 11 million subscribers of World of Warcraft. WoW’s revenues in year 2007 were $1100 million of which $517 million was pure profit. The lackluster success of recent entrants such as Age of Conan and Warhammer Online underlines how risky taking on WoW is, but despite this the lure of WoW-scale profits will definitely continue to draw entrants.

MMORPG

• $300 million: Zenimax Media
• $175 million: Shanda Interactive Entertainment
• $30+70 million: Trion World Network
• $49 million: Realtime Worlds (which also received $31 million in Dec 2006)
• $40 million: Turbine

Virtual Worlds, Casual MMO, Social and Casual Games

• $100 million: 9You
• $83 million: Big Fish Games
• $29 million: Zynga
• $24 million: Sulake
• $20 million: Oberon

Related Sectors

• $24 million: Live Gamer
• $17 million: GameDuell
• $16 million: K2 Network
• $15.5 million: In2Games
• $14.4 million: Ukash

The Data

The data on VC investments has been collected from publicly available sources including but not limited to

• VentureBeat
• PaidContent
• Virtual World’s Management
• Avista Partners’ video game briefing
• TechCrunch
• CrunchBase

The data was gathered by Jussi Laakkonen and Adam Martin. The data is most accurate for year 2008. Year 2006 and earlier years have been only covered sporadically and typically only for companies that have received follow-up funding in years 2007-2008. The data is provided AS IS and the authors make no warranties or guarantees about its accuracy.

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