Why diversification of portfolios is top of mind for gaming studios

To drive user acquisition, all gaming companies are looking to go cross-platform and create new touchpoints for players across any type of console or game genre. To that end, we’re seeing a growing trend of consolidation among game firms. Larger studios, for example, that historically specialized in hardcore, first-person shooter games, are acquiring smaller studios to make mobile versions of those games. Portfolio diversification is quickly becoming the name of the game, and industry consolidation is something developers and advertisers should keep an eye on.

The Driving Force Behind This Trend

2020 brought a lot of uncertainty to the industry and the world at large, with many industries struggling with the lockdown. Fortunately, gaming did not and actually gained momentum among all demographics and helped us to keep connected to the rest of the world.

According to DDM market research, investments in the gaming industry reached a new high of $13.2 billion in 2020, up 77% from 2019, while M&A agreements increased to 220, up 33% year on year. 2021 is building to be an even higher record-breaking year. Some of the most notable M&A deals made this year are; EA paying $2.1 billion in enterprise value to purchase mobile game developer Glu Mobile; Microsoft’s $7.5 billion acquisition of ZeniMax Media, the parent firm of Bethesda Softworks, the creators of Doom and Fallout; Embracer Group paid $1.37 billion for Borderlands creator Gearbox Entertainment, $765 million for mobile developer Easybrain, and $450 million for porting expert Aspyr.

Why Are Larger Studios Making These Moves?

iOS 14’s data restrictions made life particularly difficult for advertisers, especially in the mobile gaming industry. Since these restrictions make it difficult for advertisers to target users with the same level of granularity of the past, the accuracy of their targeting campaigns took a hit. In addition to this, smaller studios that used to depend on monetization via larger ad platforms such as Facebook, Snapchat, and Google have a harder time doing so due to the new restrictions.

This is worth mentioning as larger studios acquiring smaller ones is in itself a type of UA strategy. It opens up access to a new user base and a trove of first-party data. It also allows them to improve the game experience, retargeting campaigns, and access games that are already trending on the market. Larger studios can also take advantage of Apple’s IDFV (Identifier For Vendors), which allows them to cross-promote those new users.

Additionally, the acquisition of new technology also helps drive this consolidation trend. Game developers are realizing the value of vertical integration and are striving to include technology that improves customer experience and LTV. This new technology does not need to come only from other gaming companies and tends to be driven by advertising technologies.

It is now commonplace for game studios to branch out and acquire programmatic UA, monetization, and mediation platforms to bolster their product performance. A perfect example is gaming giant Zynga’s recent acquisition of Chartboost, a unified advertising platform that includes a Demand Side Platform as well as Supply Side Platform and mediation capabilities. Combining a large gaming portfolio and advertising capabilities is the next step for the development of the next generation of mobile advertising with high-quality content, direct player relationships, massive reach, and full-stack advertising technology.

Due to the recent onramp surrounding blockchain gaming recently, companies should also keep an eye for new trends like the metaverse and the advancement of high-value digital assets that exist only virtually, such as cryptocurrency and non-fungible tokens. The Blockchain market size is projected to grow from $4.9 billion in 2021 to $67.4 billion by 2026. In order to grab a share of this recently new market, gaming companies will have to divulge their triple-A game-making skills as well as their IP onto this model. Also for those who have the power and money a quicker way to get to this market first could be by acquiring existing companies, which makes perfect sense since M&A deals are at an all-time high.

Ad Networks Are Also Expanding

It is not only large game studios that are making moves, but ad networks have joined in on the trend. Many ad tech firms have successfully branched out into mobile gaming, and this trend is expected to continue. Gaming divisions can be viewed as a revenue generator for an ad-tech firm, implying that it will be adequately resourced and that its performance will be directly tied to new revenue streams.

In the absence of mobile advertising identifiers like the IDFA, another factor driving ad networks’ consolidation strategies is the competitive advantage that proprietary ad serving infrastructure will provide in portfolio strategy, yield management, and user engagement optimization. Without that kind of third-party data, first-party data becomes much more important.

Furthermore, to serve all the needs of developer clients, ad networks should develop their full suite of products, solving all sorts of client pain points. Building a full-stack solution through UA, monetization, creatives, mediation, and in some cases even attribution will help to target and retain more valuable users and drive down operating costs.

Lastly, if ad networks are able to help developers in more aspects of their life cycle, they will inevitably generate more revenue. Offering multiple solutions and diversifying your revenue is a key driver for stock price outlook and projected future growth. Companies such as AppLovin, Unity, and Digital Turbine are already publicly traded companies, and Vungle is getting ready for their IPO, so more acquisitions may be in their future before leading up to the IPO.

Takeaways

The pandemic-fueled gaming market, a heated investment environment, and major studios attempting to raise their UA in a post-IDFA reality are the main underlying elements driving most of 2021 consolidation efforts.

To stay competitive in a new privacy-centric world, game developers and ad networks have expanded their portfolios to include gaming and mediation. Any strategy that helps a corporation get a competitive edge by bringing in more legitimately collected data that does not need to be acquired elsewhere or shared with others is always a good one.

Ad networks are adding gaming studios, mediation platforms, and even MMP’s to diversify their portfolio and deliver more solutions to clients. This also offers the opportunity to acquire first-party data in a post IDFA world. All of this in turn drives revenue and stock prices up.

Originally appeared on: TheSpuzz