Earlier this month I spoke at the 2022 Israel Gaming Summit by Calcalist, Playtika and Google. The event was a get together for the Israeli ecosystem: startups, corporates, investors and academics in the gaming space. Israeli startups are mainly known for their prowess in cyber or semiconductors, but over the past few years, the country has also become a gaming powerhouse. In this post, I wanted to cover what makes the Israeli gaming ecosystem special, and share my thoughts and what I believe the fundraising environment will be for gaming in 2023.
The conference took place during a challenging time for gaming startups: in the same week Playtika, the largest gaming employer in Israel, announced it was laying off 615 people globally, of which 180 are in Israel. This is an equivalent of 15% of its workforce and it follows a previous round of layoffs Playtika had he last six months.
Gaming in Israel in 2022
In June this year, we at Remagine Ventures, supported GameIS, the Israeli Gaming Association, and Deloitte in the creation of the report “The Israeli Video Games Ecosystem: Converging Technologies, Emerging Opportunities.
According to the report, there were190 active gaming startups in Israel in 2021, employing approximately 14,000 people. This figure only includes studios, and doesn’t include gaming infrastructure and supporting services (advertising, payments, distribution etc) which serve the gaming industry. Israeli gaming startups generated $8.6 billion in revenue in 2021, an 8x increase over a five year period, representing 5% of the global gaming revenue. The full report is embedded below.
Israeli gaming industry characteristics
Israel’s gaming industry is primarily focused on mobile gaming, both social and casual. There are exceptions of course; Grime, a role playing game (RPG) created by Israeli studio Clover Bite was released in 2021 received positive critical acclaim (9/10 by IGN).
Israel’s proliferation of “social casino” companies has created a strong talent pool in the areas of monetisation and user acquisition. In addition, Israel’s strength in deep tech, including AI/ML and cryptology creates interesting combinations when brought together with gaming and entertainment.
In the casual and hyper casual games category, Israeli studios frequently occupy some of the top grossing mobile games charts. Examples include: Raid: Shadow Legends by Plarium games, Moon Active’s Coinmaster or Playtika’s Bingo Blitz.
Creating a hit game can be a very lucrative business. For example, Genshin Impact by miHoYo, the studios’a first title, has generated $3.7 billion in revenue from in app purchases since it was first launched two years ago.
While gaming companies can become cash cows, for many the path to exit is in the form of acquisitions by bigger studios or tech companies. Activision Blizzard’s $68.5 billion acquisition by Microsoft initated in January 2022 is the largest gaming acquisition in history and Microsoft’s biggest overall. While the deal is yet to fully be approved by the FTC, it represents a bigger trend in the industry as tech and entertainment companies ranging from Apple to Netflix recognise the importance of gaming content in attracting consumer engagement.
The past few years saw a number of notable of exits in the Israeli gaming industry, both in studios (content) and game tech (infra). Below are the notable ones:
- Ironsource (gaming monetisation tech) merged with Unity in a $4.4 billion deal in 2022 (after an IPO for Ironsource that valued the company at $11.1 billion just months prior in June 2021)
- BrainPop acquired by Lego’s holding company Kirby for $875M in 2022 (source – not exactly gaming, but gamified educational tech)
- Playtika was acquired by a Chinese consortium led by Giant Network Group for $4.4 billion in 2016 (source). The company later went public in Feb of 2022 at an $11 billion valuation and has since been looking for a buyer and is currently valued at $2.98 billion market cap.
- Plarium is a mobile and browser-based gaming company that was acquired by Aristocrat Leisure for a reported $500 million in 2017.
- BeachBum Games was acquired for $500M by French publisher Voodoo
- Jellybutton Games was acquired by Playtika for $400M
- Crazy Labs (formerly TabTale) was acquired by Embracer Group for an estimated $150M in 2021
What will 2023 hold for gaming
Gaming has been established as the #1 form of entertainment for anyone below 50 in the US, with over 92% of Internet users aged 16-24 playing at least once a week. The number of active gamers around the world is likely to continue to increase in 2023, as the gaming industry becomes more accessible and mainstream. According to Twitch tracker, users spent 1329 billion minutes watching live streams this year so far. Much of it is gaming content.
On the funding side, it’s safe to assume 2023 will continue to be a challenging year, especially for growth stage companies. The contraction in the public markets (see Playtika case above) as well as the VC pullback, will create downward pressure on pricing. In seed and pre-see however, we continue to see an active market. As I mentioned in the Calcalist Gaming Summit, 2023 will be a great time to launch new startups and take advantage of new technology developments, availability of talent, and reduced competition as most large companies will stick to their core competencies and reduce risk.
The rise of generative AI is likely to have a significant impact on the gaming industry in 2023. The tools for visual creation like Dall-e, Stable Diffusion and Midjourney, are now also available for the creation of 3D models with the release of OpenAI’s Point-E, a text to 3D engine. These technologies not only accelerate the speed of content creation, but also democratise the content creation process and increase the number of potential game creators. While the hype cycle for Generative AI is as its peak, we can expect it to play a big role in creating more immersive and personalised gaming experiences. The generative AI landscape for gaming by A16Z is good overview of where we are today in this space.
Several Israeli gaming startups have passed the $100M in annual revenue but remain private including Papaya Gaming (a skills gaming platform that enables players to compete with one another for money), Moon Active is making a rumoured $500M in EBITDA in 2022 and Overwolf has attracted investment from A16Z to become the leading modding platform in the world. The future for Israeli gaming looks bright.
Finally, while Google may have botched its cloud gaming effort with the closure of Stadia this year, Cloud gaming is not going away as I mentioned on VC Cafe earlier this year. As cloud infrastructure continues to grow and on-device processing power continues to improve, we’re likely to see new offerings for cloud gaming, perhaps removing the need for expensive hardware (consoles, gaming PCs) in the future.
Finally, a shameless plug. At Remagine Ventures, we see a bright future for the Israeli gaming ecosystem as well as the category as a whole. We made several investments in this space including Sneaky Panda, a mobile gaming studio launching soon, Toya, a gaming studio focused on creating experiences for girls in virtual worlds starting with Roblox (check out their hit game Miraculous Ladybug RP), Rebelbots, Israel’s first web3 gaming studio and Novos, which developed the number one game training platform for Fortnite. We also invest in infrastructure tech such as Echo3D a CDN and CMS for 3D content, helping gaming studios (and other types of clients) to manage their 3D assets in the cloud. We have also made investments in the generative AI space, in HourOne, the text to video platform using human avatar characters and Munch, a generative AI platform for video highlights. We are also interested in how gaming can power the future of the Internet, as mentioned by my partner, Kevin Baxpehler in an interview he gave at the Calcaslist gaming summit.