Lately, the dominant narrative in the gaming industry has been one of uncertainty and stagnation. Top-line growth has stalled, layoffs in the sector continue to rise, and a comprehensive recent report from games analyst Matt Ball suggests a time of great economic difficulty. Yet as investors in early-stage game companies, we see this moment as one with immense potential for gaming startups. Here’s why.
Slowing secular trends primarily affect incumbents, which open up massive opportunities for the disruptors and creators that we fund. Larger companies facing growth challenges tend to either consolidate or turn to successful venture-backed companies for new ideas. In other words, they seek to buy growth. Our focus on early-stage investments means that the size of the opportunity, on the one hand, and disruptive forces, on the other, are far more relevant than the overall growth rate.
Our reading of the data suggests that while overall gaming revenue growth has slowed, the overall number of gamers is still growing; it’s just that today’s gamers consume content differently. They opt for more free-to-play games, spend less per gamer on average, and are spread across broader geographies and cultures. For example, Roblox’s daily active users nearly doubled between 2021 and 2024, and Steam’s PC gaming monthly active users grew over 40% in that same time. It’s worth noting that not all of this came from China — Steam’s English language MAUs grew 25% in the same period. This signals opportunity.
Also, rapid advancements in AI and related technologies make it significantly cheaper for new entrants to gain a foothold. They are also promising to deliver new types of gameplay previously unimagined. Although the gaming market remains dominated by large titles, the cost barrier for smaller players is eroding quickly. At the same time, as the industry consolidates into fewer, larger games and game platforms, opportunities for indie games serving smaller but passionate communities are emerging. We see pockets of opportunity in many parts of the industry, particularly the following:
1. Growing Platforms for New IP: Expanding social and digital platforms such as Fortnite offer fertile ground for launching new intellectual property. We look for new and growing platforms that benefit an entire ecosystem. The introduction of Switch 2 and a new installment of the Grand Theft Auto franchise will create new growth areas.
2. Technology Transformation: Game development advances and changes at a pace more aligned with the tech sector than the entertainment industry. We expect that advances in AI will lower development costs, increase the rate of iteration, and drive breakthrough user experiences and new genres. We believe incumbents will find it challenging to respond – which suggests that they will have to buy rather than build the expertise they need.
3. Growing Ecosystem: Games continue to evolve beyond standalone experiences into broader social ecosystems. This shift integrates broader aspects of digital consumption, including fashion, sports, film, communications, and e-commerce. As our digital lives continue to expand, all these areas increasingly converge within and inside of video games. Defining the size of the gaming market in static terms misses the dynamic potential for overall growth.
4. New Definitions of Scale and New Studios: While we believe that IP and existing communities are critical moats that will become even stronger, many AAA developers, especially those that cost mere hundreds of millions of dollars, are at risk of being “stuck in the middle,” meaning not large enough to attack users at scale, and yet too expensive to cater to niche communities profitably. We believe this creates an opportunity for highly creative, nimble, and cost-efficient new models for game development. These studios are highly creative, are AI-forward, and often based in low-cost geographies.
At TIRTA, declining broader trends dampen neither our long-term approach nor our appetite for investment. We look beyond short-term growth rates and focus on the transformative potential of innovation. We remain excited for the future and confident in our strategic priorities.
